Is the US Postal Service another “buggy whip industry”?

Readers are doubtless familiar with the case study of the ‘buggy whip industry‘, frequently cited in business schools around the planet. Briefly, it points out that the manufacturers of buggy whips went on making them to their hearts’ content, ignoring the advent of the automobile, until one day they found that their market had disappeared. Their ‘industry’ could only have been protected by banning the automobile, which would have been an even greater disadvantage to the economy; so they went to the wall.

The US Postal Service appears increasingly to be experiencing a modern version of the buggy whip industry’s quandary. Time magazine reports:

The U.S. Postal Service (USPS) has been sliding down an unsustainable fiscal path for years. A toxic combination of a poor economy, an increase in online bill paying, the proliferation of e-mail and other digital communication, and congressional mandates have created billion-dollar deficits for the USPS since 2007. Last year it lost $8.3 billion. This year, it lost $5.1 billion (only because a mandatory $5.5 billion prepayment for retiree health benefits was postponed). Mail volume declined 1.7%. Projected mail volume over the next decade? Down, down, down. Officials say if nothing’s done, the postal service will run out of money by August or September of next year, and absent congressional action by Friday, the USPS will default on that mandated $5.5 billion payment.

There are a number of plans in the works to stem the losses, including one now making its way through the Senate. Some proposals being considered would lay off 120,000 postal workers and cut another 100,000 through attrition, not to mention the recent announcement that two-thirds of all mail-processing centers will close and — the thing that has riled up people across the country the most — the closure of thousands of post offices. All told, it would reduce costs by $20 billion.

. . .

It wouldn’t be far-fetched to argue that the postal service has been the most important institution in our country’s history. For decades, the postal service was the largest public-sector employer in the U.S. At one point in the 19th century, three-quarters of all government employees were postal workers. The Founding Fathers considered the postal service so important that they put it in the Constitution, mandating that Congress have the power to establish and regulate post offices.

. . .

… in 2006, Congress passed a law requiring an annual prepayment of retiree health benefits, to the tune of $5.5 billion a year for 10 years. Except Washington didn’t see the recession coming two years later. “That act has left such a devastating legacy that it threatens to drive our nation’s postal service off the rails,” Rubio said.

. . .

The Obama Administration recently extended the deadline for the post office to make its next $5.5 billion retiree payment. That deadline is Nov. 18. But even that isn’t enough — even without making that payment, the USPS lost $5.1 billion in the fiscal year ending in September.

And that’s where the post-office closings come in. Thousands of them.

. . .

The services are reduced, but the real issue that is driving those concerned and obsessed with the postal service is that we’re slowly watching a piece of American history evaporate — the colonial Franklin post office in Philly, post offices (some designed by Franklin D. Roosevelt himself) with incredible New Deal murals, the South’s first post office built after the Civil War. All of them could be gone as those and others get turned into shops and real estate offices and Bergdorf Goodmans.

In the end, the debate about the USPS is simple: it’s the privatization of a service that is supposed to be universal. But universal access doesn’t exactly sync with the market’s guiding hand. That’s why UPS and FedEx don’t ship everywhere. It’s just not profitable for them. So where do they turn for last-mile delivery? To the postal service. Those private mail carriers are two of the USPS’s biggest customers.

There’s much more at the link. Interesting and worthwhile reading.

V. A. Shiva Ayyadurai, the man who literally invented e-mail, has this to say:

For 20 years, as the Infographic shows, the US Postal Service (USPS) did not recognize EMAIL as a contender to their organization. In their focus in delivering physical mail, which they performed commendably, they lost track of another part of their mission: to be a communications organization processing and delivering MAIL. As the format of MAIL was explosively changing from paper to electronic, they remained silent and content, holding its highly respectable status as a $50 billion organization and viewing themselves as any other highly successful business such as Walmart. Proactive change from USPS could have diverted the current disaster of having to lay off 120,000 workers, which is initiated by the Congress. The leadership was slow in reconnecting themselves with the innovative roots of an organization started by Benjamin Franklin, an epitome of American innovation and resourcefulness.

. . .

Perhaps one can understand USPS, for not knowing about EMAIL in 1978; however, by 1996, annual EMAIL volume had exceeded annual USPS Snail Mail volume. EMAIL could have been a natural transition for the USPS. I know from personal experience that starting in the mid-1990’s, entrepreneurs and innovators proactively called upon the USPS to create EMAIL and digital products. Their calls to action were not given the right attention unfortunately.

