It also creates pressure for policymakers to ensure financial sustainability and affordability of the USO. On the other hand, growing e-commerce creates many opportunities as well as challenges for the industry to develop distribution networks centered around nationwide parcel delivery. For policymakers, we observe a mounting pressure to adapt regulations to changing user needs, technologies and business models, as well as address financial distortions caused by the UPU terminal dues system.
These are some of the findings of our recent study prepared for the European Commission, Main Developments in the Postal Sector, which reviews the postal sector EU-wide over the last five years. The main goal of the study is to provide objective elements and evidence to assess the ongoing and future suitability of the current EU legal framework, and to allow a comprehensive assessment of the development in the postal sector.
The project included significant data collection work. The team at Copenhagen Economics engaged regulatory authorities and national postal operators in 32 countries, as well as the employees, consumers and industry associations. The report is structured around five chapters, providing insights on 1 important market developments, 2 the competitive landscape in the postal sector, 3 employment and environmental developments, 4 developments in the universal service and regulation, and 5 Potential scenarios for the future provision of the USO.
On 19 September , we presented our study at the European Commission's event in Brussels. Download the presentation from the event. That policy is an anomaly because the federal government's general economic stance is to encourage open competition in markets. The USPS monopoly means that entrepreneurs are prevented from entering postal markets to try and improve quality and reduce costs for consumers. While mail volumes have fallen, the USPS has expanded its package business. But it makes no sense for a privileged federal entity to take business from taxpaying private businesses in the package industry.
Postal and package markets are evolving rapidly, and the goal of federal policy should be to create a level playing field open for competition and innovation. Europe is facing the same challenge of declining mail volumes, and it has focused on opening postal markets and privatizing postal providers.
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America should follow suit. The USPS should be privatized and postal markets opened to competition. Those reforms would give the USPS the flexibility it needs to cut costs and diversify, while creating equal treatment of businesses across postal and package markets. Congress confers on the USPS monopolies over the delivery of first-class mail and access to mailboxes, the latter of which is a unique protection among the world's postal systems.
The USPS also enjoys a range of other benefits: 1. On the other hand, Congress ties the hands of the USPS in many ways that prevent it from operating like a private enterprise.
Main Developments in the Postal Sector 2013-2016
Congress restricts the USPS's pricing flexibility, requires it to provide expansive employee benefits, imposes collective bargaining, and prevents it from cutting costs in various ways, such as by reducing delivery frequency and closing low-volume post offices. The USPS's financial challenges stem from its high cost structure and falling mail volumes. First-class mail volume has shrunk by 45 percent since Table 1 shows data from USPS annual reports in and Congress should make incremental reforms to reduce USPS costs while studying the European experience and readying the company for privatization and open competition.
The USPS is bleeding red ink and the company's finances will likely get worse. To its credit, the USPS has taken steps on its own to reduce costs, including reducing employment, consolidating mail facilities, and reducing post office hours. The following are some steps that policymakers should take to improve efficiencies and help stem the losses in the near term. Close Post Office Locations. The USPS operates more than 31, post offices. A USPS estimate found that the bottom 4, locations average just 4. Congress should allow the USPS to do the same.
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Cut Labor Costs. Labor costs account for more than three-quarters of USPS costs. By some measures, USPS labor compensation is higher, on average, than for comparable private-sector workers.
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There is debate about whether the USPS should pre-fund its health costs or whether obligations should be moved to Medicare and imposed on taxpayers. However, an equally important issue is the need to cut retirement benefits going forward. For decades, the private sector has been moving away from defined-benefit pension plans, and very few private employers offer retiree health benefits. End Collective Bargaining. Collective bargaining agreements cover about four-fifths of the USPS workforce. Such agreements reduce business flexibility. The Trump administration's postal Task Force recommended removing USPS compensation from collective bargaining, noting that other federal workers do not enjoy that privilege.
Just 6. An expansive USO might have made sense in a world before email when there was a higher mail volume. Today, it is not paper mail that "binds the nation together," but rather the Internet. That is especially true for younger Americans. For young adults, the number of mail pieces received per week fell from 17 in to just 10 in Congress should reduce the number of days of mail delivery and provide the USPS more pricing flexibility. Another cost-cutting option would be greater use of cluster boxes for residential delivery.
End Cross Subsidies. The USPS is not supposed to use earnings from monopoly products mainly letters to subsidize competitive products mainly packages. However, some analysts argue that the USPS is cross-subsidizing through the way it allocates its institutional or overhead costs. The Trump administration Task Force noted, "The USPS's ability to price last mile delivery and the delivery of small packages below those of private sector competitors distorts package markets.
In a study, economist Robert Shapiro found that the USPS uses profits on its monopoly products to subsidize express mail and package delivery.
From the perspective of private package firms, this is unfair competition. Unlike the USPS, private firms must pay federal, state, and local taxes. The Task Force noted that the USPS is "distorting overall pricing in the package delivery market" and that "the USPS's current cost allocation methodology is outdated, leading to distortions in investment and product pricing. Amazon appears to be getting a deep discount compared with published USPS rates, which raises questions about whether the USPS is earning a reasonable return on the deal.
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The USPS is getting increasingly entangled with private businesses. That would be fine if the USPS were a private and unsubsidized firm, but it is not. That is not a level playing field and it creates fairness problems and distortions. The USPS is becoming less of a mail company and more of a package company. The postal and package markets may change dramatically in coming years as new technologies and upstart companies disrupt the major players.
Amazon is pressing ahead with its own delivery systems while Uber-style delivery firms may grow in importance. Congress should privatize the USPS, repeal its legal monopolies, and give the company the flexibility it needs to innovate and reduce costs. We should allow entrepreneurs to compete in the postal industry. Privatization may sound radical to some Americans, but a privatization revolution has swept the world since the s.
Governments in more than countries have transferred thousands of state-owned businesses to the private sector. Many academic studies have examined these reforms, and the results are clear. In his book looking at hundreds of reforms, finance professor William Megginson concluded, "Private ownership must be considered superior to state ownership in all but the most narrowly defined fields or under very special circumstances.
This is true even for natural monopolies. With regard to postal reforms, Europe has led the way. The European Union has pressed its member nations to open their systems to competition, and some nations have privatized their main postal companies.
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The Netherlands privatized its postal company in the s and then opened postal markets to competition in Britain opened postal markets to competition in and privatized the Royal Mail with share offerings in and Germany began privatizing Deutsche Post with a stock offering in and opened its postal markets to competition in However, European postal markets are no nirvana. They face the same challenges as the U.
But traditional postal firms universal service providers or USPs are making large changes.
A report by the European Commission about the continent's postal markets found: Most European letter markets still have high USP market shares, but competition is growing. The Commission report noted, "the high concentration in the addressed letter market is declining.