Post Office vs. Amazon – the real reasons USPS is losing money

By Steve Geary | 04/03/2018 | 1:21 PM

Late last year, President Trump took aim at the Post Office and Amazon, tweeting, “Why is the United States Post Office, which is losing many billions of dollars a year, while charging Amazon and others so little to deliver their packages, making Amazon richer and the Post Office dumber and poorer? Should be charging MUCH MORE!

In another tweet, on March 31, the President goes on, “While we are on the subject, it is reported that the U.S. Post Office will lose $1.50 on average for each package it delivers for Amazon. That amounts to Billions of Dollars.”

President Trump might be overlooking the real challenges at the United States Postal Service (USPS), and Amazon isn’t on the list.  The President argues that Amazon is getting the better end of the deal in the agreement with the USPS  and insinuates that taxpayers may in effect be subsidizing a private sector company. But, there is a bit more to the story.

FedEx and UPS and a bunch of other companies use the Post Office for last mile delivery.  The Post Office has the most formidable infrastructure in place in the United States designed to deliver everywhere, every day.  Standard delivery covers the map six days a week.  The Post Office delivers some high priority mail packages on Sunday, as well as some Amazon packages. 

That last mile capability is what we call a competitive advantage, and the Post Office is mining it for all it’s worth.  And in reality, the small package segment of the USPS business model is actually a money maker. There is a really important concept in accounting called “contribution margin,” and the President Trump needs to consider it.

The Post Office is losing money, and has for years; largely driven by shifts in the market.  Junk mail – once a cash cow for the Post Office - is tanking.  First class mail – supplanted by email - is tanking.  eBills and ePayments – it’s been months since I last wrote a physical check – have totally reengineered the way we do business. 

However, . Postal Service expenses continue to exceed revenues and they have limited ability to control overhead.  Challenges include a unionized government workforce, high pension and healthcare costs mandated by Congress, regulatory obstacles, and the inability to close underperforming (money-losing) post offices, to name a few.  

The Post Office is significantly constrained in their ability to react appropriately, in a business sense.

Federal Statute establishes the USPS Board of Governors to “direct the exercise of the powers of the Postal Service, direct and control its expenditures, reviews its practices, conduct long-range planning, approve officer compensation, and set policies on all postal matters.”  By law, there should be nine members on the Board of Governors, nominated by the President and subject to Senate confirmation.  These nine select both the Postmaster General and the Deputy Postmaster General, for a total of 11 seats. 

At the present time, all nine of the Senate-confirmed seats are vacant with just three nominations pending Senate confirmation.  There are still six more nominations to go, and Congress is still on the hook to confirm the three that have been made.

Good luck with recruiting willing participants for the Board of Governors.  We’d all like to see the President tap his network and recruit some serious players for the board, but there are challenges.  Pay is limited to a rate of no more than $300/day for forty-two days, plus an annual salary of $30,000, or a maximum total annual pay of $42,600.

So, the President’s recent attention on the business acumen of the folks at the Post Office is a little off target.  Post Office profitability challenges are tied to far more issues than Amazon.  In reality, the President and Congress are significantly contributing to the problem. 

Might we respectfully suggest that the President and Congress exercise some leadership and sound business management acumen to fill the void and position the Post Office for success?

Disclosure:  the US Postal Service is a current client with one of my consulting businesses.  You might consider that a conflict of interest or you might believe that gives some credibility to my opinions.  That judgement is in the hands of the readers.

It’s great when the federal government nails it.

By Steve Geary | 03/25/2018 | 4:28 PM

Since it was established 25 years ago, the U.S. Trade and Development Agency (USTDA) has generated a total of $61 billion in U.S. exports and supported over 500,000 American jobs.

The USTDA is a small independent federal agency whose mission is to help American “companies create U.S. jobs through the export of U.S. goods and services in emerging economies.”

If you are reading this blog, you know that transportation and transportation infrastructure – a focus area for the USTDA – is a catalyst for business.  The USTDA’s published statistics cite $95 in trade generated for every dollar spent by the agency.

According to the USTDA website, “Transportation is a critical sector, as it links people and, even more importantly, drives trade, investment and economic growth.  USTDA activities in the transportation sector support the development of higher capacity aviation, rail, port and highway systems, improved safety management, and the adoption of international safety and security standards.”

