USPS Should Hesitate before Following Royal Mail

This week, Britain announced that it would soon begin selling shares of stock in Royal Mail, its postal service, to potential investors sometime in the next few weeks. While it remains to be seen whether or not this is a smart move for Britain, the United States should think twice before following its lead.

There is no doubt that the Royal Mail has problems. True, it does appear profitable on paper. Royal Mail’s operating profit tripled in the last year, to just over $600 million. But this can be misleading – the Mail would not be turning a profit if the government had not paid off the $6.9 billion deficit in the Mail’s pension fund last March.

The United States Postal Service (USPS) is having an even harder time. Last year, the Postal Service reported a record loss at $15.9 billion. Most of this is due to a congressional requirement to pre-fund future health and retiree benefits for postal workers.

Sending letters, though less common today, is far from obsolete. Spending a small amount of tax money to keep the postal service afloat is not automatically a bad idea.

However, the biggest financial problem the postal service faces has nothing to do with 6-day delivery or the competition of e-mail. According to Business Insider, USPS spends 80 percent of its annual budget on employee salaries and benefits. By comparison, UPS and Fedex spend 61 percent and 43 percent, respectively. Cutting mail delivery will only hasten the postal service’s demise. Instead, fundamental reforms must be undertaken. However, postal service reform has often met strong opposition in the United States.

If the United States were to privatize the postal service like Britain has done, the government would first have to invest billions of dollars into making the postal service appear as a viable, competitive business. This would likely be unpopular with both parties.

R. Richard Geddes of the American Enterprise Institute thinks there are some easy steps we can take without privatizing USPS.  By eliminating monopolies on postal boxes, for example, the Postal Service could encourage competition in the letter-delivery business to motivate increases in efficiency.

The Postal Service doesn’t receive any direct federal subsidies, but Congress still controls many of its major decisions. Economists argue that deregulating USPS would allow it to branch out and become more competitive.

Royal Mail’s privatization will be a model worth watching, but the United States shouldn’t get any ideas too soon.