U.S. Postal Service Can Learn from Overseas

As the postal sector changes around the world, America is lagging behind. That is a shame, because Americans have much to gain from a deregulated, more competitive postal industry – including lower prices and better service.

In the European Union, reform of the postal sector is part of the Lisbon agenda, a broad effort to boost economic growth and global competitiveness. Last week, the European Commission gave an important indication of just how seriously it is taking its target of full deregulation by 2009. But the recommendation it put forward to that effect also met with strong opposition from several EU members. A few countries moved early on postal reform, notably Sweden and Finland, opening mail delivery to competition more than a decade ago. Now, other nations are working to meet the 2009 deadline.

There are two main routes to postal reform: privatization of government-owned operators, and termination of monopoly protections. Countries have mixed and matched these policies in different ways.

The Netherlands and Germany, for example, have privatized their former state-owned carriers, TNT and Deutsche Post. Both companies, though, still enjoy monopolies over domestic letters below a certain size. In Britain, on the other hand, the Royal Mail is still owned by the government, but the market was opened to competition at the beginning of this year.

Slow-motion deregulation can have market-distorting effects. For example, Deutsche Post can continue to leverage its monopoly profits on letters while expanding into competitive areas such as package delivery. This poses an unfair challenge for other players and inflates costs for customers.

However, the worst effects of these lingering monopolies will likely be ironed out once full competition comes into force. Already, healthy private mail providers have sprung up in Germany, the Netherlands, and Britain.

The overall benefits of deregulation appear to be substantial. Germany now leads the world as exporter of postal services, thanks largely to the privatization of Deutsche Post.

A recent study by the European Postal Users Group found that “greater efficiency and innovation” within the postal sector is achievable through market-oriented regulation. It called for increased transparency to ensure that monopoly products are priced fairly.

Another study found that the price for delivering bulk mail in urban areas, where competition is likely to be most intense, is likely to drop by as much as 25 percent in a liberalized market.

There would be many advantages that U.S. consumers could also enjoy if similar reforms were implemented here. Unfortunately, even if Congress and the White House somehow manage to resuscitate a compromise, the legislation’s impact would be limited.

The bills that have passed the House of Representatives and Senate called for an increase in outsourcing to the private-sector and improved financial accountability. Yet they don’t call for anything approaching the scope of Europe’s deregulation. The United States Postal Service’s two monopolies, on letter delivery and the use of mailboxes, are left fully intact. The bills also fail to address the USPS’ cripplingly high labor costs.

It is unfortunate that bigger changes don’t appear to be in the offing, because the USPS has financial problems that could ultimately impact its customers, its employees, and the federal budget. The Service is facing a steady decline in the volume of first class mail – letters sent by individuals – as electronic alternatives take hold. And it has accumulated unfunded liabilities of more than $70 billion.

The Postal Service appears set on resolving these difficulties through frequent stamp price increases, like this year’s price increase that hiked first-class postage from 37 to 39 cents. It has already initiated yet another rate increase and has announced plans to start raising prices every year as of 2009.

With no talk of ending the monopoly, this is unfortunate news for consumers. Moreover, the Postal Service is unlikely to solve its cost problems simply by raising rates on an annual basis.

Individual mailers are still the Postal Service’s most lucrative customers, contributing more than their share toward general overhead. Steadily-rising stamp prices, though, are likely to drive letter mailers to the Internet even faster, shrinking this market at an accelerated pace.

Lawmakers, Postal managers and other players in the postal sector have worked diligently to try to map out the future of postal services in the United States. It’s time, though, to step up the pace. To remain globally competitive, we need substantial change.

Jim Courter served in the U.S. House of Representatives for 12 years, retiring in 1991, including on the House Committee on Post Office and Civil Service. He is currently Chairman of the U.S. Consumer Postal Council in Arlington, Virginia and CEO/Vice Chairman of IDT, a multinational communications company headquartered in Newark, New Jersey.

Jim Courter