The Post Office Is Doomed. Some Say Good Riddance

Good riddance to the post office
Good riddance to the post office

If the U.S. Postal Service fell into bankruptcy (perhaps in a forest?), would anybody care? Not according to Gary MacDougal, who served on the board of directors at UPS (UPS) for 34 years.

In a scathing attack on America's Post Office last week, the former McKinsey & Co. partner argued that "the rapid growth of email, online bill paying," and private parcel delivery firms like UPS and FedEx (FDX) has made USPS obsolete. Statistics suggest he's right.

Where's the Mail?

Mail volumes at the post office have dropped 50% in the past decade, and it's getting worse. Post Office estimates suggest a further 37% drop between now and 2021.

According to the Associated Press, U.S. households received a personal, handwritten letter from a friend every two weeks on average in 1987. By last year, that had dropped to once every seven weeks. Even run-of-the-mill business correspondence has taken a hit. AP reports that for the first time ever, the percentage of bills paid by mail dropped below 50% last year. Meanwhile, UPS and FedEx just keep stealing more and more of the parcel post market, with revenues up 8% and 11%, respectively, last quarter.

So ... no personal letters. No bills from the electric company. No checks mailed to the electric company. And no packages. What's left?

"Junk the Junk Mail Office"

In two words: junk mail. Those deliveries are up 3% this year and now account for 48% of all mail delivered in the U.S. And though these mailings are often bigger and heavier than standard first-class mailings, the post office charges less than half the cost of a first-class postage stamp for each catalog it delivers.

MacDougal's column, of the title stated above, argues that about the only area of USPS' business showing any growth at all today is advertising. Yet he notes that because USPS charges so little for the delivery of junk, the rising proportion of this category of mail is contributing to the postal service's annual lament over "billions of dollars in losses."

Seeing the data, MacDougal asks the logical question: If USPS has morphed into a photo negative of Waste Management (WM) -- a service whose business is delivering junk to people's homes, rather than taking it away -- then perhaps it's outlived its usefulness. It's time to seriously consider an outplacement plan for the postal service's 559,000 employees, to sell USPS's fleet of 200,000 mail-truck clunkers for cash, and auction off the service's acres and acres of "prime real estate in cities and towns across America" as well.

In short, it's time to "junk the junk mail office" and allow UPS, FedEx, and "a host of local delivery companies now serving most major cities" to begin filling the gap and coming up with innovative, cost-effective alternatives to our outdated postal system.

One Man's Junk Mail Is Another Man's Treasure

Sounds logical to me, but over at the Post Office, they've got a different take on things. No sooner did MacDougal's diatribe hit the news wires than USPS floated its own plan to save itself -- by doubling down on the junk-mail business.

According to Postmaster General Patrick Donahoe, junk mail isn't really "junk" at all. It's "a lucrative avenue for anyone who wants to reach customers." (This despite Direct Marketing Association findings that only about 1.4% of households receiving junk mail actually respond to the mailers by making a purchase.)

Undeterred by bulk mail rates that already undercut first-class stamp prices by half, Donahoe has floated a plan to offer even steeper discounts to advertising mailings that bear "a special code that could be read by a smartphone." With new rules facilitating bulk mailings and rates now as low as $0.14 a piece, the USPS is encouraging small businesses to up their mail volume.

Spam is Spam

For years, critics have argued that the USPS's problem is that it simply doesn't know how to run a business. But from where I sit, it seems Donahoe has at least learned one famous business joke: "Sure, we lose money on every product we sell -- but we make it up on volume!"

Unfortunately, he doesn't get that this is a joke. He thinks it's a business strategy.

And that's just the problem. Everyone knows junk mail is junk. That's how it got its name. Yet no matter how many customers tell him they hate junk mail, that it's a chore to sort through, shred, pitch, and dispose of the stuff, Donohoe stubbornly insists that we don't know what we're talking about: "People may complain," but we actually like our "coupons and other advertising mail."

No, Mr. Postmaster General. We really don't.

Motley Fool contributor Rich Smith does not own shares of any companies named above. The Motley Fool owns shares of United Parcel Service, Waste Management, and FedEx. Motley Fool newsletter services have recommended buying shares of FedEx and Waste Management; and creating a write covered strangle position in Waste Management.

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