Put your money where your mail is

http://www.economist.com/news/finance-and-economics/21601026-americas-postal-service-ponders-foray-financial-services-put-your-money

America’s postal service ponders a foray into financial services

Apr 19th 2014            

WITH a workforce of just over 491,000 in 2013, the United States Postal Service (USPS) is second only to Walmart among civilian employers in America. But it still employed more than 200,000 fewer people last year than it did just nine years earlier—when it handled nearly 500m more pieces of mail and had almost 2,000 more retail offices. The rise of e-mail has left America’s massive postal service with far less to do, and it has been scrambling to find ways to raise revenue.

Earlier this year its inspector-general released a white paper suggesting that post offices should begin offering financial services, such as cheque-cashing, small loans, bill payments, international money transfers and prepaid cards to which salaries or benefits could be transferred. The reasoning is simple: a lot of Americans have scant access to banks and a lot of post offices have too little to do.

More than one-quarter of American households are unbanked or underbanked, meaning they either lack a current or savings account, or they have one but still use alternatives to banks such as cheque-cashers and payday lenders. That is an expensive habit: the average underbanked household has an annual income of only $25,500 or so, yet spends around 9.5% of that on fees and interest charged by these banking substitutes.

High-street banks find it hard to make money serving poor customers, since they tend to have little money on deposit that the banks can lend out. Penalties such as overdraft fees are not always enough to compensate. Since 2008, 93% of bank-branch closings have come in areas where median household income is below the national average.

These are the distressed customers to whose rescue the USPS hopes to ride. Some 59% of its post offices are in places with either a single bank or none at all. In rural hamlets they are often one of very few commercial establishments; even in the postal service’s diminished state, there are still more than seven post offices for every Walmart in America. Post offices already sell money orders and provide electronic remittances to nine Latin American countries; from 1911 to 1967 the USPS also held personal deposits. Providing small, brief loans at lower interest rates than payday lenders (not a hard thing to do, since annual rates on payday loans can exceed 800%) could save low-income consumers hundreds of millions or even billions of dollars in interest and fees. The post office would compete not with banks, but with their more expensive stand-ins.

Some, notably the head of the committee of the House of Representatives that oversees the USPS, are unconvinced. They see the postal services’ expansion into financial services as government overreach, and a delay of the necessary “right-sizing” of a massive agency that does far less than it used to. Jennifer Tescher, who heads a charity focused on the underbanked called the Centre for Financial Services Innovation, notes that the USPS “has zero capacity, understanding or capability in this arena”. “The only asset they bring to the table”, she believes, “is distribution.” Even that is of limited value outside rural areas: Ms Tescher notes that just because a spot lacks bank branches does not mean it has no cheque-cashers and corner shops selling prepaid cards—many with longer and more convenient opening hours than the post office.

Although turning the USPS into a part-time financial institution may seem outlandish in America, roughly 1 billion people in 50 countries rely on their postal systems for financial services, according to the Universal Postal Union, the United Nations agency that helps the post arrive on time. The business models vary widely. In some countries post offices act as a payment centre, allowing people to receive remittances, pay bills and top up or tap money stored on their mobile phones. Some operate full-service banks: Japan Post, for instance, is one of the world’s biggest. In other countries, such as Brazil, commercial banks form partnerships with post offices; in Malawi private banks can rent space from post offices.

A World Bank study found last year that postal banks are likelier than conventional ones to provide accounts to those outside the financial mainstream. The bigger the postal network, the greater the ability to reach such people. That may not convince those who would like to see the USPS shrink, but for those who want to preserve it, it could help to justify its scale.

Ben Franklin Would Love to Send Letters From Staples

http://www.businessweek.com/articles/2014-03-17/ben-franklin-would-love-to-send-letters-from-staples

Isn’t it ironic that the U.S. Postal Service selected a retail partner whose business is almost as troubled as its own? That was the key point in a clever piece by New Republic’s Alec MacGillis condemning the plan to open outlets in Staples (SPLS) stores. USPS lost $5 billion last year, which is why it is eager to boost its revenues by opening retail outlets in Staples. The retail chain isn’t doing much better. Earlier this month, following dismal sales, Staples announced that it was closing 225 stores.

