Turns out the U.S. Postal Service isn’t just about collecting and delivering mail. It also has an essential role in the middle. Sorting and long-haul transporting, that is.
That may run counter to the arguments of those who believe the Postal Service could be more efficient if it focused only on collecting and delivering mail (also known as first mile and last mile) and let private companies take over sorting and long-distance transporting (the middle mile). The argument has gained traction among some stakeholders and observers, but our new white paper – The First and Last Mile Strategy: A Critical Assessment – says the opposite may be true.
With the Postal Service beset by financial challenges, anything that might improve efficiency and the bottom line merits consideration. But outsourcing mail processing would be a pretty radical measure, not to be taken lightly. That’s why we asked Dr. John Panzar, a noted expert in postal economics, to look at the economic implications of the Postal Service completely abandoning mail processing and focusing exclusively on collection and delivery. We asked him to look only at letters and flats because parcels constitute a different market.
Dr. Panzar developed a theoretical model based on key economic principles and found that overall efficiency would likely decrease should private companies take over the middle mile. Mailing costs, in turn, would likely go up for postal customers. The only winners would be the companies sorting and transporting the mail, but their combined gains would be less than the losses to the Postal Service and customers. Simply put, the Postal Service’s participation in mail processing is necessary for overall efficiency.
Like all theoretical models, Dr. Panzar’s relies heavily on particular assumptions that are open to challenge. Still, his intriguing conclusions invite thoughtful discussion and debate. So, what do you think? Should outsourcing the middle mile be studied further? Do Dr. Panzar’s findings surprise you? What other ways could the Postal Service gain efficiencies?