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285 IRET Congressional Advisory 1 (2012)

handle is hein.taxfoundation/iretcgadv0282 and id is 1 raw text is: INSTITUTE FOR RESEARCH ON THE ECONOMICS OF TAXATION
IRET is a non-profit 501 (c)(3) economic policy research and educational organization devoted to informing
the public about policies that will promote growth and efficient operation of the market economy.
July 30, 2012                                                                      Advisory No. 285
Foreign Postal Services Sell Many Nonpostal Products; Would
The U.S. Postal Service Be Financially Stronger If It Did The Same?
Executive Summary
Electronic diversion, together with the Great Recession and its after-effects, have buffeted postal services
throughout the world. Nevertheless, the majority of foreign posts in high- and medium-income countries
have remained profitable in recent years, according to data from the Universal Postal Union (UPU).
Meanwhile the U.S. Postal Service has racked up five consecutive years of red ink, losing $5.1 billion
in 2011 alone, and it warns of worse deficits ahead.
Previous IRET studies examined three reasons why USPS is ailing financially compared to most foreign
posts: limited ability to control costs because of Congressional micromanagement, the financial stress
of funding extremely generous retiree health benefits, and postal rates that are low by international
standards.
This paper investigates whether the Service's limited degree of nonpostal business diversification
contributes to its financial problems compared to the majority of other posts. A striking fact is that many
foreign posts are heavily involved in nonpostal commercial activities, while USPS remains essentially
a postal operator - the largest in the world.
In a study for USPS, the consulting firm Accenture looked at 25 foreign postal services that generate
about two-thirds of foreign mail volume. Diversified products contributed 63% of the foreign posts'
total revenue in 2008, up from 49% in 2003. At only two-fifths of the foreign posts did diversified
products contribute less than 40% of revenue in 2008. Although Accenture's numbers overstate
nonpostal products because they include package services, which are considered postal products in the
United States, the share of revenue foreign posts obtain from nonpostal commercial products is clearly
large and growing. Several of the main nonpostal business areas that have attracted foreign posts are
finance, logistics, insurance, and Internet-related services.
Accenture reported that foreign posts generally earn profits on their diversified products. Those numbers
indicate that diversification is helping foreign posts' bottom lines.
Has diversification also been good, however, for mail users, taxpayers, and national economies? The
evidence suggests not. Contrary to the claim that nonpostal business lines subsidize mail service, which
should hold down postal rates, the relatively nondiversified U.S. Postal Service has some of the lowest

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