Those who list and sell homes are in the marketing business, and so when a proposal comes along which will raise general merchandising expenses it's a matter which should be considered with some care.

The issue this time is not rising prices for Internet services, web sites, or visual tours. Instead, there is a need to look carefully at the workings of the U.S. Postal Service, a 225-year-old necessity with the economics of a newly-hatched dot-com.

Given all the attention devoted to the Internet it's sometimes forgotten that much commerce and communication is still conducted by mail. Not e-mail, just mail, the paper-based communication you drop into a local mailbox and which -- somehow -- arrives a thousand miles away a day or two later.

According to the Association for Postal Commerce -- Postcom, the Postal Service is now seeking a 3-cent raise for First-Class mail and 2 cents for postcards, 8.7 percent overall.

Given that a large percentage of real estate marketing is tied to postal rates -- farming by mail, shopper newspapers, magazines, etc. -- it follows that if postal rates increase, marketing costs will also rise. Given a limited ability to raise brokerage commissions, even minor increases for marketing cannot be ignored.

The post office had revenues of $64.5 billion in fiscal 2000 and delivered 207.8 billion pieces of mail. Postal volume actually increased by 6.2 billion pieces over 1999.

It was not supposed to be this way, of course. E-mail would doom the post office, we were told, and it still might. Mail volume was supposed to decline with Internet growth, but whoops it hasn't worked out as predicted. In fact, the Postal Service is adding 1.7 million new addresses annually.

The problem with rising postal costs is this: As prices rise people will naturally try to find lower-cost messaging options. The catch is that the Postal Service has huge fixed costs: The letter carrier drops by your home whether you're getting one letter or two. If mail volume drops, fixed costs remain largely the same.

You can't reduce the size of the Postal Service by stopping service to high-cost rural areas (think of the politics involved), you can't have deliveries every other day (then the check will truly be "in the mail"), and you can't subsidize postal operations with tax dollars -- that hasn't been done since the 1980s and the political opposition today would be fierce.

You also can't abandon the Postal Service. A business that takes in $64.6 billion per year and has 787,000 career employees is too big to fail. No less important, there is no private business that can replace it, no private business would want to, and the Internet is not a substitute -- at least not yet.

So what can be done to hold down postal costs?

Given fixed expenses, it follows that sending more mail should be the one sure way to fight rising fees. But the country is using the mails more frequently, and yet increasing volume cannot match the ability of the Postal Service to incur new costs.

We could seek a more efficient Postal Service, but it's already spending billions for automation.

The political route suggests calling your representative in Washington to complain about rising postal expenses. But then what? Congress can't reduce costs and won't allow fewer deliveries. While we can save money by no longer delivering mail to Iowa, Alaska, and Nebraska, you can just guess that some in Congress would object.

The solution, perhaps, is to look at what other countries are doing: We see national postal services being privatized -- you sell the postal service to the public (and raise a bunch of money for the government) and from that point forward it operates like a government-sponsored enterprise (a "GSE" like Fannie Mae and Freddie Mac).

As a GSE, the Postal Service would still have to assure universal delivery but it could be more competitive. For instance, to get a price increase the Postal Service must now ask for the approval of the Postal Rate Commission. This is a 10-month process where competitors are allowed to testify against the Postal Service. To understand the insanity of this, imagine that before it could raise prices for dishwashers, Sears had to wait a year and respond to objections from Wal-Mart.

As a private entity the Postal Service could make a profit -- under federal law this is not now the case. A postal GSE could offer discounts -- say lower costs in the summer months and higher costs at peak times such as the holiday season. It might offer discounts for volume (and not just discounts in exchange for labor-shifting), and it could establish a universal e-mail address system for everyone where it could control deliveries. A private postal service could expand into new businesses, buy existing firms, sell real estate, sell air rights to property, and do the things that real companies do.

But is all of this a pipe dream? Is there any hope for the Postal Service in the Internet era?

Given web economics and the inability to send three-dimensional objects through a modem, we need a viable and competitive Postal Service -- at least until teleportation becomes commonplace.

For more articles by Peter G. Miller, please press here.

Published: October 2, 2001

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