The Post Office's fight for solvencey

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tolamapS said:   The big problem with USPS, unlike other government agencies are two-fold:

1. USPS can not levy taxes,
2. USPS is in a dying business. In an ideal world, the revenue generated by USPS would go down to zero in 20-30 years. So as a business, USPS needs to be wound down. If you have $95B in pension liabilities, you can not "pay-as-you-go" if you are going to be bringing in ZERO revenue in 20-30 years.

In fact, I could argue, that the current law, as applied to USPS is quite generous.

I would demand that USPS pre-fund its entire future pension liability in the next 5 years, or just be wound down.

Some people here don't realize that at the margin, USPS does not add value. It is net losing business, and it is probably net negative at the societal utility level.

It will never go down to zero. The government will always keep it around to send us things like jury duty notices, and because we're stuck looking for them, the USPS will continue being able to intrude on our private property to fill our mailboxes with litter and garbage, knowing full well that we're responsible for checking them for legal documents.

tolamapS said:   ankitgu said:   I have not read most of this thread, but I thought I'd chime in with a thought. I personally think that the USPS is a wonderful business, and if prices were not controlled by the government, I'd love to have an opportunity to take it private and buy stock. They have a business built upon network effects and the scale makes it tough to replicate - they should be able to raise prices and solve many issues. That doesn't mean they shouldn't get expenses under control, but I think that despite the issues, it would print money for the owners if they are allowed to change pricing of mail service at their own desire.

I am HIGHLY skeptical of this idea. Your argument seems to assume that demand for postal services is fixed, regardless of prices.

Somewhere in the range between doubling and tripling postal rates, the demand for Postal Services will be ZERO.

Okay - then let them raise prices

I am not saying they can raise it 300% and still get the same demand. I'm just saying that if they raised prices 25-30%, they'd probably be quite alright. And the benefit would be that it might cut down the amount of spam to some extent.

My only point is that I don't think they should be bound by price fixing from the govt on such tight restrictions.

Ultimately, barriers to entry are what will determine profitability for many firms. In the case of the postal service, it's this hugely valuable network that requires scale like no one else has, and that makes it tough to replicate.

There is a reason why Coke, Pepsi, etc. earn 25%+ returns on capital every year while insurance companies struggle to earn their cost of capital. One has pricing power and the other does not, largely because of the barriers to entry. Coke and Pepsi are really just distribution firms because every gallon of liquid is roughly 8 pounds, and the amount that they go through is huge. So any competitor has to not only get marketing right, but also build up distribution, without burning tons of cash getting the infrastructure and marketing all figured out. This is why they can earn 25%+ ROC's every year. Insurance companies have no moats and that is why most barely earn their cost of capital and also why most trade about 1x book value on the stock markets.

The barrier to entry for a postal service is huge - you need scale/distribution, but you also need access to mailboxes. Even if you got the first part right, you can't legally put things in mail boxes unless you're the postal service.

At the end of the day, you're right, that prices couldn't be tripled and not see any demand go down. But I'd argue that if their budget concerns can be solved by 10% more revenue, I think they could accomplish that far more easily by raising rates than an insurer could - because with an insurer, customers will be calling up other agents right away to get competing quotes and/or going online for cheaper rates. You can go to FedEx/UPS, but from what I've seen, they won't deliver an envelope for 40 cents lol. So I bet the postal service could raise rates to 50 or 55 cents on the envelope and do quite alright.

tomjef said:   neophyte said:   Nice one-liner - no need to think or type

The fact is post-based Netflix (which millions enjoyed during the last 15 years) would've never existed without media postal rates; the fact is small seller's eBay would've never existed without PO

Invest 5 minutes of your time in quoting on UPS and FedEx site that package you mailed to your mom; pass your judgement thereafter...

You seem to be under the mistaken impression that delivery rates would still be the same if private carriers specializing only in parcels/express were filling the every-address routes of the USPS.

Society has been subsidizing Netflix's artificially cheap mail rates. Sounds like a wise investment of public money.

We still pay to deliver it, we just don't pay it with stamps. Pull up your past year's tax returns.

Except that (at least for Netflix) the net gain was for the post office since most of their shipments were local -- there being a local center near most major P&D centers. Netflix also picks up their own mail on the back end so its only the "last mile" part to and from the local P&DC to the curb that is on the USPS. Without the long haul portions its pretty cheap mail for the USPS to handle. (I installed automation equipment in P&DCs many moons ago...)

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