This afternoon the U.S. Treasury Department issued an important and much anticipated task force report on the United States Postal System. The Postal Service faces major financial and operational challenges. The 74-page document is in response to an executive order President Trump issued on April 12.
Seven key takeaways follow.
It clearly is a pro-taxpayer document. The report warns that the Postal Service has a negative net worth of $62 billion, that without major reform it will continue to suffer major annual losses, and that there is a risk of a liquidity crisis and immediate taxpayer bailout.
Far ranging changes are needed. These include reductions in labor costs, higher prices, defining the universal service obligation and exploring new products.
Critics who predicted the task force report would be all about Amazon or privatization got it wrong. The report is thorough and holistic in its recommendations. It only mentions Amazon once (as being among those who gave input to the Task Force) and privatization in terms of what is done in other countries.
While it proposes to give USPS greater pricing power on mail, something USPS has long salivated over the prospect of getting, it has an important warning. On page 47, the report says, “there is insufficient data to fully predict consumer responses to price changes on mail products.” Put differently, raise prices too much, at the wrong time or on the wrong products and things could backfire with revenues falling.
The system for pricing packages is broken and needs to be fixed. The report’s call to set up a separate balance sheet to help prevent cross subsidization (p. 55) is a long overdue, common sense idea. In addition, the report finds (p. 5) that the Postal Service’s current cost allocation between monopoly and competitive products “is outdated, leading to distortions in investment and product pricing decisions.”
The Board of Governors is essential to these reforms. This is talked about numerous times. Having a fully functioning board as soon as possible is imperative as the Postal Service “suffers from a lack of institutional governance” (p. 4).
Reform will require a mix of Postal Service actions and legislation. This is especially important to establish a new business model (p. 4).
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