Can blockchain save the US Postal Service?

June 27, 2018


No. But it can help. And it would likely play a big role in a privatized postal service that is subject to competition.

 

 

What is the issue?

 

The US Postal Service (USPS) has been noted for its inefficiency and money-losing business model for years. The Cato Institute reports that the government agency lost $50 billion from 2006 through 2015 despite having access to subsidized interest rates on its debt, tax exemptions, authority to impede competitors, and a monopoly over first-class and standard mail.

 

Why does it lose so much money? One problem is the agency lacks clear financial incentives. The government’s financial support and protections constrain accountability for poor performance. Also, as is common with government-run enterprises, politicians press the agency to do things that make little economic sense, such as maintain too many offices. Costs imposed by the employee union also hold the agency back.

 

These problems emanate from a governance system that allows political interference and limits accountability. Blockchain does not fix that.

 

What can blockchain do?

 

Blockchain can improve operating efficiencies, enable greater customization of services, and improve service.

 

A blockchain distributed ledger is transparent and highly secure, making it easier for USPS and customers to track all mail items in great detail. And information is not in dispute because everyone involved has access to the same blockchain. This can lower costs and provide customers with greater control.

 

And the greater detail could enable USPS to provide more customization. Customers could be offered more pricing plans, and prices could vary based on whether USPS has spare capacity, for example. And if a customer discovers that delivery of a shipment has become more urgent after USPS already has the item, a blockchain could allow the customer to change the shipping speed. USPS would have the new delivery information immediately, enabling it to change how the shipment is being processed.

 

How can blockchain be implemented?

 

USPS could do this itself, but the same labor, political, and other issues that constrain the organization now would probably continue to hold it back. Congress could direct USPS to adopt blockchain, but such political decision-making might exacerbate USPS’s problems rather than diminish them.

 

The best approach might be to completely change USPS. This could include privatization, as the Trump administration has suggested, and competition. Many countries have successfully taken both steps. A private company with USPS’s monopoly status could be allowed to follow the financial incentives to lower costs and improve revenues by customizing and improving service.

 

But even better would be competition, with its ability to punish service providers that make poor decisions and reward those that best satisfy customers. A free market would encourage service providers to tailor their technologies to ever-changing markets and perhaps even share blocks in their blockchains (or share entire blockchains) to seamlessly move shipments across rival shipping networks, if that serves customers best.

 

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