Describing what they do, the USTDA says, “From providing technical assistance that supports trade facilitation, to piloting U.S. technologies for customs systems at borders, to modernizing ‘hard’ infrastructure at ports, railways and airports, the Agency introduces high-performing U.S. solutions that can increase capacity, enhance efficiency and improve safety.”

In 2016, USTDA launched the Global Procurement Initiative, to provide partner nations with the knowledge needed to make “best value” decisions and understand life cycle cost analysis to level the playing field for US companies seeking international opportunities. 

The natural follow-on to any infrastructure development funded by the United States is trade with the United States.  Businessmen understand taxes when they yield an asset.  Logisticians understand taxes when that asset is transportation infrastructure.

That’s what USTDA does:  build transportation capability to drive business for the United States.  Notably, transportation is just one of their sectors.  They also focus on energy and telecommunications.  The Agency has actually gotten ink from Forbes, so they must be doing something right.

Now, if Congress would only apply the same logic to transportation within the United States that USTDA uses to drive international trade . . . for more, please see my February blog, “Memo to Washington:  Do the math, then do your job.”

There is a storm rolling in

By Steve Geary | 03/14/2018 | 3:44 PM

If you work in logistics, you understand compliance.  The government sets the rules, and we figure out how to follow them.  OSHA rules.  Labor standards.  Tariffs.  Gas taxes.  The list goes on.

We know how to project these costs, know how to plan for these costs, and know how to run a business incorporating these costs.

President Trump has now introduced uncertainty, announcing tariffs on aluminum and steel.  And while he began with steel and aluminum, he quickly escalated the rhetoric to include a threat of tariffs on European autos.  Our trading partners have not been silent.  Europe is talking about Tennessee whiskey and Harley Davidson.

To make it messier, the President has added unpredictability to the uncertainty.  Canada and Mexico are exempted, but what about Australia.  There is confusion over Australia.  Who knows who else is knocking on the door of the White House.

These ten countries account for about two-thirds of our steel imports:

  1. Canada 16.7%
  2. Brazil 13.2%
  3. South Korea  9.7%
  4. Mexico 9.4%
  5. Russia 8.1%
  6. Turkey 5.6%
  7. Japan 4.9%
  8. Germany 3.7%
  9. Taiwan 3.2%
  10. China 2.9%

Source:  Reuters

What is the President up to?  Why steel?  Why aluminum?  What next?  Just about a year ago I wrote, “Uncertainty Stinks.”  Then last fall, I followed up with “Interesting times.”  The time for conjecture is over; there is a storm rolling in.

Tariffs and retaliatory tariffs are in play, and they will ripple across the supply chain.  Depending on your exposure, you may have a blip to deal with, or you may have to do a complete logistics and sourcing reset. 

Even worse, any hope for precision is out the window because we do not know broad the impact will be.  Is it just steel and aluminum, or did we just see the start of a global trade war?  Are we reacting to a ripple, or will it be a tsunami? 

My advice for logisticians: plan for the worst, hope for the best, and start running for the high ground.

Affirmation is a wonderful thing:  Performance Based Logistics at DLA

By Steve Geary | 02/25/2018 | 8:34 AM

A tranquil and rainy Sunday morning is an ideal opportunity the to read and digest DoD policy.  Policy is a wonderful thing – the playbook that directs what the government actually does – and today’s theme is logistics policy at the Defense Logistics Agency (DLA).  In particular, the focus is a search for Performance Based Logistics directives at DLA. 

According to the Defense Acquisition University, with PBL “outcomes are acquired through performance based arrangements that deliver Warfighter requirements and incentivize product support providers to reduce costs through innovation. These arrangements are contracts with industry or inter-governmental agreements.”

Policy at the Defense Logistics Agency flows from the top down, beginning at the White House.  The President provides the vector, the Secretary of Defense issues direction across the Department of Defense, and the direction ultimately cascades down to the operational level. 

There are five Focus Areas laid out by DLA leadership to describe DLA’s “plans, priorities and expectations related to Industry Engagement from the DLA enterprise perspective.”  Peeling back within the five Industry Engagement Focus areas, there is a detailed description of “Supplier Communication and Interaction.”

“Following Secretary Mattis’ guidance, DLA acquisition professionals and leaders are encouraged and expected to engage with and work collaboratively with industry in a fair and open manner. DLA will continue to initiate, ensure and be responsive to supplier interactions at all levels of business.”

