Liberalized national posts have illustrated viable privatization or corporatization options. All of these options maintain the integrity of the national post and have retained most of the pre-liberalization workforce of the enterprise. Furthermore, these privatization approaches have generated a profitable, self-sufficient, national post that pays corporate taxes, and in cases in which the government still owns shares, dividends to the government shareholder.
Restructuring of transportation and telecommunications seems to work best if the resulting entities are national entity. In trucking, regional carriers merged over time to take advantage of opportunities to offer better service to meet customer needs and minimizing costs in order to offer competitive prices. In rail, mergers resulted in two western carriers, two eastern carriers, and three additional carriers serving the Midwest and north-south routes from the Canadian border to Mexico or New Orleans. In air transportation, both FedEx and UPS have expanded express and parcel services nationwide from what they offered in 1980, or in the case of FedEx Ground, what was offered by Roadway Package Systems in its first few years.
GAO’s privatization option would have been consistent with what clearly works to provide universal service if it explicitly provided a privatized national post option. Instead it provided a “government contract” model of privatization. The GAO retains a government Postal Service to manage the network, possible own and run processing plants, and contracts out retail and delivery activities.
In many ways the Postal Service becomes a virtual provider of mail delivery services contracting with all the pieces needed to create end-to-end delivery. This model is similar to what Equiship has recently introduced. Equiship manages the customer interface and pricing of services. It contracts out all other aspects of the service that involve physical handling of the parcel. Furthermore, many of the firms that move the parcels around the country also contract out services needed to move parcels from terminals to a customer or a postal drop-shipping location.
Beyond the commercial advantages of having the privatized entity being a national entity, there are four additional problems to GAO’s description of privatization.
- Rapid contracting-out of delivery and retail operation would add significant up-front costs to handle severance, unemployment and early retirement costs. To the extent that these functions have been contracted in liberalized posts they have been limited to retail services and delivery services in the most remote parts of a country as the financial benefits of contracting out over maintaining corporate provision of services were greatest in these areas.
- Modifications of compensation packages as well as work-rules resulted in sufficient cost savings to eliminate most of the benefits of contracting out. The exceptions were retail services and delivery to the most remote delivery addresses.
- Eliminating most commercial restrictions regarding retail services have allowed many companies to transform retail outlets so that they are not a burden on the national post. So expanding commercial freedoms allow a national post to determine more rationally when contracting makes economic sense and when it does not.
- The GAO model of privatization appears to retain a governmental entity to manage contracting and coordination among contractors. It is hard to imagine the government managing an origin-to-destination network, marketing the network, providing information systems to coordinate the network, without all the inherent problems and costs of government contracting, and problems generating the cash to make the investments needed to make a virtual Postal Service work.
GAO Needs to Present a Path to Privatization Option
GAO needs to go back to the drawing board and add a fourth option that describes the actions and decisions required to put the Postal Service on a path to privatization as a national entity. In doing so, it would create a real third option that neither its privatization option nor its governmental options offer. Form a political and budgetary standpoint, the path to privatization option has some real advantages for stakeholders.
- Privatization is the only option that creates the commercial freedom needed to create a customer-focused national post and transform the business into a multi-model message and parcel delivery environment.
- Privatization is the only option that could reduce the pain that unionized postal employees will experience through the next decade if privatization also included significant employee ownership, and creation of joint employee and corporate management of health and retirement benefits. Privatization could maintain collective bargaining either under the current arbitration system or under a system government by the National Labor Relations Act.
- Privatization minimizes the risk to the government to funding the capital and cash needs of the Postal Service during the transition to a smaller physical footprint. The minimum risk would put the privatized entity under standard bankruptcy law so that shareholders and bond holders would face the risk of losing their investment.
Finding a minimum risk way of meeting capital needs is a key to the restructuring. Just covering losses in 2011 and 2012 will require more than $10 billion in additional capital if retiree obligation restructuring remain off the table. It is not unreasonable to imagine that more than $10 billion in additional funds would be required to replace the delivery fleet, upgrade information systems, modernize the retail infrastructure, modernize the delivery infrastructure for small parcels to compete with Parcel lockers, and adjust the network to allow for new processing locations than can offer better service at current or lower costs than the 200 chosen in the Network Optimization Initiative from those now in place.
- Privatization raises the potential gain from using existing real estate to finance the transition. Selling real estate is easier if done under standard private sector law than under government rules and regulations.
