The U.S. Postal Service in the E-Commerce Era: Preserving Affordable Package Delivery

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E-commerce has exploded in recent years and with it the need for affordable and reliable package delivery services. Because the U.S. Postal Service (USPS) operates both as a traditional monopoly business (delivering first-class mail) and a competitive business (delivering packages), President Trump and some others argue that it is improperly subsidizing its package business with mail revenues in order to gain a competitive advantage over competitors like UPS and FedEx. They argue that to ensure a fair marketplace, the USPS should have to significantly increase its package shipping prices. Others, including ITIF, argue that the USPS’s critics are wrong on the facts—its package business is actually profitable and is increasingly necessary to help offset USPS’s chronic financial losses due to declines in its traditional mail business; imposing regulations to require USPS to charge more would actually lower overall package delivery productivity and hurt rural Americans.

ITIF held an expert panel discussion that examined this issue and reviewed the impact of various USPS reform proposals.

The event’s moderator, ITIF president Robert Atkinson, began the event by clarifying that while the USPS delivers packages, it still mostly delivers mail. However, because fewer people are sending first-class mail, revenues are dropping. In his view, any claims that the USPS is subsidizing Amazon are false. Rather, the agency is in compliance with the provisions laid out in the Postal Accountability and Enhancement Act of 2006 and is not involved with predatory pricing.

Atkinson and the other panelists referenced the recent report by the White House’s Task Force on the United States Postal System, which offers recommendations that he believes would hurt the economy.

Edward Hudgins, research director at The Heartland Institute, spoke next and explained unique characteristics about the USPS. One of these is the universal service obligation, meaning it must deliver to all addresses at a reasonable price. This is a crucial part of the USPS’s operations and impacts people in businesses in rural and underserved areas.

According to Hudgins, e-commerce has been of great benefit to the USPS, empowering it to net billions of dollars in profits off competitive package delivery. Hudgins acknowledges that the USPS is flawed, but he recognizes the value of e-commerce and the necessity of taking a responsible approach to changing public policy.

Hudgins also delved into some of the suggestions the task force report recommended. First, he disagreed with the recommendation that the USPS should distinguish between essential and commercial mail and subsequently price them differently. The bureaucracy involved in classifying essential and commercial mail would be overwhelming and ineffective. Second, he believes the suggestion to separate package delivery from mail delivery would offset any revenue, increasing bureaucracy and costs. Hudgins particularly emphasized that consumers would absorb the costs of poor reforms, since e-commerce businesses would likely raise their prices.

James Sauber, chief of staff at the National Association of Letter Carriers, believes that the task force misdiagnosed the real issues behind the USPS’s financial problems. In his opinion, this isn’t a crisis brought about by its business model, but rather a policy error in putting an undue financial burden on the USPS. In 2006, Congress enacted a rule that made the USPS the only entity in the country that is required to pre-fund future retiree health insurance. This is a significant burden on the agency’s business operations.

Sauber emphasized the immense value that the USPS provides to America; its network reaches 159 million households per day. While some say that it is unfair that the USPS uses shared networks to deliver multiple products (such as first-class or marketing mail and packages), he believes that this lowers the price of package shipping. In his words: “It’s a feature, not a bug.”

He also warned of what would happen if the network were diminished or damaged in some way, saying that it would be almost impossible to rebuild.

Following Sauber’s remarks, Kate Renz, director of government and regulatory affairs at Pitney Bowes, shared her perspective on the value of e-commerce. Pitney Bowes helps companies manage their shipping and logistics and empowers them to do business across the globe. The firm uses USPS along with its competitors since it realizes that the USPS is valuable when shipping to rural areas its competitors charge more to access.

As a former Capitol Hill staffer, Renz recognizes that legislators and their assistants are primarily worried with how regulation would impact their constituents, particularly consumers, small businesses, and those living in rural or underserved areas. In her view, the USPS plays an important role in giving people who live in underserved or rural areas access to participate in basic economic activities, such as buying clothes or household items online.

The panelists also discussed other issues surrounding the USPS, such as innovations in postal delivery and the prospect of the U.S. backing out of the Universal Postal Union.

Overall, the panelists agreed that e-commerce benefits consumers, businesses, and the USPS, and any rash regulatory decisions would be detrimental to the economy.

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