OIG says outsourcing processing and distribution would harm USPS and its customers

The USPS Office of Inspector General commissioned a study to determine the viability of outsourcing the postal service’s processing and distribution network. Not surprisingly, the OIG found that the only people who would profit from privatization would be the privatizers themselves- mailers would end up paying higher prices, and the USPS would lose revenue:

As the Postal Service continues to address its difficult financial situation, some have argued that overall efficiency would improve if the Postal Service were to focus exclusively on the first and last mile (collection and delivery). While the introduction of workshare discounts has led to private industry taking over a portion of the middle mile – mail processing and transportation – allowing private industry to take over the entire middle mile warrants close examination. We therefore asked Dr. John Panzar, an expert in postal economics, to look at the economic implications of the Postal Service abandoning the middle mile completely and focusing exclusively on the first and last mile for the letter and flat market.

Dr. Panzar finds that the Postal Service’s mail processing plays a vital role in ensuring the efficiency of the postal sector, even in the absence of economies of scale in mail processing. In other words, Dr. Panzar maintains that if the Postal Service abandons all mail processing and transportation of letters and flats, overall efficiency will decrease. Worse, the Postal Service would experience a loss in profits, and mailers would have to pay higher prices. In fact, the only parties benefiting would be the private providers of mail processing, but their benefit would be less than the combined loss to the Postal Service and mailers.

The parcel market, which is different and requires its own focused attention and stylized model, will be addressed in a future white paper.

Read more: The First and Last Mile Strategy: A Critical Assessment | Office of Inspector General.

  • fred

    This wasn’t an empirical study but one man’s theoretical opinion. I read the report and it’s just a theoretical model containing many assumptions and Dr. Panzar often relies on his own works as references. Not very scientific!

    I prefer to trust my own experience in the real world rather than a self proclaimed expert, and my experience tells me that the the competitive free market beats a government monopoly every time.

  • Privatize

    I say privatize it all so the big junk mail companies have to pay real rates instead of the special reduced below the cost of delivery rates now enjoyed. Congress is influenced by lobbyist companies who helped put the politicians in office. Who knows what else goes on. Watch how much gets stolen in private hands.