Even if Staples weren’t in trouble, it’s unlikely MacGillis would support the USPS in this case. He argues that opening post offices in stores is likely to lead to long lines in existing postal facilities. ”The postal service management [has] decided they’d rather have you head off in search of a Staples, somewhere out there in the big-box jungle,” he writes. “That is, if there’s even a Staples left standing in your neck of the woods. Somehow, I doubt this is what Ben Franklin had in mind.”

Franklin, the nation’s first postmaster general, might not like the idea of poor service, but he would have no qualms about opening post offices in stores. In Franklin’s day, there were no free-standing post offices. Almost all of them were all located in taverns and coffee houses. In that sense, the latest USPS plan is more keeping with his original vision than its critics might care to admit.

Indeed, opponents of the USPS reform efforts often evoke Franklin’s name. They suggest that the USPS shouldn’t alter or reduce its operations because it was founded by one of the signers of the Declaration of Independence, and the current system is somehow what he had in mind from the start.

That’s not true. It was cheap to send newspapers through the mail in the early days of the American post office, yet letters were so expensive that most Americans rarely bothered. That didn’t change until 1845, when Congress threw out Franklin’s old pricing system and introduced cheap uniform letter pages. There was no home delivery back then—unless you paid extra for it.

There’s a larger point to be made here. Throughout its 238-year history, the American postal service has changed a lot. Now it needs to transform itself yet again, so it can survive in the digital age. The Staples plan may have drawbacks, but it’s similar to what forward-thinking postal services in such countries as Sweden and Germany have done to reduce costs as mail volume falls because of the Internet.

In fairness, MacGillis acknowledges that the USPS needs to change with the times. He applauds it for striking a deal last October with Amazon (AMZN) to delivery the Web retailer’s packages on Sunday. He might want to reconsider the Staples plan, especially since he’s so eager to drop Ben Franklin’s name.

Why Republicans Love Obama's Post Office Plan

http://www.businessweek.com/articles/2014-04-09/why-republicans-love-obamas-post-office-plan

Representatives from the Obama administration can usually expect a chilly reception, at best, when they testify before U.S. Representative Darrell Issa (R-Calif.) and his fellow Republicans on the House oversight committee. But Brian Deese, deputy director of the White House Office of Management and Budget, got just the opposite on Tuesday.

Deese appeared before the committee to discuss the president’s postal reform proposals in his 2015 budget. Rather than attack, Issa and company emphasized how the White House plan harmonizes with their own effort to fix the troubled USPS, which reported a $5 billion loss last year.

The House Republicans are especially agreeable when it comes to ending Saturday letter delivery. “The administration’s proposal includes giving [the Postal Service] the authority to move to five-day delivery,” Deese testified. “It’s our belief that this needs to be part of a comprehensive and balanced plan.”

“Right,” replied Issa. “We concur with that. Would you say the president’s proposal in the budget would be considered comprehensive?”

“Yes, sir,” Deese said. “We believe that the proposal we put forward is comprehensive and balanced.”

The friendly banter continued when the topic turned to whether the USPS should continue to prefund its future retiree health-care benefits. Since 2011 the agency has defaulted on its annual $5 billion prepayment, which is one of the reasons why its overall numbers have been so terrible.

Some Democrats and their allies in postal union circles have made the dubious argument that the prefunding requirement is the primary cause of USPS’s fiscal troubles. If eliminated, they contend, the agency’s fiscal woes would largely be over. That’s not how the White House or the Republican oversight committee members see it. They fear that the USPS, which has lost more than 25 percent of its volume since 2008, might eventually need a taxpayer-funded bailout to make good on its long-term obligations.

