Product Market Conditions of the US Postal Service - Report Example

USPS Accounting Report due USPS Accounting Report Introduction The following essay is a report to the US Postal Service (USPS) directors diagnosing the state of affairs and contributing some forecasts on what might be a more sustainable and applicable business model. USPS has not been performing well and to a point of difficulties in meeting health care benefits of the employees. In fact, the corporation cannot operate as a self-sustaining business without raising rates or sacrificing service continually. Product market conditions of USPS Currently, every customer using the postal service of the corporation has a horrible story about the delays and inconvenience of the service. Most of the customers complain about terrible delays, which take longer than expected. For example, a particular customer living in Elizabeth received a Christmas card on Valentines. Items sent through the service such as Cheques lead the receivers’ financial crisis because they take too much time to deliver. Companies using the USP service to send goods for sale to their customers in advance to ensure that the packages reach the recipients before sale get the packages after the sale. The most shocking issue is that even those items supposed to take shortest time possible reach the owners after more than five days. The Main problem causing delays is that that most letters go on board on some extraordinary detours. The items reach the owners after making a round trip journey in a huge locality (Bradley 52). USPS causes inconveniences to its invited visitors. For example, the corporation sent a ceremony invitation card to a businessperson based in Atlanta to the local post office; the most shocking thing is that the invitation arrived ten days later after the event. Some of the mistake done by the corporation has led to the firm losing a hue number of clients because of the in less or no satisfaction experienced by the clients. The main problem of the inconveniences is that the firm has been so hell-bent on reducing costs of operation that it could not concentrate more on the efficiency and effectiveness of the services it offers (Marder 19). Competition in Postal Market The current market of the delivery business has taken a competitive angle because private firms have come up to offer fast and effective services. Therefore, the corporation decided to operate as a business to address all the problems arising in delivery. In March 1972, the postmaster declared that the customer courtesy and service would be the way of life and culture throughout the branches of the postal service. However, to address the problem was not solved fully because privatisation could not be allowed. The firm is still a federal corporation and up to date commercialization has not fully occurred. Currently in any business, competition is high due to innovation, creativity, advance technology and different management styles used in every business firm. Postal services are not an exception competition occurs in different dimensions. USPS is operating under competition threats from other firms operating in the same field of service. The corporation faces competition from other postal operators. Due to diversified, effective and satisfying services, the competing operators have taken a big share of the market that initially belonged to the former monopoly. The firms have taken over consumer markets, regional and national markets. There is no doubt that the past insolvencies in the USPS forced the consumers to seek a better and fast postal service. The second type of competition facing USPS is intermodal competition. Businesses and individuals are turning to electronic methods of communication and moving away from the postal service to send documents and mails. Advanced technology in communication such as use of internet to communicate is one of the major reasons forcing many people to stop sending documents. Currently, most people prefer using online interactions. In fact, the online interactions are fast, effective and reliable in sending and receiving documents. In this new method of communication, USPS has lost a big number of those consumers who sent letters and other documents via the corporation. Another area USPS is suffering from competition is internal efficiency. Outdated machinery and equipment, inflexible working practices and inefficient structures lead to internal inefficiency. For example, the corporation fails in optimizing the number of mail centres. The USP faces poor industrial relations. The threats posed to USPS by the competition are a form of exogenous pressures. The risks associated with the competition are that the firm will lose a large volume of mails and will not be able to generate enough revenue to cater for the fixed costs as well as the USO costs. In fact, the mail volumes in UK decreased by 7.3 percent in the year 2010. Most businesses have forecasted that the main volumes in the corporation will continue to decline for the next 10 years. Further to the former mentioned risks competition is causing to USPS is that the alternative operators of the service will cherry pick profitable segments of the former monopoly and leave the corporation to carry on the unprofitable segments of the business. As a result, USPS will suffer lower volumes of business and at the end suffer from relatively lower revenues as compared to the competitors. The third threat of internal inefficiency is endogenous. The current serving USPs is the sole business institutions with the network