Why Your Mail Now Comes So Late

posted by Robert Shapiro on October 20, 2021 - 12:00am

The frustrating deterioration in on-time mail delivery has become part of the ugly partisan brawls that animate Washington these days.  From the left, many see it as part of a plot by Donald Trump and his hand-picked Postmaster General to depress mail-in voting by sabotaging the postal system.  On the right, many view the U.S. Postal Service as a prime example of a bloated, unionized public bureaucracy incapable of doing a decent job.

But progressives cannot explain why on-time mail deliveries worsened badly after the election and well into 2021.  As for conservatives who would have private companies compete to deliver mail, USPS earned high marks on this score for years.  Rather, the evidence suggests that the USPS’s recent dismal performance is a direct result of its current leadership’s efforts to treat universal mail service as a business.

Based on how USPS allocates and uses resources, its leaders now treat its public service mission as a losing business proposition, especially compared to its package delivery operation that competes with private companies.  The shift in USPS’s focus from mail to parcels has been building for a decade.  With the boom in internet communications, First Class mail volume declined 30 percent from 2010 to 2020 — and as e-commerce took off over the same years, USPS parcel volume jumped 416 percent.  As a result, USPS revenues from its package services soared from $9 billion to nearly $29 billion, while its mail revenues fell from $58 billion to $45 billion.  As demand for mail deliveries fell and demand for package services increased, USPS shifted its operational focus and resources accordingly.   

Parcel shipping and delivery is the only industry in which a federal entity competes directly with private businesses – and the catch for USPS is that as a monopoly, it’s much less productive and efficient than private shipping firms.  (Full disclosure: I have advised the private shipper UPS.)  In fact, the Bureau of Labor Statistics reports that USPS’s productivity gains averaged 0.4 percent per-year from 1987 to 2018, compared to an average of 2.4 percent annually by the private shipping and delivery industry. 

Even so, USPS has managed to charge less than its more productive rivals for a wide range of package delivery services, and thereby claim a growing share of that market.  USPS’s secret is its ability to use its network of public facilities, equipment, personnel, and vehicles created for mail deliveries financed by postal rates that it raised six times over the last decade.   Without trading on those resources as well as the special rights and subsidies that USPS enjoys for its public service mission, USPS could never compete successfully with FedEx, UPS, and DHL in the parcel market.  

These accounting and operational tricks worked, in a fashion until demand for package deliveries spiked sharply during the pandemic, and USPS leaders met that demand by sacrificing on-time mail delivery.  From 2016 to 2019, USPS had delivered 92.5% of First-Class mail on-time – one-to-two days for local and three days for non-local mail.   As the pandemic spread in 2020, on-time mail deliveries declined to 84.8% from mid-July to early December and fell further to 73.7% from early December to mid-March 2021 – and despite a 9.4 percent drop in mail volume from 2019 to 2020.  USPS leaders recently proposed their solution: Officially redefine “on-time delivery” as three-to-five days. 

The data confirm what’s happening: Statistical analysis shows that the falling on-time performance of First-Class Mail is strongly related to increases in the volume and costs of USPS parcel deliveries.  The culprit for USPS’s failing performance is its own current business model that trades on resources from its public operations to compete for package deliveries, notwithstanding the impact on universal mail service. 

The solution does not lie in simply shutting down USPS’s parcel delivery division, because that would badly disrupt the nation’s parcel delivery industry.  Despite USPS’s dismal productivity, it does own and operate a unique nationwide network that reaches every residence and business in the country – built, of course, for universal mail service.  So, when private companies ship their customers’ packages from state to state, they often use USPS for the “last mile” or local leg of those deliveries.  USPS depends on their business: Half of the volume of all USPS parcel operations comes from last-mile services for private shipping companies.

Without some remedy, however, mail delivery will continue to erode as internet-based transactions continue to grow.  A sound solution will require measures that both restore universal on-time mail service and regulate how USPS operates in the private parcel delivery market.  To meet the first goal, Congress can direct USPS and the Postal Regulatory Commission (PRC) to set postal rates at whatever levels are necessary to provide on-time universal mail delivery or, alternatively, appropriate the funds necessary to meet the goal at current postal rates.  In either case, Congress also can bar USPS from using appropriations or proceeds from mail postal rates to support its parcel delivery operations.

Second, Congress and the administration can apply accepted antitrust rules established to prevent monopolies from using their resources to distort competitive markets.  Applying the terms set for the regulation of AT&T following its breakup, Congress can authorize the Federal Trade Commission (FTC) to scrutinize USPS’s books and, based on that analysis, ensure that USPS’s parcel delivery prices reflect its full costs to deliver those parcels.  Following the AT&T model, Congress can also direct the FTC to ensure fair access to USPS last-mile services for private delivery companies on the same terms and at the same cost as USPS for its own local deliveries.  It is noteworthy that this regulatory approach led to serious competition, innovation, and lower prices in many aspects of telecommunications. In this way, USPS can once again carry out its constitutionally mandated mission to provide prompt, universal mail service and operate its parcel delivery operations at a scale that truly reflects its limitations and comparative advantages.