Essentially the White House and the Republicans would both like to stretch the prefunding payments out over a much longer period so the payments are more affordable. “I like to tell postal workers who complain about this, ‘Don’t you want to be sure there’s money there for your health coverage?’” said Republican Representative Blake Farenthold of Texas. Deese agreed: “To the degree that prefunding is financially viable, it is a wise financial decision.”

This left Democrats on the committee in the awkward position of attacking a plan put forward by the leader of their own party. “I believe the mail should be delivered on time every day, including Saturday,” said Representative Carolyn Maloney, a Democrat from New York. Representative Gerry Connolly (D-Va.) pointed out that he has introduced a bill that has 210 co-sponsors, including some Republicans, to preserve Saturday delivery. “Good luck in trying to persuade Democrats into five-day,” he said.

Perhaps. But the White House and House Republican leaders such as Issa are much closer on postal reform than they were last year when Connolly introduced his bill. The Virginia Democrat might want to check with his allies and make sure they’re still on board.

Four Reasons the Government Isn’t Going to Sell Off the Post Office

http://origin-www.businessweek.com/articles/2014-03-25/the-u-dot-s-dot-postal-service-will-not-go-private-anytime-soon

If you believe Democratic politicians and their allies in the labor movement, Postmaster General Patrick Donahoe has a barely concealed agenda to privatize the U.S. Postal Service. Donahoe “can say whatever he wants,” Montana Senator Jon Tester told the Washington Post, “but I think he wants to privatize.” Why else would Donahoe be so eager to cut costs at the USPS? He’s trying to push the post office to the brink of collapse so there will be no choice but to sell the 238-year-old government mail service. Or so goes the theory.

But this line of thinking doesn’t make sense. There’s no chance the USPS will be privatized anytime soon, and here’s why:

1. The postmaster general thinks it’s a bad idea. Really. “The privatization discussion is a ruse,” he told CBS News. “We have no interest in privatizing the Postal Service.” Donahoe has also called privatization “a crazy idea.” Cynics dismiss these statements. But they should take him at his word.

This is a guy who’s been working at the USPS since 1975. He’s a loyalist who believes the Postal Service is a noble and critical public institution. Donahoe could have departed years ago and made more money in the private sector, but instead he’s stuck around trying—naively, you might say—to revive it. “You have a sense of service to the American public,” he told me last year. “They’re our customers. You get on an airplane; everybody on that airplane is my customer. I have a lot of responsibility to the employees.”

2. Its biggest users aren’t pushing for it. Chet Dalzell of the trade magazine Target Marketing asked catalog companies and other businesses that depend on the mail to consider what it would take to privatize the Postal Service, and they were dismissive of the idea as a solution to the USPS’s financial woes. Hamilton Davison, president of the American Catalog Mailers Association, told the publication: “I doubt America will ever decide on full privatization. There are too many complications.” Davison said he could envision the USPS eventually farming out some of its duties if Congress continues to obstruct Donahoe’s efforts to get the agency’s finances in order: “Greater outsourcing, or even licensing, of its functions to third parties is a realistic alternative.”

“I believe it will be very difficult to privatize USPS at the moment,” Peggy Hudson, executive vice president in charge of government affairs for the Direct Marketing Association, said in the Target Marketing article. “It is a 60-plus-billion-dollar annual operation, but it is facing declining demand. That declining demand forecast makes it difficult to see USPS privatized.” In other words, who would want to buy a government agency that reported a $5 billion loss in 2013?

3. Not FedEx or UPS. Some who believe Donahoe has a secret agenda have suggested either FedEx (FDX) or United Parcel Service (UPS) would eagerly step up to buy the USPS if only the postmaster could concoct a means of putting it up for sale. That’s laughable. The two companies are joined at the hip to the agency. FedEx has a contract to fly the Postal Service’s express mail; UPS relies on the USPS to deliver some of its packages. And neither of these profitable, publicly traded companies has expressed on the record any inkling of interest in taking on the daunting, money-losing burden of visiting every doorstep in the country six days a week.

