Thursday, August 23, 2012

Failing USPS Demonstrates Government Waste

 The struggling US Postal Service (USPS) demonstrates, yet again, what happens when you mix both the government and unions with a business model. the woes and evident failures continue to aggregate.

For years, the USPS has been struggling. The government-run mail and package delivery service attempts to blame modern electronic communications systems (such as email and the internet) and the sluggish economy for their woes. In the mid-20th Century, the USPS used the more proliferated telephone system as its excuse to necessitate raises in stamp prices, claiming that the telephone replaced written communications. However, the total number of mail traffic actually increased.

In contrast, however, UPS and FEDEX are doing quite well. The internet and email have actually led to increases in their businesses as people are purchasing items more and more through the internet. The private package delivery services have used this trend to their advantage. Yet the "public business" run by the federal government is, for all intents and purposes, bankrupt.

The main reasons individuals and online businesses are choosing FEDEX and UPS over the USPS is simple -- reliability and price. UPS's maximum package size is much larger than the USPS's maximum. UPS will deliver to the door of a physical address. The USPS has, in many neighborhoods, gone to community mailboxes located as far as 1/2 mile away from a residence, with small lock boxes for letters and packages. Anything larger will require the recipient to travel to the post office to pick up the package. Some times, that drive to the post office is farther away from the originator's address.

US Postal workers are unionized. That is the root of many of their problems. The US Military is not allowed to unionize. It makes sense that to not be allowed. If unionized, the lower ranking could go on strike, or legally commit mutiny, over contract disputes and pay re-negotiations. It would completely undermine the US Constitution and the Uniform Code of Military Justice (UCMJ). That same theory applies to all government bureaucracy workers. Government workers should not be permitted to unionize.

The USPS (we, the taxpayers) just defaulted on a $5,500,000,00.00 payment it owed to the federal government. That bill was for medical benefit payments to union retirement benefit accounts. There is another payment, this one will be $100 million higher at $5.6 Billion, due on September 30, 2012 (just in time for the end of the fiscal year). The USPS gave notice they will be defaulting on that bill as well. That will be $11.1 BILLION in defaulted debt. That is bankruptcy from any direction you look at it.

Then the USPS invests in a debacle. They paid over $1.2 million to print approximately 1,000,000,000 (1 Billion) stamps depicting Matt Groenig's iconic Homer Simpson. The USPS sold only about 318 million. That leaves the USPS with  over 682,000,000 stamps unsold with an inventory cost of over $300 million. They are also defaulting on the bills for the printing services provided by the companies contracted to produce the stamps. A proper market study before investing in this endeavor may have prevented the waste. However, this poor decision aggravates the $5.2 Billion Dollar quarterly operating deficit for 3rd quarter FY12. The net overall loss for the business is projected to be over $15 Billion for the FY12, which ends on September 30, 2012.

If the enterprise operated more like a private industry, the owners would take a serious look at operating in an effort to lose money. Operating in a manner that leaves a business $15.2 Billion more in debt at the end of a fiscal year is not considered a lucrative business. In fact, it is an abject failure.

The Postmaster General directed his Postal Inspector General to audit the Atlanta Distribution and Processing Center. The Atlanta facility's primary purpose was to increase efficiency especially in regards to commercial and business mailings. The results of the audit proved that the facility does anything but increase efficiency. The audit estimates that the center wasted over 8,000 man-hours and a half-million dollars. The main contributors to the waste were identified in lackadaisical loading, unloading, and sorting of parcels combined with wasteful and unnecessary shell-game moving of "spotting trucks".

Union drivers move the trucks around unnecessarily, creating additional hours of work and wasting resources (fuel). The other workers are not doing the minimum projected amount of labor necessary to justify operations. The union mandated breaks and production rates impede the facility's mission. The 24/7 facility appears to be mismanaged. The audit prompts questions concerning similar sorting and distribution centers around the country. If just one such facility in each state is wasting at a similar rate, the USPS could cut $25 Million of its deficit just by forcing union workers to operate according to current  USPS standards. Those additional 400,000 man-hours would save taxpayers a huge chunk of cash as well. At just minimum wage (and postal workers make well over minimum wage), those wasted man-hours would equate another $2.9 in human capital operational waste, if one facility in each state is at the same level as the Atlanta facility.

All of the above are indicative of a necessity for a complete restructuring of the USPS. The enterprise is not supposed to be a burden upon taxpayers. It is supposed to provide a service that patrons pay for as they use it. The costs are designed to be incurred by the senders. The enterprise is supposed to break even if not turn a small profit. They are not. They are failing.  

The USPS lists itself, by charter, as a "self-sufficient government enterprise". Given the example of "self-sufficiency" the USPS demonstrates, there is no wonder about why members of Occupy believe "self-sufficiency" means "living in my mom's basement, eating her food, and having her pay at least half of my bills, though I am 25 years old". If the USPS were truly self-sufficient, they would restructure their operating model. They would eliminate mandatory union membership. They provide competitive services at competitive rates in order to compete with FEDEX and UPS. They are not self-sufficient. They are increasingly dependent upon taxpayers being forced at the barrel of a gun to pay for their failing business model.