Contractors are antidote to US Postal Service's billion-dollar losses

Last year, the U.S. Postal Service lost USD 5 billion.

The Postal Service used to be able to simply raise stamp prices to deal with financial trouble. The cost of a First Class stamp has risen more than 30 percent in the past ten years.

But thanks to reform legislation passed in 2006 which limits postage increases for monopoly products to the annual rate of inflation, the Postal Service can no longer rely on ordinary stamp-buyers to balance its ledger.

And although USPS revenues are climbing each year, they’re unlikely to climb high enough to get the agency out of the red, given current trends. First Class mail volume is declining, and higher prices will only exacerbate that trend.

To right the ship, the Postal Service must cut spending. Since labor costs account for a full 80 percent of the Postal Service’s expenses, they’re the best place to start.

Private contractors can and should play a role in bringing down these costs. Clearly, Postal Service management has recognized this, as it has made outsourcing and contracting a major component in its strategy to keep costs under control.

The Postal Service mostly uses contractors for new routes. And there’s plenty of work to go around. Each year, 1.8 million delivery points are added to the mail network, mostly in rural areas.

The Postal Service is now looking to contract with the private sector to sort and transport bulk mail and parcels. Currently, a national network of USPS facilities manages these tasks. The prospect of private firms taking on these duties has elicited heated responses from the leaders of postal labor unions, but employing contractors for both sorting and delivery could do wonders to help USPS keep costs under control.

In the last round of union negotiations, management agreed to a temporary moratorium on outsourcing, under the assumption that a more permanent arrangement would be worked out in future negations.

Last year, the U.S. Postal Service lost USD 5 billion. It’s on track to lose at least another billion this year. The agency is trying to straighten out its balance sheet, but some federal lawmakers are attempting to eliminate the best option it has to cut costs — outside contracting.

Several current Congressional proposals would severely complicate future efforts by the Postal Service to outsource work to private contractors. The plans are being widely celebrated by the postal labor unions.

The Postal Service used to be able to simply raise stamp prices to deal with financial trouble. The cost of a First Class stamp has risen more than 30 percent in the past ten years.

But thanks to reform legislation passed in 2006 which limits postage increases for monopoly products to the annual rate of inflation, the Postal Service can no longer rely on ordinary stamp-buyers to balance its ledger.

And although USPS revenues are climbing each year, they’re unlikely to climb high enough to get the agency out of the red, given current trends. First Class mail volume is declining, and higher prices will only exacerbate that trend.

To right the ship, the Postal Service must cut spending. Since labor costs account for a full 80 percent of the Postal Service’s expenses, they’re the best place to start.

Private contractors can and should play a role in bringing down these costs. Clearly, Postal Service management has recognized this, as it has made outsourcing and contracting a major component in its strategy to keep costs under control.

Critics claim that contractors pose a significant threat to the integrity of the mail and to the future of the USPS workforce.

But contract workers aren’t a new development. The stagecoach operators of the late 18th century and the legendary Pony Express riders of the 19th century were private contractors hired by the Postal Service to deliver the mail.

Today, postal contractors and their employees are obligated to submit to rigorous background checks, just like career Postal Service employees. Their work is monitored by the Postal Inspection Service to ensure reliability and integrity.

The Postal Service mostly uses contractors for new routes. And there’s plenty of work to go around. Each year, 1.8 million delivery points are added to the mail network, mostly in rural areas.

The Postal Service is now looking to contract with the private sector to sort and transport bulk mail and parcels. Currently, a national network of USPS facilities manages these tasks. The prospect of private firms taking on these duties has elicited heated responses from the leaders of postal labor unions, but employing contractors for both sorting and delivery could do wonders to help USPS keep costs under control.

In the last round of union negotiations, management agreed to a temporary moratorium on outsourcing, under the assumption that a more permanent arrangement would be worked out in future negations.

To continue its primary task — delivering mail at an affordable price — the Postal Service must rein in its growing labor costs. Denying the Postmaster General the ability to maximize his agency’s efficiency through the strategic use of postal contracting could prove to be a very expensive mistake.