Article Published in the Buffalo News
Is your mailbox flooded with “preapproved” credit card offers? You ain’t seen nothing yet.
The U.S. Postal Service just decided to grant Bank of America a new discount on the letters it sends. The Postal Service claims this will result in savings of $5.5 million.
But the Postal Regulatory Commission — the Postal Service’s regulatory watchdog — disagreed. And that should worry consumers and policymakers.
Using data from 2006 and 2007, the PRC found that the agreement would cost the Postal Service between $25 million and $45.8 million. The PRC attributed the numerical discrepancy to the Postal Service’s use of 1999 data.
In her official opinion, PRC Commissioner Ruth Goldway said the Bank of America deal demonstrates “that the Postal Service is not yet capable of negotiating a good bargain.” She then scolded Postal Service negotiators for not “prepar[ing] themselves with all the necessary financial and costing data.”
In the past, the PRC might have killed the agreement. But it felt compelled to approve the deal, citing recent reform legislation that gives the Postal Service greater autonomy. So the Postal Service currently has authorization to lose revenue with every Bank of America envelope delivered.
When done right, negotiated service agreements between private firms and the Postal Service can be mutually beneficial. But the Postal Service often seems more interested in increasing its mail volume than in driving a good bargain.
With such partnerships, the devil is in the details. Consumer advocates contend that credit card companies get discounts on ordinary consumers’ backs. With five rate increases in 10 years, why should big mailers get price cuts?
Other postal watchdogs claim that this mail would be sent anyway. A discount for bulk mailers is thus harmful to the agency’s finances.
In this case, much of what Bank of America is being rewarded for — like employing new bar code technology — will be required for all future discount mail.
Further, this faulty deal represents the first agreement negotiated by the Postal Service since last year’s postal reforms. Not an auspicious debut for its negotiating team operating under the new statutory rate-setting flexibility.
That flexibility will be useless if Postal Service management jeopardizes the agency’s fiscal health with money-losing agreements.
Troublingly, the Postal Service could raise stamp prices to make up for questionable agreements and losses in other areas.
True, the potential loss of $45.8 million is a drop in the bucket for the $75 billion agency. But under a new, more autonomous statutory regime, the Postal Service should exercise more business discipline.
Otherwise, management may incur the ire of customers who aren’t enthusiastic about subsidizing junk-mail delivery with every stamp they buy.
Robert Schrum is a research fellow at the Lexington Institute in Arlington, Va.
Find Archived Articles: