Response to American Spectator article by Jesse Hathaway

Just about the only thing Jesse Hathaway gets right in his recent column in American Spectator is the urgent need for Congress to enact postal reform legislation. Otherwise, Mr. Hathaway demonstrates a complete lack of understanding concerning how the Postal Service operates, and relies on an outdated and inaccurate report to make a policy suggestion—the elimination of the Postal Service’s statutory monopoly to deliver letters—that would only threaten our ability to continue providing universal postal services to every American at an affordable price without taxpayer subsidy.

Even a cursory review of the actual facts reveals that the Postal Service’s current financial losses are not the result of any mismanagement issues, but instead are a direct consequence of declining mail volumes and the rigid statutory and regulatory structure under which we must operate.  Mail volumes have declined approximately 28 percent since 2006, with First-Class Mail volume dropping 37 percent, even as the number of delivery points served by the Postal Service has grown.  In response, the Postal Service has taken proactive, aggressive steps to improve efficiency and cut costs: indeed, since 2008 alone, we have reduced our annual cost base by $14 billion.  However, we are hamstrung from taking all necessary steps to restore financial stability because of statutory and regulatory requirements that do not apply to private delivery companies.  In fact, if it were not for one of those requirements—the staggering retiree health benefits payment that the Postal Service, alone among government and private employers alike, is required to pay each year—we would have posted net income over the past several years rather than net losses, despite the volume declines.

The Postal Service does not receive tax revenues.  Instead, we have to pay our bills and fund our operations from the revenues we generate.  Just like any rational business that has to pay its own way, the Postal Service has adjusted its operations to account for the reduced demand for letters.  When you have to process 50 billion less pieces of mail than you once did, it would be irresponsible to continue to maintain the exact same mail processing operation and to do nothing to balance your costs against the new mail volume realities.  Mr. Hathaway points to a recent study by the Postal Service Office of Inspector General (OIG) regarding one of those efforts, the operating window change, to assert that the changes made by the Postal Service in response to the mail volume declines did not save any money and harmed delivery performance.  However, Mr. Hathaway fails to appreciate that the study’s conclusions regarding the cost impacts of the operating window change were made before the cost savings of the initiative began to be realized, and are wholly erroneous when considered today.  In fact, the Postal Service continues to achieve significant cost savings from the initiative, and will continue to achieve significant additional savings in the future which will accelerate if further network consolidation has to occur.  The Postal Service’s focus has and will continue to be on ensuring an alignment between its costs and revenues over the long-term.

In addition, while service performance did temporarily decline following the operational window change, which we were forced to undertake on an accelerated basis due to the significant declines in volume we experienced in a relatively short period of time, the Postal Service has worked aggressively to correct those problems, and, importantly, we have more than fully recovered.  In fact, despite Mr. Hathaway’s dated observations from 2015, the latest service performance results as we approach 2017 show significant improvement in every category of service performance, with record achievement in many categories.  While we remain focused on even further service improvement, these results vitiate Mr. Hathaway’s claim that the Postal Service is “getting worse at delivering the mail.”  Rather, they demonstrate our continuous commitment to providing high quality service to all of our customers in a financially sustainable manner—a commitment which we are fulfilling every day.  However, if we want to insure that we can continue to fulfill our universal service obligation to provide prompt, reliable, and efficient service to every American address six days per week, and to pay for it through the sale of postal products and services, we will need legislative and regulatory reforms that eliminate barriers to our ability to maintain and achieve financial stability.

The only policy suggestion made by Mr. Hathaway—repealing our statutory monopoly on the delivery of letters—runs directly counter to the goal of addressing the Postal Service’s financial stability.  Significantly in that regard, and what Mr. Hathaway fails to appreciate, is that the Postal Service is required to maintain a very extensive infrastructure in order to fulfill our universal service obligation to process and transport the nation’s mail and to deliver it to every American no matter where they live, at an affordable rate, to each and every address in the United States, six days a week.  The costs of that infrastructure, which continue to increase every year as this country adds approximately one million additional delivery points per annum, is paid for in part by the letter monopoly (and the mailbox monopoly, and the package business.)  Eliminating that monopoly would fundamentally threaten our ability to continue providing universal postal services at low rates: without the letter monopoly, private sector competitors who do not have our universal service obligation would be free to pick off the most lucrative delivery markets and mail volumes, depriving the Postal Service of essential revenues to fund our infrastructure costs necessary to provide universal service.  Furthermore, there is no basis to conclude that eliminating the letter monopoly is necessary in order to supply efficiency incentives that are somehow lacking.  In fact, the Postal Service has strong incentives to be efficient in order to keep the mail an attractive medium for commerce and communications.  In this regard, we are keenly aware that all customers, whether they are mailing a letter or shipping a package, have alternatives to using the mail.

To drive growth in revenue and better serve our customers, we continue to invest in the future of the Postal Service by leveraging technology, improving processes, and adjusting our network. The path forward regarding postal reform is not eliminating the letter monopoly, but in enacting legislative and regulatory changes that provide the  Postal Service with the business flexibility to insure that we can generate adequate revenues and control our costs so that we will be financially sustainable. This will put us in a solid position to continue to adapt to a rapidly changing marketplace and to better serve the American public