And then there is a citation pointing to a detailed diagram that invokes Performance Based Logistics as a critical piece of the Supplier Engagement Strategy, “see Supplier Engagement Spectrum below.”

PBL lives on at DLA.

Memo to Washington:  Do the math, then do your job

By Steve Geary | 02/21/2018 | 7:33 AM

The federal government funds the nation’s transportation surface infrastructure in large part through federal gas taxes. Conceptually, that makes sense. If you drive a car, or a truck, you use the roads, so the 18.4 cents per gallon tax funds roads and bridges.

Except it doesn’t anymore, and projections show it getting worse. The gas tax is a fixed rate, not a percentage, and it hasn’t been revised since 1993. Because of inflation the purchasing power of the 18.4 cents per gallon has declined, meaning that the effective tax rate has declined to around 11 cents.

We can quibble over the math, look at the underlying variations in the cost of gasoline itself, but let’s just accept that the purchasing power of a dollar in 1993 has declined by about 40%, there isn’t enough government money to maintain the infrastructure.

And technology shifts will further erode the revenue base. The federal government understands this, and the GAO has been firing warning flares since 2009.

The tax base will likely continue to erode as demand for gasoline decreases with the introduction and adoption of more fuel-efficient and alternative fuel vehicles. To maintain spending levels of about $45-50 billion a year for highway and transit programs and to cover revenue shortfalls, Congress transferred a total of about $141 billion in general revenues to the Highway Trust Fund on eight occasions from 2008 through 2015. This funding approach has effectively ended the long-standing principle of "users pay" in highway finance, breaking the link between the taxes paid and the benefits received by highway users. 
Source: GAO.gov

We need infrastructure. In business, there is not a thing we bring into our warehouse or send out to our customers that doesn’t need transportation infrastructure. Washington needs to wake up and do its job.

Even my mother understands it

By Steve Geary | 02/04/2018 | 4:32 PM

Watch what happens in any Emergency Room.  Patients arrive.  Medical professionals examine, categorize, and route to treatment.  That routing may be to a bed in that facility, perhaps an operating table, or a transfer to a more appropriate facility.

That same description would work for any cross-dock operation in the world.  Go to any cross-dock facility, or even a break bulk location, and you will see the same process flow.  Goods arrive.  They are identified, categorized, and routed.  That routing may be to points of use, a queue, or matched to another facility.  Top notch distribution centers move through this process at the speed of light.

This weekend, my mother and I experienced the full spectrum of logistics in health care.  We rode an ambulance to one facility, spent a couple of hours in an examination process, then routed to another facility 10 miles down the road, where we went through the examination, categorization process  all over again.

Let’s say it didn’t feel like we were running through the medical analogue to a Wal-Mart DC.

Good logistics practice applies where ever there is flow.  What’s moving can be a physical item, or a logical concept, or even person.  Everything fits in a flow, and best-in-class logistics principles are universal.

Maybe somebody should ask the insurance companies, who seem to have distorted good logistics principles when it comes to patients in hospitals. Or maybe we should ask the government folks who write the regulations.  But, given what we saw,  I think I understand why medical costs are spiraling out of control.

As we were idling in one of the stops along the way, my mother looked at me and said, “What is so hard about this?” 

All I could do was smile, and then go hunt down somebody to expedite.

The line between disorder and order lies in logistics.

By Steve Geary | 01/02/2018 | 2:04 PM

Sun Tzu said, "The line between disorder and order lies in logistics."  That idea is as relevant today as it was when he wrote it twenty-five hundred years ago.

Managing that line matters.  That activity – managing Sun Tzu’s line between disorder and order – is Supply Chain Risk Management (SCRM).

Twenty-five years ago SCM was innovative, vibrant, and led to fresh ideas in business integration.  Today this art has become a science and universities teach SCM at the undergraduate level. So where is the nexus of artful innovation in SCM taking place today? 

Innovation lives in the “R” of SCRM. In a time where margin is key - whether its financial profit margin or big data margin of error - we all must push our supply chains to be focused, efficient, and effective. We cross Sun Tzu’s “disorder” line when we fail to anticipate the negative impacts of running too lean or expediting too often or stockpiling just in case.

Supply Chain Risk Management should be a standard topic in your operations reviews. 

