If USPS runs at a loss, how can Junk mail subsidize First Class?

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motorcyclesarecool
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If USPS runs at a loss, how can Junk mail subsidize First Class?

Post by motorcyclesarecool » Mon Aug 13, 2018 7:35 am

In another thread about dealing with junk mail, a very common statement keeps being repeated: (bold italics mine)
RickBoglehead wrote:
Wed Aug 08, 2018 12:33 pm
Keep in mind - a good marketer doesn't want to waste money sending mail to those that don't want it. But, the more you cut mail, the higher rates go, because bulk postage pays for all other mail services.
bill88 wrote:
Sat Aug 11, 2018 1:13 am
Think about it…by accepting this mail, you're contributing to a growing economy, and helping your fellow citizens put food on the table! :-) [....]

And, as someone mentioned earlier, you're also helping to subsidize first class mail rates for everyone!
CFIT wrote:
Sun Aug 12, 2018 4:53 pm
I used to be bothered by junk mail. Now I welcome it as it means more money to the Post Office, an institution that is struggling under punitive legislation regarding funding retirement for its workers.
If I start from the commonly held Boglehead premise that all money is fungible, and I see that the entire system operates at a loss, then isn’t the argument that one portion of that system subsidizes another merely a form of “mental accounting”? Further, the way any government or quasi governmental agency is statutorily permitted to count anything is often set in consultation with “stakeholders” through the federal register notice process, as well as through lobbying efforts.

I wouldn’t be surprised to hear that USPS can show reports demonstrating that the items they carry for the vast bulk mail industrial complex is more “profitable” despite receiving substantially less revenue per piece. But that doesn’t mean that a private sector auditor using GAAP methods would reach the same conclusion.

I understand that bulk mail is formatted and pre-sorted when it enters the postal system, but is the marginal cost of OCR on a handwritten letter, and printing a zip code barcode on the envelope, that much higher? Receiving Informed Delivery, and seeing that most of my junk mail is being scanned and imaged anyway, it’s hard for me to see the justification to charge them less per mail piece.

Is there some way to demonstrate that bulk mail subsidizes the rest of the (net loss making) system without it amounting to mental accounting?
Understand that choosing an HDHP is very much a "red pill" approach. Most would rather pay higher premiums for a $20 copay per visit. They will think you weird for choosing an HSA.

augryphon
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Re: If USPS runs at a loss, how can Junk mail subsidize First Class?

Post by augryphon » Mon Aug 13, 2018 7:53 am

if you’re already going to my house to deliver 2 letters for 49 cents each, why wouldn't you take 20 cents more to stuff some junk in my box? and it's usually 4 or 5 times 20 cents. so they get an extra $1 in addition to the $1 from first class mail I receive. without the junk, their gross would be half, and their loss would be many times higher.

AlohaJoe
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Re: If USPS runs at a loss, how can Junk mail subsidize First Class?

Post by AlohaJoe » Mon Aug 13, 2018 8:18 am

Mass mailing doesn't subsidise first class (letter) mail. If that's what someone meant, they are mistaken.

Mass mailing and first class (letter) mail subsidise parcel delivery.

The basic idea is: if you have a monopoly then you have pricing power. So you can overcharge and subsidise the products where you have to compete.

Using 2014 numbers, first class mail had $29.4 billion in revenue and $13.3 billion in attributable costs. Clearly there is no subsidy from junk mail required.

"Junk mail" had $17.5 billion in revenue and $10.5 billion in attributable costs.
Using attributable-cost shares as a benchmark for the institutional costs of USPS’s competitive operations, we estimate that the current 5.5 percent share of those costs has produced subsidy rates of 11.8 percent for international mail, 42.4 percent for priority mail, 46.5 percent for ground shipping, and 47.9 percent for first class packages.
But you said studies don't count (because I guess you think they are rigged?) so it isn't clear to me what kind of evidence you'd accept.

gtd98765
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Re: If USPS runs at a loss, how can Junk mail subsidize First Class?

Post by gtd98765 » Mon Aug 13, 2018 10:48 am

1. The USPS has substantial fixed costs - e.g., buildings, trucks, most employees - that do not vary with mail volume. To the extent that any type of mail pays more than it costs, it is "subsidizing" the fixed costs of the whole USPS, if you want to look at it that way.

2. Bulk mail costs the USPS significantly less to process than First Class since it is presorted by Zip, and often delivered by the mailer to the destination post office; whereas First Class can originate anywhere in the US and is often transported by USPS from its origin to destination. First class also bears a lot of ancillary costs like forwarding that Bulk mail does not get.

drawpoker
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Re: If USPS runs at a loss, how can Junk mail subsidize First Class?

Post by drawpoker » Mon Aug 13, 2018 12:51 pm

Has anyone ever heard of the p.o. holding back a large junk mail delivery and delaying it to increase "volume" on a certain day?

That is the explanation I was given last week when our Wednesday mail did not contain the regular, Wednesday delivery of the stores ads for our area (supermarkets, drugstores, other shops) Altho this is fourth-class mailing it does not represent "junk" to us Bogleheads, eager to check sale prices and bargains to be had in the coming week :!:

Our mail carrier is quite friendly so when I asked "what happened to the all the flyers, we didn't get them until Friday"
She said, Oh, the postmaster held them back.
I said, really, what happened, was there money owed or something?
No, she said, he just wanted to show an increase in volume on this route on another day.

Strange? Or not?

smitcat
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Re: If USPS runs at a loss, how can Junk mail subsidize First Class?

Post by smitcat » Mon Aug 13, 2018 12:59 pm

gtd98765 wrote:
Mon Aug 13, 2018 10:48 am
1. The USPS has substantial fixed costs - e.g., buildings, trucks, most employees - that do not vary with mail volume. To the extent that any type of mail pays more than it costs, it is "subsidizing" the fixed costs of the whole USPS, if you want to look at it that way.

2. Bulk mail costs the USPS significantly less to process than First Class since it is presorted by Zip, and often delivered by the mailer to the destination post office; whereas First Class can originate anywhere in the US and is often transported by USPS from its origin to destination. First class also bears a lot of ancillary costs like forwarding that Bulk mail does not get.
Great answer - yes 1st class mail costs more to process then they recieve in income and that is subsidized by the margin they receive from lower classes of mail.

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Re: If USPS runs at a loss, how can Junk mail subsidize First Class?

Post by LadyGeek » Mon Aug 13, 2018 1:03 pm

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