Is 'Privatize USPS' a Bad Idea?

“Privatizing USPS” could be a novel of its own, but here’s the spoiler alert: we already have two privatized shipping systems, and neither of them are practical for use for the average American sending packages or mail.

Why not? Because UPS & FedEx are privatized, they are optimizing for profitability. They have the luxury of capitalism dictating their decisions. One of those decisions for our privatized shipping options was to cut accessibility to every single address — it’s too expensive for everyone to receive mail.

USPS has not been given that luxury of choosing whom they can serve — by government mandate, they must deliver to every registered address. The benefits to the average American citizen because of that are tremendous. While FedEx can continue to hand-select customers and optimize for the highest-paid bill and easiest to deliver locations, the USPS address delivery radius has been expanding to more locations year over year. The cost of postage and shipping packages via USPS has held relatively stable, and remains fractions of the cost of the privatized options. So, why does the process cost the USPS so much money, while Fedex & others seem to be rolling in cash?

For starters, the physical work & infrastructure of FedEx & UPS is significantly different than that of USPS, and that’s because of what type of shipping is profitable. Hundreds of thousands of individual letters is vastly different than hundreds of thousands of business pallets. FedEx makes the majority of its revenue and business model from commercial addresses [B2B business].

Their system is set up to profit from freight business, because the logistics of that type of shipping make it more profitable. Freight business is trucking, trucking hubs, forklifts, pallets, you get the idea. In numbers — 53% of the 69.7 billion FedEx brought in 2019 came from Freight services. USPS does not have the infrastructure to handle freight business, because they’ve spent it all on small mail package infrastructure [NDC’s], which we’ll discuss later.

Why is this important? A few reasons — how a truck is packed and the contents of that truck are going to determine what type of truck and what type of loading equipment you use and how that equipment needs to be registered into your digital system.

There is a tremendous amount of logistics, operational overhead, technology, machinery, and human labor that goes into shipping. Yes, we all love to joke that Amazon may be all robots, but every single time you receive an online order or a piece of mail from USPS, that item has touched dozens of people, machines, computers, and stop points.

For your USPS letter or package, no matter which one of the 31,322 USPS drop-off locations it starts at, it has to hit one of the 21 network distribution centers [NDC’s] remaining in the US. This is pretty key here — the “assault on USPS” you’ve seen in the news recently? Well, it already happened. Funding for large network distribution centers [which are critical for large scale, unique-labeled package and letter-mail distribution] has been under assault for well over the last decade, coupled with facility consolidation and sell-off in an attempt to reduce losses.

An NDC is much different than a regular USPS mail warehouse, and it’s also significantly different than one of FedEx’s 39 ground hubs, 370 service freight stations, or 1,900 locations. NDC’s are highly automated facilities that contain expensive and high quality sorting and warehousing machinery. They are absolutely critical for sorting individual pieces of mail, magazines, and promotional materials in a timely manner. But — we’re talking about a government run service in America.

Review any of the USPS audit reports for the last 8 years — these 21 facilities are underfunded to the point of struggling with things such as basic security and building maintenance, not to mention the equipment itself.

In addition to lacking funding for the proper necessary infrastructure to profitably ship unique items, USPS has not had the funding or management leadership to develop any sort of technological resource that could help them gain revenue in the online shipping marketplace. With no real access to technology, USPS is forced to make partnerships [many at a loss to themselves] to remain functional.

Enter USPS’s partnership with Stamps — so that you can purchase USPS labels through Stamps website cheaper than you can USPS itself. Why? Well — can you tell me the last time the US government invested into building a functional consumer facing website with active partnerships with leading technological platforms? Had they had to ability to provide the service themselves, well…Stamps.Com, a publicly traded company with a $4 billion dollar market cap, brought in $571.9 million in revenue in 2019.

Because freight is not an option for USPS, let’s compare apples to apples with the type of package shipment most Americans are thinking about — e-commerce orders. 29% of Fedex’s 69.7 billion came from package shipment , which is similar to USPS — for the 71.1 billion USPS brought in 2019, 32% came from packages. The remainder of USPS’s revenue comes primarily from marketing mail & magazines — which Fedex & privatized shipping solutions do not handle.

FedEx, Freight, Stamps — these companies that are also in this “same” shipping space are churning profit, yet none of them are touching the side of shipping that the average American sees daily — because they don’t have to. FedEx brought in $540 million in net profit in 2019. USPS lost $8.8 billion the same year. Simply put, it is not profitable to ship magazines, letters, and small packages to every single American registered address.

Why does the USPS need a bail out? A better question might be : why has our government failed to invest in new technology, manufacturing, and accessible communications that stand to benefit every single American? If you want the USPS to stop losing money, then privatize it. But be prepared for a significant part of the nation to lose access to magazines, mail-in voting, letters, and the affordable shipping of packages. This debate does not pivot on the profitability of a shipping company. We have several such companies, but they do not serve the entirety of the American people. This is about the ability of our government services to continue to provide and encourage accessible communications and the movement of goods for every American.

Previously published at https://blog.usejournal.com/whats-the-difference-between-fedex-usps-b265e39bb76