and economies of scale to deliver the Universal Service Obligation (USO). Therefore, it is necessary that the serving USPs maintain a high level of efficiency, meet the threat from competition and ensure that the derivation of prices is based at least cost. This will ensure that there is sustainable provision of the USO. The main challenges outdoing USP are inefficiency, stiff competition and the e-substitution effect. Regulatory bodies can come up with implementation of a number of possible solutions to the challenges. For example, EX-ante price cap regulation can develop a model to incentivise USPs to become more efficient by incompletely replicating the regular dynamic competitive process. Incentivising will help the former monopoly to become more efficient in its business operations. Possibly, changing the ownership of USP from government to private sector can help in increasing efficiency and create a competitive advantage. There is hope that privatisation can help USPs adapt liberalisation. However, the best approach incumbent USPs can apply to solve the challenges of inefficiency and e-substitution is fostering a greater completion in the postal services market. The approach can help the corporation more innovative, efficient and customer oriented. Competition in international postal market exists in three forms namely end-to-end E2E competition, downstream access competition and work sharing. E2E competition is whereby an entrant bypasses the current operators completely. This occurs mostly in regional basis rather than nationwide and operators are not subject to any universal service obligation‘s requirements. Downstream Access competition occurs where a competing rival postal operator is able to insert mail into the incumbent network’s section. In effect, the competitor buys access to the current operator’s downstream network. Work sharing competition involves upstream access activities involving, consolidation, collection, bar coding, pre-sorting and transportation by mail preparation companies or customers in advance of tendering the mails or packages to the postal operator. This competition is common in the U.S.A International competition in postal market has led to significant benefits to the postal consumers especially the large mailers. In addition, residential customers benefit indirectly from the stiff competition in terms of incentivising the serving postal operator to become more efficient in operations and improve the service’s quality. However, it is not evident enough that competition has directly caused any risks in the viability of deliveries in the universal market. USP faces competition from other international postal firms in UK, Germany, Sweden, and Netherlands. In most cases, the postal operators in the above-mentioned countries dominate the regional and national markets in their respective countries. Therefore, USP has a small market share in the countries and faces stiff competition from the local postal operator in those countries. Amongst the international competitors in the postal market are the Sweden Post, CityMail and Royal Mail (Quinn 75). The main danger of international competition is that the competition could encourage new entrants to compete with USP in the profitable areas and leave USP to deliver all mails including those collected by the serving competitors upstream and end up buying access to the serving’s delivery network. It is important to note that the entrants have the ability to carry out the business strategy because they are not obliged to operate under the requirements of the USO. For example, uniform tariff pricing by USP is a severe situation and the severity of the scenario depends on whether the service of the new entrants completely replaces the volumes of the incumbent. In fact, attracting new volumes of mails, which were previously delivered by the incumbent USP. USP can end up benefiting from increased mail volumes passing through the delivery network and make the unit costs decrease. In access competition, if the competition is effective along the entire value chain, then it is not necessary to mandate access. Such a policy of regulation will lead to a decline in allocative efficiency, higher prices for the consumers and blunted innovation (Walter 26). Capital (fund) Market Conditions Capital in every business is a very crucial component to the economy is functioning and critical for generation of the output in an economy. Capital markets comprise of primary markets involving issues of stocks and bonds to potential investors and secondary markets involve trading of securities. USPS stock and bonds must be selling at relatively prices. However, the firm has the chance to come up with better strategies to raise the revenue of the firm and the financial performance. If the corporation proves to the investors it has the capability to be more profitable in future, most investors will be willing to invest in the corporation under the assurance that they will get high returns on their investments in terms of stock and bonds. Currently, investors prefer investing in capital markets that have high returns and the survival of the companies is guaranteed. The capital markets involve selling of bonds, shares and debentures. A corporation willing to invite the public to sell its shares or debentures to the public must prove to the public that it has the ability to grow and improve its financial status now and then. Therefore, since USPS is a government corporation, it should change to a government agency will be in a position to concentrate more on its