U.S. Postal Service losing federal government contracts to FedEx, UPS

It seems even the United States federal government thinks private sector shippers are more efficient than its own Postal Service, at least according to a Jan. 18 report by a post office official.

The U.S. Postal Service’s inspector general published a report that concluded it is losing regular business from the federal government to private-sector competitors FedEx Corp. and the United Parcel Service (UPS). The report found that these shipping companies have 98 percent of the $337 million in annual shipping spending by various federal departments and agencies.

Over the past two years, the Postal Service lost approximately $34 million in potential revenue, which is still a small amount compared to its reported $65 billion in revenue last year. Instead, the Postal Service generated only $4.8 million in fiscal year 2012, which ended on Sept. 30, of the $337 million. The report blamed the paucity of a sales staff or a sales strategy until 2009 to focus on the federal sector.

“The Postal Service has opportunities to increase its share of federal shipping revenue. Two major challenges include pricing inflexibility and the lack of two- and three-day guaranteed express delivery products,” stated the inspector general.  “In addition, the Postal Service faces challenges resulting from late entry into the General Services Administration market, the size and structure of its federal sector sales force, and limited payment methods it accepts. Further, the U.S. Department of Defense provides preferential treatment to those shippers that have their own air fleet and agree to make that fleet available during a national defense crisis.”

Should the Postal Service apply the inspector general’s suggestions to get a foot in the government marketplace then it could garner a roughly total of $34.8 million in revenue in 2013 and next year.

“We recommended the Postal Service address the challenges it faces in the federal shipping marketplace and enhance customer intelligence on federal agencies’ shipping practices,” the report added.

Postal officials told the New York Times that they were addressing the issues noted in the report.

Last week’s report comes as the Senate passed a bill last year to perform a complete overhaul of the Postal Service to find new methods of raising revenue after it has suffered from a long-term decline. Some of the measures in the legislation include retirement incentives for nearly a fifth of its 547,000 workforce and to study the elimination of Saturday service and offering an array of services, such as beer and wine delivery to retailers.

The legislation never passed in the House of Representatives.

Senate Majority leader Harry Reid announced Wednesday that he plans to introduce postal legislation to tackle the problems at the mail delivery agency.

In November, the Postal Service, a heavily-subsidized agency, posted a record deficit of $15.9 billion in annual losses. At the same time, it also announced a hike in postage stamp rates. Much of the blame has to do with email and online transactions and the efficiency of its private competitors, which have obtained most of the parcel and package shipping business.

Leaders at the Postal Service argued that these losses will transpire for a long period of time if the Congress doesn’t permit it from cutting costs faster and restructuring an obligatory remuneration for future retiree health benefits.

In the meantime, it has taken action by itself without Congressional approval in order to address its financial matters.  Some of the steps included cutting hours at hundreds of small and rural post offices, reducing staffing levels and merging mail processing centers. It also plans to raise the price of a first-class stamp Sunday by one cent to 46 cents.

Although the computers and the Internet weren’t as prevalent as they are now, Nobel laureate Milton Friedman looked at the nation’s post office during the late 1970s and early 1980s in his “Free to Choose” book and television series. It talked about how it tried to remove private competition and that it was an inefficient government agency that was heavily in debt.

Free market proponents would argue that this is another example as to why the private sector is a much better alternative to a public agency. Companies adapt to the marketplace, they do their best to make the customer happy, they adopt new practices to become competitive and they’re a lot cheaper.

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