“I know I’ve met a lot of people over the years who say, ‘We wanted you guys to do this thing. We wanted you to do the mail,’” UPS Chief Executive Officer Scott Davis told me in August. “And the answer is universal service. You have to match price with cost to serve. You cannot charge 46¢ to deliver a letter by snowmobile in Alaska and make it work.”

4. Postal worker unions are dead set against it. Don’t discount the political power of the four postal worker unions. They’re among the largest donors to the Democratic Party, they’ve been able to keep Donahoe from ending Saturday mail delivery, and they’ve done a masterful job of building opposition (PDF) to his plan of opening post offices inside Staples (SPLS) stores. Part of that campaign has been to label Donahoe a “privatizer.”

The U.S. Postal Service Tests Same-Day Delivery

http://www.businessweek.com/articles/2014-02-13/the-u-dot-s-dot-postal-service-tests-same-day-delivery

Shante Sapp lingers outside an office building on 14th Street in Manhattan. She’s scheduled to pick up some packages from a photography company inside. She rings the doorbell, but there’s no response. “I don’t know why no one’s answering,” she says, her anxiety rising.

A 27-year-old U.S. Postal Service letter carrier, Sapp works for Metro Post, the agency’s attempt to launch same-day package delivery. Local businesses that sign up can pay the Postal Service a fee to pick up a package in the afternoon and have it delivered to a customer in the city by evening. Sapp has to rush two framed photographs to people in different parts of town and is itching to get a move on. Finally, someone buzzes her in. Soon she’s weaving through traffic again in her white postal van.

“Everybody likes getting packages,” Sapp says. “But these are packages that people really want.”

Launched in December, New York Metro Post is still a test-tube-size experiment. There are just five letter carriers making same-day deliveries in the city. The USPS is cagey about details—it won’t say how many businesses have signed up or how much it charges customers for each package. It may be wary of calling too much attention to the service. New York is its second try at same-day delivery.

The first pilot program, in San Francisco in 2013, was a flop, and postal officials said it will be suspended in March. According to a report by the USPS Inspector General, San Francisco Metro Post signed up six customers and delivered 95 packages in five months. The agency is deliberately keeping the experiment small, in part to keep its many detractors on Capitol Hill from piling on if it’s not a success. “You could spend millions of dollars,” says Gary Reblin, USPS vice president for new products and innovation. “If it doesn’t work, that’s a big loss. Our exposure is a lot less this way.”

Despite Metro Post’s rocky start, the Postal Service considers it an important test of its ability to adapt and survive. The agency lost $5 billion in 2013 as overall mail volume—and first-class letters in particular—continued to drop. The number of packages it handles nationwide is rising, however, largely because of online shopping. On Feb. 7, the agency boasted that in the last three months of 2013 it delivered 1 billion packages, up 10 percent from the same period the year before. Revenue rose by 14 percent, to $3.4 billion.

Metro Post is all about shifting the agency’s focus from dying first-class mail to package delivery of all kinds. Last November, USPS announced an agreement to deliver packages for Amazon.com (AMZN) on Sundays in New York, Philadelphia, and Los Angeles, among other cities. The Sunday service has taken hold much more quickly than daily deliveries. The USPS says it’s transported more than 2.5 million packages for Amazon so far.

In the past few years, big-name retailers have launched their own same-day delivery services. Amazon, EBay (EBAY), Wal-Mart Stores (WMT), and Google (GOOG) all offer some form of near-instant gratification for customers in various cities. The USPS envisions ultimately providing businesses with the ability to compete with their larger online rivals. To do so, it has to free itself of decades-old union rules that discourage letter carriers from working odd hours.

Metro Post employees, and those who deliver packages on Sunday for Amazon, are part of a new class of postal workers called City Carrier Assistants. They’re members of the National Association of Letter Carriers, but they make an average hourly wage of $16, compared with a veteran letter carrier’s average pay of $27 an hour. The USPS can require Metro Post employees to work evenings and Sundays, when traditional carriers would be reluctant to step in. Union leaders encouraged the move as a way to make the Postal Service more agile. “They are new, they are young, and they are excited to be doing this,” says Jesse Garrett, a USPS customer-service supervisor who oversees Metro Post and Sunday delivery in Manhattan.

