Going postal, and liking it

In recent years I have noticed that the service provided by the US Postal Service has improved a lot. Most letters I send to people in Massachusetts seem to get there in the next day or two, and letters to the rest of the country take two or three days. This is a far cry from thirty years ago when a letter to New York City from Boston could take a week or ten days, or three days, or five days (one never knew), while a letter to Washington usually took three days, but not always. The post office performance had been unpredictable, but now it has become fast, cheap and reliable.

I remembered this when I saw an article in the Wall Street Journal this morning on page B4, “Postal Service is Profitable.” It said the postal service in Q4 2015 earned $307 million and had its first quarterly profit since 2011. It also delivered 660 million holiday packages more than either UPS or Fedex and more than it had forecast. In fact, the post office is gaining market share from these rivals.

This interested me enough to glace at the post office FY 2015 report to Congress. In FY 2015, USPS revenues were up 1.6% to $68.9 billion, employees numbered 491,863, flat from the previous year, mail deliveries were down 1% to 154.2 billion pieces, and packages were up substantially to 4.53 million from 3.96 million. (+14%)

The USPS reported a net loss of $5.1 billion in FY 2015, about the same as in the two previous years, so the 4th quarter profit is particularly notable. It should be remembered that the USPS has been subject to unique charges by Congress. Unlike ordinary corporations, the service is required to amortize over a ten-year period the PSRHBF Prefunding Expense, which is the present value of the future health benefits of future retirees; this amount exceeds $5 billion/year. The service must also credit toward the pension of any military veteran it hires his full number of years of military service as if they were years at the post office; this transfers liabilities from the Department of Defense to the Postal Service and represents a subsidy to the defense budget.

So the post office is not in bad shape and it’s getting better. It has stopped shrinking and is growing slowly. One may conclude that a government-owned corporation can be efficient when subject to competition. This is one of those rare instances in which the thesis propounded by John Kenneth Galbraith in The New Industrial State has been realized, at least partly.

But what of UPS and Fedex? I remember reading years ago that Fedex had made few inroads into the domestic Swiss market because the post office there was fast, reliable and lower cost. I wonder if this sort of competition will develop in the US to an even greater extent than was evident during the holidays. I wonder if a similar threat exists in other markets, like Canada and the UK?