I am annoyed at all the press lately about the USPS and how upside down they are. The government is doing it’s effort to try and turn things around, but in a big typical government fashion. Don’t get me wrong, doing all the assessment of the full operations for the USPS is not my intent, but I wanted to show a couple of key things that irritate me. Let’s take a look as if I were actually running a business in this space.
I didn’t have all the USPS data at hand online, I will update if I find more data.
What I did pull was a comparison from the USPS Annual Report, Fed Ex and UPS data to compare. I am a Product Manager by trade and have had to deal with the pressure of showing profitability on products or a plan to get there. When you are investing and growing a business it is not uncommon to lose money for a period of time. When you are a mature business, trend lines on projections should definitely be one of your bellweathers of things to come.
First.. if I am comparing myself against competition, how do I stack up as a business. I have general mail (high volume/low price) delivery. I have some specialized products that have more competition in the industry from the likes of Fed Ex and UPS. I also have direct shipping which is exactly in the line of site for my main competitors. Again, we are running a business here. How does my top line revenue stack up against my competition?
OK.. clearly looking at the past few years is not showing a good trend. My competition is growing leaps and bounds and even post recession, they have shown an uptick in growth. If I am USPS, nope.. I am failing here.
OK, lets look next at the Net Income for my business. Maybe it’s not doing so hot.. sure, but how do I compare against people with similar products in the marketplace?
Wow.. that hurts. Not only are my competitors profitable, they are killing me on net income. Looks like I may have some serious cost issues to deal with in my operations. Sure.. the chart above is indicative of the overall profit margins in the business.. but just to be clear, here is how we compare.
Yes, we suck. Our competition is running between 3.7%-7.2% on average for the past decade. The past three years I have averaged a 7% net loss. This is starting to look as though I have some serious issues. I need to consider doing some things to fix them. Some say the number is around $30B that USPS needs to cut to get towards profitability. There are huge numbers on cutting employees, locations, number of days for delivery, etc. Let’s hold on that for a moment.
If I cut $30B in costs.. doesn’t that make me profitable to the tune of $20B immediately? Where are my mounting costs coming from? Oh.. wait, we are government employees here. I get a pension, and the most amazing health care coverage known to man. Don’t get me wrong, my Grandfather was a postman and I believe to this day my Grandmother gets health coverage from his retirement. By the way, he passed away in 1978 and my grandmother has been widowed TWO more times since then. Unheard of coverage. Check out this chart below from the USPS latest report. You can see how health benefits are killing them long-term.
OK.. so clearly we have to fix this, right? Do you know what one of the recommendations is for trying to save money? Take a first class priority mail that used to be one day delivery and make it 2-3 day delivery for the same price. Huh? How do you do that and compete with UPS and FedEx? That seems like it will get me less business overall, not help make my current business more profitable. If I can’t cover costs, shouldn’t I raise prices? We are one of the cheapest postal services in the world.
While you think it may come down to a poorly run business because it’s government, it gets a little harder than that. In some digging around the latest report I found a portion on page 13 that talked about the Postal Act of 2006 that limits pricing for every class of mail service. I guess the government put regulations over itself that locks the price of a piece of mail to a cost index that in no way is in line with the cost of actually delivering mail. The USPS tried to go fight this in 2010 however the government decided against itself here and forced the hand of the USPS to stay in a losing battle for price hikes.
My frustration comes down to things like this that happen in our government. There have to be some hard decisions made around retirement, the work force being used, the prices being set and how to turn this ship around.. or just concede that you are giving up. If you choose to give up.. do you let USPS go away and have less competition overall in the world? or do you let USPS be a solid cost center and pure overhead for the Govt? Let’s hope neither happen. Without the price pressures of USPS in the market, UPS and Fed Ex will have a lot more control over consumers and the ability to grow margins even higher at the expense of our pockets.
Sure.. I am being a little cynical in my assessment.. and I usually try not to get all wound up about government crap. This one just seems to be something that is getting a lot of press and I’d personally love to see it solved. As much as I wanted to pick on the USPS for running a crappy business it is also coupled with the government regulating pricing, policy and impacting profitability and speed to market for the postal service.
If you were the product manager running this business and forcing stiff competition, an undermining boss and business rules that limit your abilities, what would you do? It’s harder than you might think.