I remember meeting with USPS officials in 1997 to convince them that the USPS’ trusted brand could offer a suite of EMAIL services to Fortune 1000 and small and medium businesses faster and better than we could. I recall this official’s comment, “We make $50 billion a year, we are like a Fortune 10 US Company. We cannot make such changes to our business model so quickly”.

. . .

Today, in 2011, over 50% of US Fortune 1000 companies are seeking trained personnel to process their incoming EMAIL. In addition, millions of small & medium businesses also need such workers. Today, American companies are hiring EMAIL workers half-way around the world in India and elsewhere to process your EMAIL.

The 120,000 USPS postal workers, facing impending layoffs, trusted and true, can do this job. Companies in the US need this service. US postal workers can be trained within 30 – 60 days, given their current background to offer a USPS EMAIL management service. From simple estimates, the USPS can generate a minimum of $10 billion per year with these same workers versus laying them off as currently proposed.

This is just one EMAIL service that the USPS can provide. Had the USPS gotten involved earlier, much of SPAM, EMAIL fraud, and other problems we face today with EMAIL could have been addressed. The USPS could have led the way. There are many other EMAIL and digital solutions that other entrepreneurs have proposed. There are many other opportunities that are relevant to meet today’s needs are waiting to be explored.

If we want radical changes, we have to be innovative. America can no longer afford to not take action when Washington is failing to provide the right leadership and not helping the management of its public organizations, while the digital world disrupts everything in its wake.

Again, more at the link.

I’m encouraged to learn that a visionary entrepreneur and innovator can see a way forward for the US Postal Service; but I’m profoundly disturbed that the USPS itself can’t seem to grasp that opportunity, and move forward aggressively to take advantage of it. It’s hidebound by bureaucracy, entrenched labor union intransigence, and the same mentality that doubtless afflicted the manufacturers of buggy whips . . . “People will always need our product! We’re indispensable!” Tragically, all sorts of businesses – and government departments – have found out the hard way that they’re anything but indispensable.

Of course, it can take some time for that realization to sink in. As the late Robert Sobel famously pointed out:

The British created a civil service job in 1803 calling for a man to stand on the Cliffs of Dover with a spyglass. He was supposed to ring a bell if he saw Napoleon coming. The job was abolished in 1945.

I suspect that example is more applicable to the US Postal Service than that organization would care to admit . . .

Peter

7 comments

  1. The reason is organizational mindset, which I suspect may, to some degree, be genetic: public sector organizations are most concerned with process and procedure, private sector organizations with results, and, as a result, are flexible with the means to accomplish results.

    In government, how things are done is much more important than where one winds up after having done them.

  2. That's why UPS and FedEx don't ship everywhere. It's just not profitable for them. So where do they turn for last-mile delivery? To the postal service. Those private mail carriers are two of the USPS's biggest customers.

    Really? I call BS, as I know for a fact that the USPS ships a lot of stuff via the happy purple people at FedEx. Methinks the writer has it backwards.

  3. As far as I know, the only service that another carrier doesn't provide, and the USPS does, is the shipping of live poultry chicks. But very few of us use that service; though those of us that use it would appreciate its continued existence. Of course, the main advantage of the USPS has always been the mandate that it will ship a letter anywhere in the US in 2-3 days for a flat rate. Which is pretty awesome, but unfortunately is no longer economically feasible.

  4. Just to clarify, The USPS is the only shipping company that offers daily delivery to every address in the US. And they do have cooperative agreements with UPS and FedEx with each taking advantage of the others strengths. Unfortunately for the USPS, their employee and retirement costs are obscene – combined with the loss of revenue, they're in deep trouble.

  5. Two of the most important pieces of mail processing machines use a DEC MicroVax processor, back-ended by an SGI server array. DEC was acquired by Compaq in 1998 and the MicroVAX dates back to the '80s. SGI went Chapeter 11 in 2009. The most common piece of processing equipment uses a 486 processor. Is it any wonder why they are failing? It is my belief that the USPS needs to revert back to being the USPO with the Postmater General as a cabinet post and a contraction and modernization taking place. It can then handle first-class mail, premium letter mail and be the local face of the US Government.

    Russ

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