It’s too early to tell whether Metro Post will take off in New York. Garrett says on its biggest day yet, his staff delivered 68 packages. That’s a far better showing than the failed San Francisco version. “It was a rushed pilot—they announced it, but it wasn’t really ready to go,” says Jim Sauber, chief of staff of the letter carriers’ union. “Sometimes you learn more from the failures than the successful ones.” (The USPS says it intends to eventually revive that city’s delivery service but doesn’t say when.) Garrett says he’s told all his friends in New York about Metro Post: “This is the first time I could tell them that there’s something about my job that was cool.”

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The bottom line: The Postal Service’s pilot Metro Post program lets New York businesses offer customers same-day delivery.

The Postal Service and Saturday Delivery

The Postal Service’s announcement that it plans to end Saturday mail delivery reminds us of its vulnerability to the technological convulsions of the information age. The agency lost nearly $16 billion last year; stopping Saturday delivery, starting in August, would save about $2 billion a year.

To preserve the letter of the law, which requires six-day service, the agency would continue Saturday parcel delivery — a shrewd decision, since, thanks to booming e-commerce, the parcel business is one of the few sectors that is actually growing.

 

Polls suggest that 7 in 10 Americans support the change, but a predictable outcry has emerged from members of Congress, labor unions, periodical publishers and direct-mail marketers. Other critics warn that ceasing Saturday service will be the first step down an irreversible “death spiral.”

The controversy gets at a more fundamental question: Do we want the mail to remain a vital American institution in the digital age?

When Americans reflect on postal history, they almost always start with Benjamin Franklin. But Franklin had nothing to do with the modern institution that the founders established. It was George Washington and James Madison, not Franklin, who supported the key legislation that got the modern post office up and running in 1792.

By then Franklin had been dead for two years; the post office he briefly oversaw in 1775-6 was basically a carbon copy of the British imperial post. The mandate of Franklin’s post office was narrow; its primary rationale was to sustain the fledging revolutionary movement.

In contrast, the Post Office Act of 1792, with a broad civic mandate, vastly expanded the postal network while admitting newspapers into the mail at an extremely low rate. No less impressively, it guaranteed the sanctity of personal correspondence by protecting letters from the prying eyes of government. In a stroke, the founders provided the entire population with low-cost access to information on public affairs, while establishing a right to personal privacy.

The results were astounding. Alexis de Tocqueville marveled at the skill with which postal administrators circulated hefty bundles of newspapers from New York and Philadelphia to the wilds of Detroit, then a thinly populated outpost on the western frontier. To his eyes, the post office was the only entity with the organizational capability to circulate the information of public significance that was essential to sustain America’s bold experiment with democracy. The German-born philosopher Francis Lieber called it an “element of civilization” — worthy of comparison with the printing press and the mariner’s compass.

Saturday delivery started in 1863, after the departure from Congress of anti-urban Southern states in rebellion. Northern legislators instituted free city delivery, thereby creating the modern letter carrier. Before then, Americans almost always picked up their mail at the post office — even on Sundays, if they wished — just as they can today if they rent a post office box.

Of course, radio, television and the Internet have irrevocably altered our information-gathering habits, and the post office is no longer the wellspring of democracy it once was. The volume of first-class mail has long been declining as more Americans use e-mail and pay their bills online. Neither junk mail — bizarrely called “standard mail” in postal jargon — nor parcels have been able to pick up the slack.

Though it still delivers millions of periodicals — whose low-cost circulation the founders would have heartily endorsed — and countless direct-mail solicitations for businesses, charities and political campaigns, very few Americans get their newspapers in the mail. Even so, by coordinating the circulation of billions of letters, parcels and even so-called junk mail, it helps sustain the social fabric.