major role as an essential government service. Having put its concentration on its role, the corporation will be in a position to put less concern in the markets where the requirements and needs of the consumers are addresses by the private sector. The present situation of the USPS is that the firm is not doing well financially. Therefore, very few investors will be willing to purchase the firm’s shares and debentures. Therefore, the only available solution is issuing of bonds by the federal government or privatisation. Those two methods are the only significant ways the corporation can use to raise capital without too much struggle. Nevertheless, the firm must come up with new policies and strategies to create efficiency and make the firm more competitive in the market. Otherwise, not unless the corporation proves to perform well financially, it will be difficult for the firm to raise funds through issuance of shares and debentures (U.s. Postal Service 25). In capital markets, there are individual, institutional, companies and organizations, financial and bank institutions. Definitely, all the types of investors mentioned above have the desire to maximize the possible returns on their investments at relatively lowest levels of risks. On the other hand, the capital users desire to raise capital at lowest possible prices. Therefore, USPS has a chance to become a profitable firm where every type of investor desires to invest funds. The firm has the ability to involve investors to make the corporation a better business opportunity for every investor. However, it would be important to use the government to regulate the policies of operating the corporation. Actually, the best method would be privatisation or making the corporation a government agency (Watson 32). Internal Architecture and Possible Solutions The USPS requires a serious restructuring in terms of the organization’s design and culture to enhance production and effectiveness of the services provided. As stated earlier on, the main challenges facing the corporation are stiff competition and inefficiency in the corporation’s operations. The firm has failed to adapt to the modern and advanced technology to ensure that the speed in operations is fast and reliable. In fact, technology changes have changed the manner in which Americans do their activities from communication with friends, families, business customers and payment of bills. The world is consistently changing and the corporation must move in the same pace with the changes prevailing in the global market (Herr, 24). The challenges facing the USPS arise from the quasi-governmental structure. The service finances itself and the small amount of revenue received from the federal government from sending of mails overseas to the military personnel. Otherwise, the corporation relies a lot on the revenue received from its mailing services to cater for its operational costs. The only benefit the firm has is that the government is a monopoly status to deliver mails and sole rights to deliver packages and mails to mailboxes across the country. Another major cause of the problems facing the corporation is charging uniform and standard prices irrespective of the distances the packages and mails are to be shipped. It is a suggestion that the corporation comes up with prices based on the distances to be covered. This strategy will help increase the revenue and cater for the costs of operations effectively (U.s. Postal Service 1). Poor financial performance of the USPS is a significant challenge because the firm cannot meet the needs of the employees on time and effectively. The salaries of the employees are relatively lower than those of employees working in other postal service offering companies. The corporation should adopt privatisation as a method of collecting capital and funds to improve efficiency in business operation. There being poor financial performance limits the firm to sell its shares and debentures to potential investors. Investors prefer investing in well performing companies and corporation where they are sure that their investments will bring in returns. Therefore, the best solution to revive the corporation is by privatising it and this will improve the standards of operations in the firm (Kachru 72). All employees deserve to be treated well to feel satisfied in performing their tasks. When the needs of the employees are not addressed to on time, the employees feel demoralized to perform their duties. In fact, innovation and creativity in a firm depend on the satisfaction of the employees. Low satisfaction means low production and ineffectiveness. The firm needs to introduce new advanced technology in terms of machinery and office equipments to facilitate fast and effective operations. Nevertheless, the firm should develop a culture that encourages innovation and creativity to improve efficiency and effectiveness. Use of advanced technology will increase productivity and save on time taken to conduct all the business operations. Currently the corporation is working at high costs and should work towards cutting the costs and improving efficiency (Zachary 7). Bibliography Alvesson, Mats, and Stefan Sveningsson. Changing Organizational Culture: Cultural Change Work in Progress. New York: Routledge, 2008. Print. Blanchard, D. (2010). Supply chain management best practices. Hoboken, N.J: John Wiley & Sons. Bradley, N. (2010). Marketing Research. Tools and Techniques.Oxford: Oxford University Press. Chisholm, Andrew, and Andrew Chisholm. 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