Tag Archives: Fedex

Qualitative Competitive Advantages

If you were given a government monopoly that a majority of the US population had to use, could you ever go broke?  You need to understand that different types of competitive advantages confer different strengths and durability.

A government monopoly that use force (fines/imprisonment) is less durable than a natural monopoly created by customer captivity through consumer choice and economies of scale (coca-cola, Microsoft’s operating system).

If ever there was a lesson in why the government is not efficient, it is here: the power of incentives.


Email Isn’t Killing The Post Office

  • Dec 11, 2011

IT’S GROUNDHOG DAY at the US Postal Service: time once again for the familiar laments about how the agency’s financial losses are surging, how demand for its services is plummeting, and how officials have no choice but to close local facilities, raise the price of stamps, and reduce delivery standards.

Last week the Postal Service announced plans to cut $3 billion in costs by slowing down first-class mail service and eliminating about half of the country’s 461 mail-processing centers. That would mean an end to next-day delivery of first-class mail. Although that might not seem like much of a threat for something already thought of as “snail mail,” the Postal Service has insisted for decades that 95 percent or more of local first-class mail is successfully delivered overnight. When the new standards take effect next spring, two-day delivery will become the new overnight, even for mail that’s just traveling down the street.

If all this sounds familiar, you aren’t hallucinating.

“In 1990, the Postal Service launched a nationwide plan to intentionally slow down mail delivery,” policy analyst James Bovard wrote in his 1994 book, Lost Rights. First-class letters were already taking 20 percent longer to reach their destination than they had in 1969, but Postmaster General Anthony Frank assured Congress that the reduction in delivery standards would “improve our ability to deliver local mail on time.” In the weird logic and language of the American postal system, the key to success was to give the public less for its money.

The more things change in Postal World, the more they remain the same. In the 1960s, a stunning 83 percent of the agency’s total budget went to wages and benefits. Three decades later, after billions of dollars had been spent on automation, labor costs still accounted for 82 percent of the budget. And in 2011? “Decades of contractual promises made to unionized workers, including no-layoff clauses, are increasing the post office’s costs,” The New York Times recently reported. “Labor represents 80 percent of the agency’s expenses, compared with 53 percent at United Parcel Service and 32 percent at FedEx, its two biggest private competitors.”

That things have been getting tougher for the Postal Service, nobody disputes. With the ubiquity of e-mail, text-messages, social media, and online bill-paying, the volume of mail entrusted to the post office has been sinking for years. In a study published last year, the Government Accountability Office noted that first-class mail, the Postal Service’s most profitable business line, had declined 19 percent from its peak in 2001, and was expected to fall another 37 percent by 2020.

The Internet Age may be wreaking havoc with the post office and its mail-delivery business, but what industry in America isn’t going through the same wrenching experience? And not many institutions enjoy the benefits that federal law confers on the Postal Service: It pays no income or property taxes, it’s exempt from vehicle licensing requirements and parking fines, and it has the power of eminent domain. Most significant of all, it has a legal monopoly on the delivery of mail: The federal Private Express statutes make it a crime for any private carrier to deliver letters. The only exception is for “extremely urgent” letters, and even those may be delivered by a private company only if it’s willing to charge a much higher rate than the Postal Service would have charged.

They don’t have a legally binding monopoly, unlike the US Postal Service. Yet they’re thriving, while the post office is struggling to stave off bankruptcy.

Yet with all its privileges, the Postal Service is struggling, while UPS and FedEx flourish. Why? Because they have something invaluable that the post office lacks: Competitors.

“We have a business model that is failing,” Postmaster General Patrick Donahoe said last week. It’s true. But it was true long before e-mail came along. What is killing the post office is the lack of genuine, head-to-head competition that forces vendors to compete for customers by pushing quality up and holding prices down. Only in a government-sheltered monopoly like the Postal Service would labor costs remain as bloated as they have, year in and year out.

More than a decade into the 21st century, there is no reason why mail shouldn’t be delivered by multiple enterprises, each one competing for market share and goodwill by providing consumers with a valued service. In nearly every other area, after all, Americans embrace competition. With competition comes accountability. And only when the Postal Service is accountable — only when its customers are free to take their business elsewhere – will the endless round of excuses and losses and service reductions finally come to an end.