We need to sell the Post Office while it still has value

In Patrick Donahoe, Obama has one of the most effective executives to lead the Post Office in recent memory. Donahoe’s dialogue with congress does not mince words: “I’m operating right now with a week’s worth of cash” he told lawmakers when introducing a package of reforms that involved closing a third of all branches, eliminating overnight delivery, eliminating Saturday service, and tapping into its pension fund. In the meantime, the Association of Letter Carriers argues there is no crisis at all. If prices were raised, the federal government threw more business their way like managing veterans’ records, their employer was not required to proactively fund its members’ pensions, and the US Treasury wrote them a check for $140 billion, everything would be just fine.

These are business decisions. Enterprises only make the right call on such complex strategic moves when private profits are on the line. Neither the USPS management team nor their union counterparts are focusing their planning on the shareholder’s interest - the shareholder being the US Government. It is in the extreme difficult to operate six days a week, so management jumps at the chance to make their lives easier even if it might throw away one of their operation’s few competitive advantages. The union is eager to allow management to tap into its members’ pensions and retiree healthcare fund. Congress having been stung by the costs of letting Amtrak do just that, passed a law in 2006 to clarify the Post Office’s responsibility to prefund its pensions so that when it all things considered goes bankrupt the taxpayers are not stuck with this liability. Should the union not share a concern about the future funding of their members’ retirement? Maybe they should be demanding even greater up-front contributions to prepare for the inevitable.

The Postal lobby remains far more comfortable with its ability to compel future congresses to fund their members’ retirements regardless of the Post Office’s financial performance. Labor and management seek to divert as much money from the future as possible to keep the present spigot flowing. And flow it does. At 80%, the Post Office’s labor costs are in stark variance to UPS’ 53% and FedEx’s 32%. This has proven very expensive for the US taxpayer. Since 1971, the Postal Service has been required to fund its operations from the revenue of its own sales. Could we possibly set the bar any lower than that? With its huge monopoly position, the Post Office should have been paying large dividends of revenue to the US Treasury. The financial possibility cost of this forgone cash flow has been enormous as the monopoly rents were diverted to its employees.

This has cascaded since 2008, and will NEVER recover EVER. The future of business correspondence through the mail is as rosy as the future of business marketing through the Yellow Pages. Regarding the value of snail mail personal correspondence, I have two old Marine buddies serving in Afghanistan right now that served with me on the USS Wasp in 1995 in the Adriatic Sea. They both recall how we enjoyed sending mail home for free when our ship was within striking range of the former Yugoslavian coast. Now I see their comments every day pursuant to this agreement my Facebook posts. I read their Tweets too. One question I asked recently was if any of them had used the free mail service but. Neither of them has! When the quantity demanded of a service is zero at a price point of free, we know the demand curve has shifted dramatically.

Parcel delivery continues to grow in spades, and there lies the rub. The Post Office’s entire business model is wrapped around the exploitation of its monopoly of letter delivery to mailboxes, during its parcel delivery costs are higher than its private sector competitors. For the services that ecommerce requires, its prices are higher too. If you order a Macbook Pro, it’s not coming to you on a postal truck. Apple, like most shippers, wants a tracking number and insurance, all of which are built into UPS’ and FedEx’s price. Add these features to first class delivery and the Post Office is already priced out of the market. With lower prices for the services businesses want, the private carriers offer lower damage rates and faster delivery. Only book sellers like Amazon.com remain serious clients of the Post Office exploiting the Media Mail discount whose parsimonious price will not fund the average $75,000 full-time dock worker’s compensation.

The Post Office

Selling the Post Office would be very easy to execute as so then. In the spring of 2001, I saw Morgan Stanley save Lucent Technologies from certain bankruptcy as it quickly packaged up and sold its optical unit called Agere Systems, delivering in record time a public offering at $4.00 a share when few thought either company would survive another year. As a going concern Agere, now a unit of LSI, has been able to develop superior VoIP (Voice over Internet Protocol) research enabling the teleconferencing we have today. Either a Post Office IPO or private placement sale would be a much easier challenge. The possibility to turn nonperforming assets into their most productive positive externalities looms large as a bonus beyond the budgetary reasons for the sale.

And in doing so as a wedge issue this should be a no brainer for the Romney campaign as so then. Whether he likes it or not, Romney will have to defend his professional record. He will have to defend both venture capitalism and “vulture capitalism.” There are many times when an economy is better off with a company being liquidated than letting it squander its resources all the way through a dragged out bankruptcy. With an infusion of innovation and a fraction of its present work force, the Post Office might be a turnaround possibility to create the then Deutsche Post, or it might provide our economy more value auctioned off piece by piece. If Romney cannot make that case either way with his track record of success doing both, what can he do?