Almost a decade ago, Wieland and Wallenburg published an original document exploring Supply Chain Risk Management.  According to Weiland and Wallenburg, Supply-chain Risk Management (SCRM) is "the implementation of strategies to manage both every day and exceptional risks along the supply chain based on continuous risk assessment with the objective of reducing vulnerability and ensuring continuity".  Some risk is inherent in any supply chain, others emerge when we push our supply chains to go faster, leaner, cheaper, or push the envelope in some other way. Regardless of why the risks exist, they must be managed to maintain the order we all desire.

Supply Chain Risk Management is where the original thought and original research is taking place in the Supply Chain today.  And today, there are many geopolitical issues that every logistics practitioner needs to be thinking about:

  • How exposed to risk is the supply chain? The world seems to be a more dangerous place these days.  From weather to ISIS, the landscape is changing.
  • How resilient is the supply chain? Trusted partners are great, but single threads in the supply chain carry risk.  That risk needs to be measured, managed, and evaluated.
  • Now nimble is the supply chain? If a link shuts down – say, the Korean situation leads to sanctions on China – how quickly can you recover?  Have you mapped your contingency plans?
  • Is there a rational and structured approach to measuring risk? Trade policy is shifting in the United States, and where it will ultimately land, is a question mark.  And have you taken action with an eye on containing or mitigating the risks?

If you live in the Supply Chain, you are nimble at planning.  But often that performance – live a high performance car speeding around the track in Indianapolis - creates other risks across the network. 

If you have not done it already, it’s time to take the next step, and assemble a Supply Chain Risk Management Plan that helps ensure your critical operations do not cross the line into disorder.

Simple logic says we may have a complex problem on the way.

By Steve Geary | 12/09/2017 | 4:58 PM

We spend a lot of time doing supply chain analysis, identifying key indicators, and then developing plans based on the picture those indicators paint.

Consider, as of December 9:

  • For the first time in over a decade, the US Navy has seven of its eleven aircraft carrier fleets at sea.
  • Of the seven, five are in the Pacific.
  • Of the five in the Pacific, three are in the Western Pacific.
  • Korea sits between the Yellow Sea and the Sea of Japan, which are in the Western Pacific.
  • The three in the Western Pacific are fully staffed, fully equipped, and combat ready.
  • The carriers in the Western Pacific have full air wings, including F-35’s, and combat ready carrier escorts.

Forget the talking heads on the evening news. Instead of listening to what they are saying, look at what the Navy is doing.  Read a map.  Apply some simple logic.

Readiness is everything in the military.  It sure looks like the logisticians have the pieces in place to go into battle with North Korea.  That’s what a military logistician means when talking about readiness.  And there are four other carrier groups in place around the world in the event that somebody else – the names Putin and Erdoğan come to mind – sense an opportunity for mischief.

Are commercial logisticians also ready if the curtain goes up?  Many of us rely on logistics connections with China, or elsewhere in Southeast Asia.  Do you have a contingency plan if things take a nasty turn?

Sometimes life is about having Plan B ready to go.  Look across your supply chain, one, two, even three tiers way.  Look back to your suppliers, and forward to your customers.  Check out your safety stock levels, your alternate sources of supply, and your backlogs.

Are you vulnerable?

Will the Federal Government ever catch up?

By Steve Geary | 12/03/2017 | 6:37 PM

I read a column by Steve Banker, a fine analyst and advisor in the Supply Chain, “What Was Hot in Supply Chain Technology In 2017.” 

Steve listed 3D Printing of Spare Parts, Artificial Intelligence and Machine Learning in Supply Chain Applications, Autonomous Mobile Robots for the Warehouse, Autonomous Trucks, SNEW data – social media, news, event, and weather data – and the Uberization of Freight.

It’s a good list.

What I find interesting is what happens when you overlay that list against the Federal Government.  There are few touch points.

The military is taking autonomous trucks and robots seriously, as well as 3D printing of spare parts, for obvious reasons.  I sure hope some of the folks in the Three Letter Agencies (CIA, NSA, etc.) are doing something with Artificial Intelligence.  I keep hoping that NASA will do something spectacular like they did in the sixties, but they remain starved for funds. 

This is not a long list.  Where are the other overlaps between innovation and the Federal Government?  It shouldn’t be a hard question.

