Latest / The Productivity Podcast with Fexingo: Output, Efficiency, and Long-Term Economic Growth / Why the US Postal Service Is Actually a Productivity Story
Transcript
- Lucas: So the United States Postal Service delivers about 48 billion pieces of mail every year. That's roughly 130 million pieces per day. And they do it with a budget that's basically break-even by law — no taxpayer subsidy for operations since 1982. Luna: And somehow a first-class stamp still costs 55 cents. I can't buy a coffee for that. Lucas: Right. And that price has actually stayed remarkably flat in real terms. Adjusted for inflation, the cost of sending a letter has dropped significantly since the 1970s. That's a productivity story hiding in plain sight. Luna: But hasn't mail volume been falling for years? Everyone's paying bills online, sending emails. How do you maintain productivity when your core product is shrinking? Lucas: That's the fascinating part. Since 2006, first-class mail volume has dropped by more than 50 percent. Yet the Postal Service has kept its cost per piece relatively stable. They've done it through aggressive automation and network optimization. Lucas: In the early 2000s, most sorting was still manual. Now they've got these massive automated processing centers — one in San Francisco can sort 3 million pieces per day. Machines read addresses, apply barcodes, and route each piece to the right carrier in under 24 hours. Luna: So the productivity gain is coming from capital investment replacing labor. But the USPS is also required to deliver to every address — 160 million delivery points. That's a huge constraint. Lucas: Exactly. The universal service obligation is the key. Private carriers like FedEx and UPS can cherry-pick high-density routes and charge more for remote areas. The USPS has to go everywhere, and it has to charge the same price. Lucas: And that's where the productivity story gets really interesting. Because the USPS actually has lower cost per piece on last-mile delivery than FedEx or UPS in many cases. Their network is just denser. Luna: Denser how? I always thought of FedEx and UPS as the big logistics players. Lucas: The USPS has 30,000 post offices and 210,000 vehicles. That's more retail locations than Walmart, McDonald's, and Starbucks combined. And because they deliver to every address every day — six days a week — their route density is unmatched. Lucas: A single letter carrier in a dense urban area might deliver to 500 addresses on one route. That's incredibly efficient per stop. FedEx and UPS have to build their networks from scratch, and they don't have that daily frequency everywhere. Luna: So the USPS's productivity advantage is really a network effect. The more addresses they serve, the more valuable each additional stop becomes. Lucas: Exactly. And they've been smart about leveraging that. The 'last mile' for packages — that's where the USPS handles the final delivery for many FedEx and UPS shipments. They call it 'SurePost' and 'SmartPost.' The private carriers bring parcels to a USPS sorting center, and letter carriers deliver them. Lucas: The USPS charges less for that final leg because their cost is lower. And it frees up FedEx and UPS to focus on line-haul and time-definite services. It's a symbiotic productivity arrangement. Luna: But there's a downside, right? The USPS is still losing money on paper because of that 2006 law that forced them to pre-fund retiree health benefits. That's an accounting burden, not an operational one. Lucas: Exactly. The postal service has actually been operationally profitable in several recent years — they generated positive net income from operations in 2024 and 2025. The deficit comes from that pre-funding requirement, which no other agency or company has. Lucas: So the productivity story is real. But the financial narrative gets muddled by a policy decision from two decades ago. Luna: Let's talk about the automation side. What specifically has the USPS invested in? Lucas: They've installed over 800 automated sorting machines in the last decade — these are called DBCS, Delivery Bar Code Sorter. They can process 36,000 pieces per hour. Compare that to the old manual rate of maybe 1,000 per hour. Lucas: They also introduced 'flats' sorters for larger mail — magazines, catalogs — and package sorters for the growing parcel business. The result: labor hours per piece handled have fallen by about 40 percent since 2000. Luna: Forty percent is huge. But doesn't that automation come with a human cost? Fewer jobs for mail sorters? Lucas: It does. The postal workforce has shrunk from 800,000 in 2000 to about 525,000 today. That's partly automation, partly volume decline. But the remaining jobs are higher-skilled — technicians, data analysts, network planners. Lucas: And the union has generally supported automation because it makes the organization more sustainable. They'd rather have 500,000 stable jobs than 800,000 jobs that disappear when the postal service goes bankrupt. Luna: So what can other organizations learn from the USPS productivity playbook? Lucas: I think the biggest lesson is about network density and routing optimization. The USPS doesn't just sort mail — they constantly reroute it based on real-time demand. They use algorithms to decide which processing center gets which piece, balancing workload across the system. Lucas: That's a lesson for any logistics company: your fixed network is your biggest asset, but only if you use dynamic routing to maximize its throughput. And the USPS does that better than almost anyone. Luna: Another lesson might be about incremental automation. They didn't try to replace everything at once. They introduced sorters one facility at a time, trained workers, then scaled. Lucas: Yeah, that's a great point. The USPS has a 10-year capital plan that phases in new technology gradually. That reduces risk and allows for continuous improvement. You don't get a big productivity jump in one year, but you get steady gains over a decade. Lucas: And here's something that surprised me: the USPS is actually a leader in green logistics. Their fleet includes over 10,000 electric vehicles already, and they plan to go fully electric by 2030. That's faster than most private fleets. Luna: That's interesting — especially since the USPS has a reputation for being slow and bureaucratic. But maybe that reputation is outdated. Lucas: I think the reputation comes from the retail experience — standing in line at the post office. But the operational side — the sorting, the routing, the delivery — is world-class. The retail side is a small part of the cost structure. Lucas: And that's a lesson too: don't judge an organization's productivity by the part you see as a customer. The visible part might be inefficient, but the invisible engine could be running at peak efficiency. Luna: You know, this kind of analysis — digging into a real system and understanding its inner workings — this is exactly why I love working on this show. Lucas: I feel the same way. And I'll be honest — making a show like this, with no ads and no corporate backing, it only works because a small group of listeners supports us directly. Luna: Yeah, it's a handful of people who chip in monthly through buy me a coffee dot com slash fexingo. That literally funds the research time and the editing. It's not a big operation. Lucas: Exactly. And we're not asking anyone to do anything. But if walking through the economy with us has made something click, the option is there. Now back to the mail — one more thing about the USPS that I think is underappreciated. Lucas: Their package business has grown 40 percent since 2020. People order more online, and the USPS handles a huge chunk of that last mile. So even as letter volume declines, they're pivoting to where demand is. Luna: So the USPS is actually a case study in adaptive productivity. They can't change their mission — universal service — but they can change how they fulfill it. Lucas: Right. And the next time you get a package delivered by your mail carrier, you're seeing the result of billions of dollars in automation and decades of network optimization. It's a quiet productivity miracle.