If you were ask the average American to invest in the U.S. Postal Service, you would get a puzzled response. After all, the USPS lost $15.9 billion last year. Taking an equity stake in such a business would probably strike most people as a sure way to diminish one’s net worth.
Then again, it might be quite lucrative. Consider the outcome of the highly anticipated initial public offering of the Royal Mail (RMG:LN) on Friday in the U.K. Investors were so hungry for shares of the 360-year-old postal service that the stock price rose 38 percent on the first day.
In short, there is still enormous value in a business most Americans consider doomed. If only Facebook’s (FB) first-day IPO result had been so good.
The Royal Mail’s investors understand that the Internet is decimating letter delivery revenue. But they expect the newly privatized national mail service’s package business to grow as its customers shop more on Amazon.com (AMZN) and other online retailers.
The same is true of the USPS. Its first-class mail revenue declined by 3 percent to $28 billion last year, while shipping and package services revenue rose by 5 percent, to $11 billion. This why the USPS wants to stop delivering letters on Saturday—saving $2 billion annually—as it continues six-day-a-week package service. Congress, however, is forcing the USPS to do both, despite its losses.
Ultimately, Congress is a bigger problem for the USPS than the internet. Democrats are allied with postal worker unions that want to protect the jobs of their members. Republicans are philosophically opposed allowing the USPS to expand its business because they don’t like the idea of a government agency competing with the private sector.
The net effect: USPS can’t meaningfully cut its costs or boost its revenues, locking the service in a death spiral. Not that privatization is only answer: Other governments don’t insist that their national postal service restrict operations to mail delivery. The French postal service, for instance, offers banking services. (The U.S. one did, too, until the 1960s.)
Can Congress continue to let the USPS bleed to death? The Royal Mail’s successful IPO shows that it doesn’t have to be that way.