Op Ed Published in the Fort Worth (TX) Star-Telegram
Brace yourself for some heavy news.
Yesterday, the price of mailing a letter jumped to 39 cents.
How will you cope? Is it time to take out a second mortgage? Should you stock up on Ramen noodles?
OK, a 2-cent stamp increase isn’t exactly a big deal — except for the unfortunate fact that there’s more to this story.
The postmaster general has indicated that the U.S. Postal Service will request yet another rate increase this year. And many postal analysts are predicting that it will be a big one. Gene Del Polito, president of the Association for Postal Commerce, expects “the mother of all rate cases” in 2006.
A rapid series of increases in postal prices will have a painful ripple effect on the entire U.S. economy, not just the $900 billion mailing industry. Remember, we’re talking about nearly 100 billion pieces of first-class mail a year. Think of a string of No. 10 envelopes wrapped around the Earth more than 600 times.
So the question is: What can the Postal Service do to delay the next increase — or even lower prices?
Quite a bit.
For starters, the Postal Service should bring its labor costs under control. Currently, labor accounts for around 80 percent of the Postal Service’s spending. These costs are steadily growing despite a shrinking work force.
Why? Largely because the average postal worker earns more than 25 percent more than his private-sector counterpart. The average pay and benefits for the service’s career unionized employees was $60,261 in 2004.
The Postal Service could easily reduce labor spending without firing employees or slashing the pay of existing postal workers. How? By adopting a regional pay scale for new hires.
Such a scale would incorporate geographical differences in cost of living — a standard practice at private companies. After all, a mail clerk in rural Missouri doesn’t need $60,000 a year to support the same lifestyle as his $60,000-a-year colleague in Manhattan.
Not only would a regional pay scale make wages more fair, but it would help the Postal Service gradually reduce the wage premium for new hires, who receive on average a 28.4 percent pay increase from their previous jobs.
Another effective way to reduce spending would be to expand existing cost-cutting measures that are proven money-savers.
Currently, the Postal Service allows big mailers to presort their outgoing mail in exchange for a discount. These “work-sharing” discounts resulted in $11 billion in savings to the U.S. economy in 2004. More work-sharing would be a win-win situation for the Postal Service and its customers — provided the discounts don’t exceed the costs avoided.
The Postal Service also saves money by contracting out local delivery routes. Doing so can cost half as much as using federal postal employees on the same routes.
In 2004, 17,000 of these “highway contract routes” existed. Regional managers should be given plenty of latitude to use more contract routes as they see fit.
In a similar vein, the Postal Service could increase its use of contract postal units, through which the agency engages an existing business, such as a pharmacy, to sell postal services. Some 5,000 such units already exist. They require virtually no investment in infrastructure and offer a low-cost way to meet demand.
Finally, the Postal Service needs to better identify where it loses money. That will require more transparent accounting.
Currently, the Postal Service attributes only 60 percent of costs to specific products and services. The rest is put into the vague category of general overhead. Treasury Secretary John Snow has called this lack of cost attribution the “elephant in the room.”
Private businesses that are concerned with keeping costs at a minimum strive for 100 percent cost attribution. As a government agency that endeavors to model itself after the best practices of corporate America, the Postal Service should be leading the push toward financial transparency rather than providing the bare minimum.
The Postal Service was granted its letter-delivery monopoly and its government perks — including exemption from taxes and immunity from anti-trust lawsuits — because it has a mandate to serve the public. As such, it owes it to citizens to try to keep stamp prices in check.
Some simple cost-cutting measures could do just that.
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