During World War II, a phrase entered common usage.  Seventy-five years ago, "good enough for Government work" meant it could meet the most rigorous of standards.  That’s not what people mean when they use that phrase today, and that should make all of us sad.

Once upon a time the Federal Government was known for innovation, including achievements in the supply chain.  These are the people who gave us the Post Office, the most formidable last mile delivery capability on the planet.  The Feds figured out how to mobilize the supply chain to win World War II on the other side of the Atlantic, and even more impressively on the other side of the Pacific.  They conceived of and created the interstate highway system; where would we be today without that coast-to-coast network?  ARPA, now DARPA, played a pivotal role in the creation of the internet. 

The list could go on, but I don’t really see much that is meaningful and recent.  Why can’t federal government agencies keep pace with the private sector anymore?  I once had a boss who liked to ask, “What have you done for me lately?” As a Taxpayer and a Supply Chain Professional, I find myself wanting to ask that same question of the Federal Government. 

Can anybody tell me who I should call?

Blockchains for Blockheads.  I think I finally get it, Part II.

By Steve Geary | 11/24/2017 | 7:12 AM

This is the second installment of a series on Blockchain.  Click here to read Part I, a primer in Blockchain.

Remember the Clipper Chip?  In the early 90’s, the NSA made a valiant attempt to insert a back door into private email communication so the government could monitor internet traffic.  The effort began in 1993, and by 1995 the effort was over.

George Santayan said, “Those who cannot remember the past are condemned to repeat it.”  Keep an eye on Blockchain.  When the government realizes what is happening, we may see something like the Clipper Chip initiative all over again.

Over the past several decades, supply chains have evolved from hierarchical organizations with top down command and control to become the continuously evolving amorphous network reaching around the world.

It’s not your grandma’s physical network.  Today, logistics networks are about horizontal cross-functional integration.  That network includes B2B as well as B2C. 

If you order a product over the internet you may just get a box that was packed in China and wholesaled by a US operation, never touched by American hands.  Or, you may get a product including subassemblies sourced from Latin America, Europe, and Asia, assembled somewhere in the United States.

But the associated transactional environment remains stuck in the past.  Blockchain is going to change that.  In fact, it’s already impacting information exchange and transactional execution in the financial world.

I’m a box kicker at heart, so I don’t do well with abstract statements.  What does Blockchain mean to me?  In simple terms, Blockchain is an evolution from a system based on information intermediaries to a system based on protocols.”

Think about a purchase where you use a credit card.  There is a buyer, a seller, and an intermediary, the credit card company.  Everything flows through the credit card company, who is in effect the channel master for the financial pieces.  They are a broker sitting in the middle, in disintermediating the buyer and the seller.

The credit card company is an information overseer providing validation of the financial transaction.  For this service – undoubtedly valuable – the credit card company takes a few percentage points off the top. 

The costs add up, fast.  Letters of credit.  Reference checks.  Escrow.  You get the picture.  If I owned a credit card company, or a bank, I’d be worried.  Blockchain is a disruptive threat to their core business.

Widen the scope, and you see this sort of similar complexity all over logistics.  In our world, we don’t simply do pairwise transactions.  We are involved in multinational trading networks that evolve over time. 

What if we apply Blockchain innovation – now proven and being widely adopted in the financial world - to logistics information exchanges in general?

We may be on the cusp of a revolution in logistics information exchange.  Does the government understand the change that’s already happening?  Is Blockchain going to trigger an attempt at new regulation, a new incarnation of the Clipper Chip?  

Comments and opinion welcome.

The opinions expressed herein are those solely of the participants, and do not necessarily represent the views of Agile Business Media, LLC., its properties or its employees.

About Steve Geary

Steve Geary

Steve Geary is an adjunct faculty member at the University of Tennessee's College of Business Administration, and is on the faculty at The Gordon Institute at Tufts University, where he teaches supply chain management. He is the President of the Supply Chain Visions family of companies, and Chief Operating Officer at ROSE Solutions, consultancies that work across the government sector. Steve is a contributing editor at DC Velocity, and editor-at-large for CSCMP's Supply Chain Quarterly. He is listed in Who's Who in America, Who's Who in the World, Who's Who in Science and Engineering, and Who's Who in Executives and Professionals. In November of 2007, Steve was recognized for "Selfless Service to Our Nation and the People of Iraq" by the Deputy Secretary of Defense.


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