By J. Gregory Sidak, Criterion Economics
Years before the widespread use of email and the World Wide Web, Congress directed in the Postal Reorganization Act of 1970 that the U.S. Postal Service “shall have as its basic function the obligation to provide postal services to bind the Nation together through the personal, educational, literary, and business correspondence of the people.” Half a century after that congressional declaration of the “basic function” of the Postal Service, the COVID-19 pandemic gripped the American economy and dramatically stimulated demand for and reliance on e-commerce package deliveries from businesses to homes. Substantial evidence indicates that in 2020 the business of the Postal Service fundamentally and permanently changed. And as a result of that change, the congressionally declared “obligation” of the Postal Service to provide “as its basic function” the provision of services that would “bind the Nation together through the . . . correspondence of the people” is now threatened by two separate factors.
The first is the collapse of demand for mailed correspondence because of technological innovation and changing consumer tastes: the “correspondence of the people” continues its steady migration from letters to electronic means, a trend which of course began long before the COVID-19 pandemic. The second factor is the demand (by both businesses and households) for the Postal Service’s expanding (but inessential) role as a public enterprise providing e-commerce package delivery.
In the aftermath of the COVID-19 pandemic, policymakers must confront existential questions concerning the Postal Service. Not all the answers to those questions are yet known. Not all the pertinent questions are even known.
In 2020, the Postal Service no longer faithfully adheres to the statutory mandate—that its “basic function” be the delivery of the “correspondence of the people.” Following the onset of the COVID-19 pandemic in the United States in 2020, the Postal Service’s transformation into a public enterprise primarily providing e-commerce package delivery abruptly accelerated. In 2020, after the onset of COVID-19, the level of demand for e-commerce package delivery that formerly was considered “peak load” became the new—and perhaps permanent—“base load.” The new base load resembles the Christmas peak load consistently observed in the last two months of every calendar year. During the sustained peak load after the onset of COVID-19, substantial evidence indicates that package delivery might remain incrementally unprofitable to the Postal Service.
The Postal Service’s outmoded accounting principles date to the 1970s and obscure precisely how incrementally profitable or unprofitable package delivery really is as an economic matter. The Postal Service has not reliably shown with substantial evidence that the incremental revenues derived from package delivery cover the incremental costs that the Postal Service has attributed to its delivery of packages. Policymakers should seriously confront the prospect that the Postal Service does not even seek to turn an economic profit from its package-delivery enterprise. The Postal Service has not produced substantial evidence that its package-delivery enterprise is profitable as an economic matter.
Yet, the Postal Service plans to invest billions of dollars in infrastructure to deliver e-commerce packages. Who will pay for that investment? The optimal level of investment by the Postal Service is likely negative. In other words, policymakers should seriously consider whether the Postal Service should disinvest from its existing package-delivery enterprise. Members of Congress must decide what kind of business the Postal Service should operate before they appropriate billions of dollars for a business model that is unsustainable in the long run. The corporate assets that the Congress would be wasting would belong to taxpayers. The solution is to design a Postal Service optimized to serve its statutory mandate.
