The Post Office Navigates a Changing World. Or Not.

By Mike Koetting December 5, 2023

Christmas is approaching. I would know that, if for no other reason, from our mailbox, which is daily stuffed with catalogues.

When I was a kid, there used to be so many cards during the holidays, that the Post Office in our neighborhood did two deliveries a day the weeks before Christmas. A few catalogues, but mostly cards. I still get holiday cards, but it’s nothing like the tsunami of greetings my parents received.

The decline of Christmas cards turns out to be emblematic of a number of very thorny issues facing the United States Postal Service.

The Context

The essence of the USPS was established even before the country. Ben Franklin and his co-conspirators created the Constitutional Post to speed the distribution of correspondence among the potential rebels. After their success, the new Constitution explicitly enumerated the establishment and support of the Post Office as a power of Congress. As early as 1792, James Madison and others devised a fee schedule where high-priced postage for letters, then sent mostly by businessmen and lawyers, subsidized the delivery of cheap, uncensored newspapers. America was ahead of other countries in promoting the spread of public information, which in turn became a powerful element in making democracy a fundamental part of American culture.

As America pushed West, the Post Office followed and, sometimes just barely, kept the huge country tethered together in a world before telegraphs or telephones. The Post Office was considered such a key part of the ties that bind us, that in 1845 when it was teetering on financial collapse, Congress decreed it was to be a “service” and not a “business” and ordered the cost of mailing to be slashed.

Over the next century and a half, the volume of mail continued to increase and the postal service struggled with making the expected low cost of mail delivery square with fiscal demands. From time to time, Congress tinkered with the structure of the Post Office, but throughout, a robust mail system was taken for granted as something that helped support a unique America—geographically dispersed, with everyone nevertheless part of the same, strong democracy.

Then came the Internet.

In 2000, the agency delivered 208 billion pieces of mail, including everything from postcards to packages. In 2023, total volume was 117 billion pieces, a decrease of 44%. The decline is led by the 55% decline in first class letters as correspondence migrated from letters to bytes. This is particularly problematic because the traditional USPS economic strategy has been to use first class mail revenue in excess of costs to offset other expenses, James Madison’s original formula.

The volume of marketing mail has declined at about the same rate, but its decline started later; it now comprises more than half of all mail and 62% of all mail received by households.

Neither the decline in first class mail nor marketing mail gives any indication of plateauing.

Delivery of parcels, on the other hand, has more than doubled since 2000. While there has been a slight decline from the pandemic highs (as has happened for all shippers), the level is well above pre-pandemic levels. One element of package delivery has been particularly important for patrons, medication delivery. About 5% of all medications dispensed are delivered via mail, with percentages much higher in certain groups.

In short, while the USPS is a major provider of mass mailing and parcel delivery, its historic role as the primary tool for personal and business communication has diminished greatly. Its new role in American society has not solidified.

Policy Questions

The first question to be addressed is whether the USPS should be self-funding. While this has sometimes been true in the past, it is not currently the case and it’s unclear whether it will any time in the near future without some major changes. From an operational standpoint, the issue is how much (and how) USPS should be downsizing in light of the changed communication patterns of Americans.

Front and center is the number of employees. Between 2000 and 2022, there was a 34% decline in the number of career employees. The number of non-career employees, who get fewer benefits and lower wages, has remained relatively stable, so as a percentage of the work-force they have increased and now account for almost 20% of all employees.

One policy option is to continue to downsize as volumes fall and technology improves. Some of that will surely continue to happen, but this is also a leading edge of the broader questions arising in our society about the role of work and its relationship to income in a technological society. Most USPS jobs require no more than a high school diploma. More than half of USPS employees are people of color and 29% are Black. For these groups, USPS career compensation is better than most alternatives. What would be the actual replacement strategy for these jobs? I understand the appeal of theoretical alternatives. And I understand the downsides of keeping people employed beyond the actual need. But in the real world, is continuing to reduce this workforce really a way to improve the society?

The question is even more complicated when one looks at the actual work of the USPS. As noted above, more than half the total USPS volume is marketing materials. I don’t know the specifics, but it is safe to assume that even though marketing materials account for 50% of volume that the nature of this business allows for significant economies of technology and scale so marketing materials use less than 50% of resources. Still, in 2023, they provided less than 20% of revenue.  It is hard to imagine this covers actual, average cost. The question will be whether this is enough above marginal cost to make a real contribution to supporting the rest of the enterprise. It is beyond my means to answer that question. However, it seems likely there is a substantial subsidy to businesses using marketing mail.

Raising rates to marketing mailers probably makes some sense, but that volume is already dropping—it took a major hit between 2022 and 2023—so higher rates may accelerate the move to Internet advertising. In the meantime, all those holiday catalogues stuffing my mail box are, in part, an early Christmas gift to businesses from taxpayers at large.

A totally different consideration is that marketing mail also has an adverse environmental impact. A large amount of the paper used to create these catalogues is surely wasted. Estimates from a few years ago suggested this much paper requires cutting down somewhere between 80 million and 100 million trees annually. Cities estimate that they spend $1 billion a year to collect an dispose of unwanted mail, primarily marketing material.

In the world of environmental issues, this is not our biggest problem. And there are ways that individuals can drastically reduce the amount of marketing materials they receive. To the extent consumers opt out, however, it reinforces the decline in volume, with all the attendant issues.

That, of course, leads back to the earlier question: what do we really expect the Post Office to do?

At present, I don’t think society has a coherent idea and so USPS is left to muddle through as best it can, caught in a limbo where it is expected to cover its costs but is constrained by expectations about universal access and continued provision of services such as candidate statements and vote-by-mail ballots.

Directions

The plan for USPS proposed and championed by Louis DeJoy, the current Postmaster General, may be about as good an accommodation as can be achieved. It proposes continuing to reduce costs, raise rates for marketing materials, and focus on delivering parcels. The last will remain a strong potential market for USPS, particularly outside of cities where it can take advantage of its existing capabilities for “last mile” deliveries, although the execution of that strategy is in fact creating its own problems. In some rural areas, package delivery is overwhelming the traditional USPS functions. I suspect these changes are creating one more tension between rural and urban populations. The former depend more on the traditional USPS functions but don’t generate the revenue base to support them at current scale. One of the many constraints USPS faces is that its rates must be universal, even though costs are higher to provide services in many rural areas.

Whether this USPS strategy will be successful depends to some extent on whether use of traditional USPS functions, presumably including marketing materials, remains substantial and whether demand for other traditional functions continues at a level sufficient to defray costs for maintaining a comprehensive delivery network. If rural package delivery were forced to cover its own costs, USPS would have to raise rates to a point that would invite commercial alternatives.

Preliminary results from this plan are falling short of the mark, but it is probably too soon to deliver a final verdict.

In Short….

The Post Office is a microcosm of the problems facing America—dealing with technology changes and the resulting workforce implications, facing environmental issues, appreciating rural-urban differences and trying to find a role for government that protects the essential solidarity of the nation without suffocating what Martin Luther King called America’s bottomless vitality. And, like most of the other problems facing us, the complexity completely bedevils us.

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Editorial Note

As I usually do around this time each year, I will be taking off the next several weeks for holiday festivities. Among other things, I have to prepare and mail my holiday greetings, an activity that will most likely be completely foreign to my grandkids.

I hope you all have a wonderful holiday season and get to start off the New Year in fine spirits. I’ll be back in January.