Japan Post went public lastweek and managed to raise $12 billion, making a national mail carrier responsible for this year's most successful initial public offering. That’s a lot of money at a time when mail is disappearing and the U.S. Postal Service, the world’s largest deliverer of letters and parcels, is awash in red ink.
Much of the American commentary about the Japan Post Holdings IPO has noted how differently the Japanese run their postal service. In 2014, for instance, mail delivery accounted for only 12% of Japan Post’s revenue—and 74% came from such nondelivery businesses as life insurance sold at 24,646 post offices. Another 14% flowed from banking operations. Japan Post sold shares in the three businesses and plans eventually to spin them off as separate companies.
By contrast, 95% of USPS sales come from transporting mail. And unlike their Japanese counterparts, American letter carriers make their appointed rounds in aging white trucks rather than red scooters.
But there is an important similarity between the Japanese and American postal services: Both organizations have endured sharp declines in their mail volume. In the fiscal year ended March, Japan Post delivered 18 billion pieces—or 3 billion fewer than in 2007—and that helps explains its ongoing transformation into a package delivery company. Earlier this year, Japan Post paid $4.6 billion for Toll Holdings, an Australian logistics company, which made the postal service more attractive to investors.
That's a proven strategy. In the first major postal privatization, Deutsche Post conducted a successful IPO after purchasing 50% of DHL, the international parcel delivery company. Deutsche Post shares went on to attract considerable attention for investors during the 2000 IPO. At the time, USPS also talked about going private. But postal worker unions and their allies in President Bill Clinton's White House didn’t want to hear about it. And there’s been no talk of privatizing the American postal service.
Perhaps the successful Japan Post IPO will get people in Washington thinking more adventurously again. Last year, the USPS delivered 155 billion mail pieces, or 27% fewer than the peak reached in 2006. The package segment was the only part of the business that increased by volume, up by a healthy 8%.
Naturally, the USPS is trying to morph into more of a package delivery operation too. But its white trucks are 25 years old, and they were designed when the USPS transported more letters than anything else. The USPS hopes to replace its fleet of 190,000 vehicles—at a likely cost of $5 billion. The government agency, which had a $5.5 billion net loss last year, just doesn’t have that kind of money.
Congress has to come up with a plan to upgrade the postal fleet, but perhaps this is a moment to think bigger. Maybe it’s time for the USPS to pair up with an airfreight company and turn itself into a global package delivery business, just as Deutsche Post and Japan Post have done. This time around the American postal worker unions may not be a problem. Declining mail means fewer jobs. Since 2006, the USPS has eliminated 30% of its full-time employees.
Privatization is frightening—but just look what happened when the USPS didn’t do it.