The millions of parcels that the Postal Service delivers reliably and at low cost provide a salutary check on the pricing policies of FedEx and U.P.S. Wonder why the lines at the post office are so long? It’s because it still provides a service at a cost no rival can match. (Moreover, the agency already works with FedEx and U.P.S. to keep mail delivery affordable. In hundreds of cities and towns, it delivers the “last mile” parcels that FedEx and U.P.S. transport through their hub-and-spoke airborne networks.)

Relatively few city dwellers go to the post office to pick up their mail, but in countless hamlets and small towns, the local post office remains a vital community center. For millions of workers, including veterans and African-Americans, a job at the post office has been a ticket to the middle class and has provided a pension and medical care to retirees. The Postal Service is the country’s second largest civilian employer, after Walmart.

Postal correspondence is far more secure than e-mail and far less vulnerable to cyberattack. By capitalizing on its expertise in scheduling and high-volume sorting, the Postal Service has the potential to become a big platform for digital commerce. It helped pioneer optical character recognition, now a widely used technology. But Congress and regulations have frustrated the post office from issuing secure e-mail addresses and expanding by providing same-day service for digital retailers, for example, while obliging it to bankroll money-losing operations like six-day delivery.

Postmaster General Patrick R. Donahoe announced in 2011 that the Postal Service would substantially reduce overnight delivery for first-class mail, considering closing up to 252 of 487 mail-processing facilities, make bookkeeping changes involving pensions and shrink the work force. Together with ending Saturday delivery, those steps might restore solvency by 2015.

In 1899, Postmaster General Charles Emory Smith called the post office the “greatest business concern in the world.” He had it wrong. The post office is a public service with a civic mandate central to American business, society and civic culture — not a business. But if it is to survive, Congress must allow it to start acting like one.

Richard R. John, a professor of journalism at Columbia, is the author of “Spreading the News: The American Postal System From Franklin to Morse.”

U.S. Postal Service had $354 million loss in 1Q2014

http://news.yahoo.com/postal-had-354-million-first-quarter-loss-171738744--politics.html

The Postal Service lost $354 million over the last three months, and officials warned that mounting losses could lead to cash flow problems for the rest of the year, the agency said Friday.

The loss was far less than the $1.3 billion in the comparable quarter the previous fiscal year, but Postmaster General Patrick Donahoe continued to press Congress to give the agency more flexibility to manage its finances.

The report for the financial quarter ending December 31 comes as Congress works toward fixing the agency's troubled finances. On Thursday, the Senate Homeland Security and Governmental Affairs Committee approved a bill that would end Saturday mail delivery and make permanent a temporary hike in the cost of a first-class stamp, which went from 46 to 49 cents on Jan. 26.

The Senate measure also would restructure a congressional requirement that forces the agency to make a $5.6 billion annual payment for future retiree health benefits. The Postal Service has been urging Congress to reform the service's finances as it continues to cope with steep financial losses. The Postal Service lost $5 billion in the last fiscal year, down from $15.9 billion in 2012.

"We cannot return the organization to long-term financial stability without passage of comprehensive postal reform legislation," Donahoe said.

 

On the positive side, the Postal Service said revenue grew by $334 million, driven by a 14.6 percent growth in shipping and package services that saw a boost from the holiday season. But first-class mail declined 4.6 percent, as more customers shift to the Internet to pay bills and send emails.

 

Postal unions have complained that the Senate bill goes too far in calling for an end to Saturday mail delivery once mail volume drops below 140 billion pieces over four consecutive quarters. They claim the move would hurt consumers and lead to thousands of job cuts.

 

"Today's Postal Service figures for the first quarter of 2014 are highly encouraging and show why the postal network must be maintained and strengthened, not degraded," said Fredric Rolando, president of the National Association of Letter Carriers.

 

The bulk of the agency's financial problems stem from the federally mandated annual payments to cover expected health care costs for future retirees. It has defaulted on three of those payments and warned Friday that it is likely to default again when the next payment is due on Sept. 30.

 

The federal budget bill that Congress approved last month requires six-day delivery to continue, meaning the U.S. Postal Service won't be able to cut Saturday mail anytime soon.