Should the U.S. Postal Service Contemplate Unconventional Markets and New Investments?

When was the last time you sent a letter when an email could do? 

The economy and market forces are merciless when it comes to those who don't adopt a simple maxim: adapt to survive. History has shown us that companies who take heed often enjoy longevity and success, while others fade into our memories. For example, Apple has come a long way from being a simple computer manufacturing company and has created the iPod, Apple TV, iCloud, iPad and iPhone, to name a few.

On the other hand, it's probably been years since you've made Friday a "Blockbuster night." Once a leader in the video rental industry, Blockbuster has fallen victim to cable TV on demand movie options and innovative companies like Netflix, Hulu and Redbox. Everything in life takes part in evolution to either become stronger and more diverse or fall victim to fate through extinction. Business entities and quasi-government agencies are not exempt. 

Now the United States Postal Service (USPS), long known for its image of reliably delivering letters and packages across the country and the world, wants to pull itself into the modern age by considering unconventional markets and new investments. But it may be making a mistake.

USPS is an entity with a longstanding history and has evolved from the horse and carriage to overnight delivery to anywhere in the world. But these days, the postal service is seeking to diversify its product offerings to include grocery and alcohol deliveries, and more risky financial-related products like short-term loans and banking services. 

Many policy makers question if this is an appropriate path for the postal service. The USPS is protected by the Constitution as a mail-delivery monopoly. However, it is currently accumulating budgetary deficits and is often accused of questionable leadership styles and a highly bureaucratic culture. For the past decade, Democratic Senator Tom Carper of Delaware has advocated for meaningful postal reform, calling it "[a] duty in Congress to pave a fiscally sustainable path that will enable this American institution to thrive." 

Some of the Postal service's problems stem from its own serial mismanagement and a disjointed, union-based infrastructure of 600,000 employees with bloated influence-from letter carriers and office-based clerks to management ranks. These issues combined leave the USPS liable for financial obligations that no business could sustain.

According to a new report, liabilities at the Postal Service now stand at $68.3 billion, up roughly $5 billion from last year and 62% since 2007. This occurs in tandem with massive financial losses of $51.7 billion from 2007 to 2014. This is mostly due to a sharp decline in sales of first class mail. In addition to the compounding fiscal deficit, the USPS has seen an increase in late deliveries, reduction of services in rural communities and at least $1.4 billion in funds that could be better allocated, according to the USPS Inspector General. 

And if that is not enough, some problems are beyond their control amid a dire fiscal outlook. The USPS is often the victim of competing ideologies on Capitol Hill. A 2014 report published in GovernmentExecutive.com reads, "Postal management, Republicans and Democrats on Capitol Hill, labor unions, the mailing industry and the Obama administration all agree on the need for congressional reforms to keep the agency -- which still brought in $66 billion in revenue last year -- afloat," and "But there is very little agreement among those groups about what those reforms should look like."

Legislators like Sen. Carper believe something must be done to remedy a decision made in 2011 that required the Postal Service to pre-fund its multi-billion dollar benefits obligations. As no other government or quasi-government agency is held to the same standard, which seems like reasonable reform. 

However, at the urging of Senator Elizabeth Warren (D-MA), the postal service is exploring "non-bank financial services". The USPS is seeking new trucks that are better equipped for not only traditional packages, but also grocery deliveries in select cities. Moreover, according to The Wall Street Journal, the USPS is ramping up same-day delivery of everything from bottled water to fresh fish as its new Postmaster General tries to better compete with FedEx, UPS and even Amazon

Despite its plans to expand its services, the point remains that none of these ventures are guaranteed to lead to increased profits for the embattled USPS, which is starved for cash and is challenged operationally. In fact, it's questionable that the agency wants to start these new lines of production, but couldn't even deliver holiday mail in a timely manner. Before the USPS ventures into its attempt to generate more income through side hustles to reach a balanced budget, it should define what those should be and align itself accordingly.

But here's another problem. These side ventures are coveted by bureaucrats without undergoing a cost-benefit analysis. During my tenure in the financial services industry, I learned that at a minimum, it was critical to perform market and strategic analysis, as well as realistically estimate revenue and profitability outcomes before engaging in new projects. 

Additionally, the government's potential new gigs may crowd out private businesses that perform the same services more efficiently with better customer satisfaction and profits for individual investors, pensions and retirement plans.

In the case of banking, the U.S. already maintains more than 100,000 bank branches and 400,000 ATMs. The grocery-delivery market already has several mainstays, including FreshDirect and Peapod. The USPS is late to the party and there may not be any space or profits to share in a market that has narrow margins and is already dominated by highly efficient companies.

Though the Postal Service may be well-intentioned, new business ventures are not the reforms they need. Besides, it's a hard sell to taxpayers that the USPS is reliable and capable of daily delivery of fresh fish, fruits and vegetables, when grandma still hasn't received the Christmas card that was sent via first-class mail.

While Congress may hold the agency behind, they could do their part to focus on their core business mission and better-serve customers. Doing so could perhaps quell the loud, yet narrow, interests and fuel efforts to put the Postal Service on firmer footing.

That is what the market, and Americans, need and deserve.

 

The author is John Burnett and he holds a position in Apple stock.  

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