With more bad news about the US Postal Service surfacing, I am noticing a lot of what I believe to be misconceptions. Here are the misconceptions and why I believe they are so:
Generally from the Left: The Constitution mandates a Post Office.
No, it empowers the government to create one. That’s not the same as mandating one. The ability to send and receive mail is not a Constitutional Right, so far as I know.
Generally from the Right: It’s telling that labor costs represent 80% of USPS costs, while only 53% of UPS and 32% of FedEx.
It might be telling, but not necessarily. The USPS, UPS, and FedEx all do slightly different things which involve different amounts of reliance on labor and utility costs. The labor costs of the USPS are unavoidably high at least in part because going door-to-door six days a week requires a lot of people. Different mechanisms can also explain the difference between UPS and FedEx, even apart from unionization. FedEx’s reliance on air travel generates much higher utility costs, which lowers the percentage going to labor. UPS pays its drivers more than FedEx does, but pays its package handlers less (Glassdoor: FedEx, UPS). That’s not to say that unionization doesn’t help keep FedEx rates down, or that union pay and benefits aren’t inflating those of the USPS. It is saying that looking at labor costs as a percentage of operational costs doesn’t necessarily reveal all that much.
Generally from the Left: The USPS is indispensable because it delivers to places that UPS and FedEx don’t and delivers door-to-door every day. Nobody could be profitable doing what the USPS does.
There are two parts to this.
First, that the USPS does the sort of tedious door-to-door delivery that UPS and FedEx don’t. This part is true and it’s not at all certain that UPS or FedEx would step in if the Post Office cratered. However, with the existence of the Post Office, we really don’t know either way. Since that market is covered, there is no reason for them to really try.The competition and overlapping infrastructure would likely cost both companies money without seeing much return. But take out the Posal Service and either UPS or FedEx might find it worth their while to enter the market. It is likely that prices would go up, though, and service down, even in a better-case scenario where they do pounce.
Second, the USPS does deliver to places that the other two don’t. However, this is an infinitesimally small portion of their delivery. We could, at least in theory, subsidize deliveries to Barrow, Alaska, in return for guaranteed delivery. Or the USPS could become the Rural Postal Delivery Agency, that simply takes the handoffs from UPS and FedEx beyond a certain point at a loss far less than the USPS is facing. I’m not saying these things are desirable, and they might not work, but it’s far from clear that the problem with the post office is the 0.01% of packages being delivered to outposts in Alaska and Reservations.
People seem to labor under the impression that UPS and FedEx are quite selective about where they will deliver to because they just tag-team it with the USPS for places outside of major cities. I live in a pretty rural town of a few thousand (the nearest major city is five hours away) and we have a FedEx location and UPS has an outpost. Packages are delivered to me directly from UPS or FedEx. The same is actually true of rinkier-dinkier towns around here. If you take everyone that lives in or around cities of a few thousand or more, you’re not talking about everybody, but you’re talking about the vast, vast majority of people living in the continental US.
Which, of course, leaves Alaska and Hawaii. Maybe in addition to the RPDA, we’d have an Alaska Post. Or maybe, absent the ability to simply hand it off to the USPS, either UPS or FedEx would step in. Who knows? But while there are reasons to keep the USPS, these grand exceptions and special circumstances are not reasons to do so. Separate accommodations could be made. Maybe the current arrangement is better (I suspect it is), but the argument for a post office has to rest on other things.
Generally from the Right: The problem with the Post Office is that their pricing is entirely illogical. They charge the same amount to send a package from Atlanta to Seattle as a package right down the street.
Actually, there are a lot of reasons to do this, at least as far as envelopes go. Pricing simplicity has its own value. The knowledge that I merely need to stick a stamp on a letter without regard to where it’s going means that I am more likely to send letters and post cards. If every time I wanted to send something I had to confer with some pricing chart, I would do so with less frequency. The fixed costs would remain, but marginal income would drop.
And no, actually, it doesn’t cost the USPS all that much more to send a letter down the street than across the country. A goodly part of the Post Office’s expenses are the fixed costs of going house to house. The transportation network is going to make its way from Atlanta to Seattle anyway. Whether there are more letters or fewer letters doesn’t actually make all that much of a difference in terms of costs. It takes more time, to be sure, but that’s all factored in (someone sending a letter from Atlanta to Seattle knows it’s going to take closer to the 5 days or the 3-5 day delivery).
If you look at small packages with UPS and FedEx in the Great Free Market, you’ll note that the costs don’t differ all that much. UPS charges $12 to ground-send a 2lb package from Atlanta to Charlotte, $14 to send it to Seattle, and $17 to BFE in the mountain west where I live. The Seattle/Charlotte price difference is about 15%. It’s higher with BFE, though I would expect that’s due in part to the fact that UPS isn’t already going door-to-door like the Post Office does. The extra costs associated with supporting less populated places are comparatively fixed. As such, disincentivizing people from sending and receiving mail to less populated places actually increases costs per item.
I realize this is slightly in conflict with my previous point about delivery to rural outposts (because the USPS operates at a loss in more than just the nowheresvilles), but only slightly. The reason that a carrier might be willing to take a loss on BFE isn’t to serve the people in BFE, but rather to serve someone in Cincinnati sending a letter to BFE. If either UPS or FedEx entered the letter-carrying business in a serious capacity, they wouldn’t want customers wondering if they will deliver to and from some rural outland at a predictable rate. While predictable rates don’t matter so much when it comes to packages, because the average joe doesn’t send those with any regularity, it matters for letters where you want people to send letters with as little thought and complication as possible. So, even operating at a bit of a loss on some items, can make the entire enterprise more valuable.
Is it worth price complexity in order to get an extra 20 cents on a letter from Atlanta to BFE? Perhaps so, for commercial mailers and packages (which already discriminate). But given how most letters are to and from comparatively nearby locations (because they’re bills) or alternately to and from one major city to another (where you’re looking at an extra five or six cents if it’s going cross-country), I’m not sure it is. My guess is that if UPS or FedEx ever did get into the letter business, they’d offer flat rates. FedEx already has flat-rate options on packages.
In addition to commercial mailers (wherein so much stuff is sent that they can account for more varying rates) and packages (which already discriminate and are not sent out with as much frequency), there is a potential exception here for Alaska and Hawaii. People intuitively know that these are special cases and can pretty quickly learn that if you’re sending a letter to one of those two places, you’re going to have to slap an extra dollar or fifty cents on the package. The main thing to avoid is different prices for everywhere, a letter to Sioux Falls costing one thing and Seattle costing five cents more, or a letter to West Jordan, Utah, costing one thing and Trementon, Utah, costing fifteen cents more. I seriously doubt it would be worth the fifteen cents for the confusion it would cause.