Tags: post | office | private | Europe

Could the Post Office Go Private? Consider Europe

By    |   Wednesday, 07 March 2012 08:38 AM

The question of whether to privatize the United States Postal Service (USPS) has been around since well before the Internet revolutionized communication. As far back as 1995, the Cato Institute brought together Post Office officials to debate options for the future.

Now 15 years later, first-class mail delivery has fallen by half, thanks to the Internet. Most of the mail delivered now is cheap bulk mail and advertising rather than expensive first-class mail or package deliveries. The USPS is set to lose $14.1 billion in 2012 after many years of multi-billion dollar losses.

The quick fix is the closing of about half of the 487 postal processing centers around the country by mid-May, including the elimination of 35,000 mail processing jobs and cutting 150,000 jobs by 2015. There are currently public consultations going on to shut 3,700 post offices across the country.

These cuts will help keep losses in check but they won’t be enough to bring about sufficient change in the USPS, change that several analysts and former Postmasters General say can only happen with privatization.

Can it work? In fact, it already has — in Europe.

Deutsche Post DHL (DPW) is the great success story for postal service reform. What began as letter-carrying for the Hapsburg family in 1490 was privatized in the mid-1990s and then went public in 2000. Since 2009, the company has gone by Deutsche Post DHL and is the largest logistics company in the world.

In the Netherlands, national postal service PTT was privatized in 2001 and is now known as Post NL-TNT (PNL), also a major global logistics company that competes with DHL.

Illegal aid

Just last year, the U.K. passed the Postal Services Act, which will see 90 percent of the Royal Mail privatized and the remainder owned by its employees. Already, 95 percent of post offices have been shut, so services are now provided in the backs of small shops and grocery stores.

As part of the privatization, the U.K. government had planned to take on several billions in debt resulting from the Royal Mail’s pension program. Similarly, the USPS has its own pension debts, which are partly responsible for its current dire straits. The European Union has stepped in, however, to make sure that taking on the Royal Mail debt does not constitute illegal state aid.

What a privatized USPS will look like is unclear, but restructuring is likely, as well potential buy-in from package carriers. FedEx (FDX) could be one contender, but UPS (UPS) has already indicated it wouldn’t want the USPS’s responsibility to ensure universal delivery. An IPO would likely be a last stage of privatization.

Deutsche Post DHL recently reported its third quarter net profit at $550 million, up from $329.2 million during the third quarter in 2010. It reports its 2011 earnings on March 13.

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