Which Agency Survives: Amtrak or the Postal Service?

One traces its lineage to a golden spike, driven into a rail in 1869, that linked the eastern and western coastlines of the United States. The other was formed in 1775 and was explicitly institutionalized by the United States Constitution.

To which organizations are we referring? To the Amtrak railroad service and the United States Postal Service, government agencies that have existed for decades and even centuries. Each is deeply ingrained in the American way of life, and each now faces a similar existential threat.

A more detailed analysis, though, reveals a significant difference between the competitive positions of the two entities. And because of this difference, it is indeed possible that one of the organizations may long outlive the other.

Antique Technologies

Amtrak is America’s public railroad transportation service, operating from northern New England to southern California. Although the service was officially formed during the Nixon Administration in the early 1970s, the network considers itself the heir to the nation’s earliest transcontinental railroad service, an entity that was born with the driving of a ceremonial golden spike in Utah that linked the Central and Union Pacific rail lines together.

A century earlier, the Postal Service was formed shortly before the thirteen colonies declared their independence from Great Britain in 1776. Its first Postmaster General, in fact, was Benjamin Franklin, who had previously halved service delivery times between Philadelphia and Boston by modernizing and standardizing mail shipment procedures.

Each of these services, though, was eventually threatened by more efficient emerging technologies. The rail system lost large numbers of passengers to automobiles, buses, trucks, and airplanes after the Second World War. And the postal system continues to lose significant business volume to internet-based email, merchandise purchasing, bill payment, and coupon distribution services.

In other words, industrial advances have forced each service into a position of technological obsolescence. But does this mean that each service is equally likely to fade away after generations of public service?

Competitive Positions

Although the services are each facing similar threats, they differ markedly in terms of their strategic market positions. Specifically, each service confronts a different mix of competitors, with differing abilities to attract customers with more efficient levels of service.

Amtrak, for instance, benefits from the competitive reality that the nation’s highway grid and air space are saturated with traffic. Such congestion has helped make Amtrak’s northeastern Acela service competitive (in terms of both time and cost) with air and land vehicle alternatives.

On the other hand, as the Post Office’s first class mail business continues to gravitate to the internet, and as its package delivery business continues to migrate to for-profit firms like Federal Express and UPS, the federal agency has been forced to face the prospect that its entire line of business may be vulnerable to poaching by rivals. Of course, no other firm would be interested in poaching its grossly unprofitable rural delivery system, which it plans to streamline in the near future.

Thus, based on its competitive strengths, Amtrak appears to be much better positioned to survive than its sister agency the Postal Service. But do their respective financial positions support this assertion as well?

Government Subsidies

Regrettably for Amtrak, the financial positions of the two government agencies are mirror opposites of their strategic positions. In other words, although Amtrak is the stronger entity from a competitive perspective, the Post Office is the stronger one from a financial perspective.

How can that be true when the Post Office has relentlessly increased the price of a first class stamp from 37 cents as recently as January 2006 to 45 cents in January 2012? In essence, its ability to raise its prices has actually helped bring it the necessary revenue to phase out government subsidiaries. And because Congress is now proposing to allow it to implement various cost efficiencies, the Post Office has been able to manage (and subsidize) its costs effectively.

On the other hand, United States Congressmen who fear watching their home districts lose access to the national rail transportation system are loathe to permit Amtrak to reduce, eliminate, or spin off rail lines. As a result, Amtrak is unable to engage in the types of restructuring activities that can improve its financial position, and thus it has needed over $40 billion in public subsidies in order to remain solvent. Since it initiated service under the Amtrak moniker, the agency has never broken even or earned an annual profit.

Nevertheless, the growing public need for a national rail service recently led Amtrak to announce an all-time record 30 million tickets sold last year, at the same time as the Postal Service declared that it is hiring a former Obama Administration automobile “czar” to study its restructuring options. As long as the railroad is strategically positioned to serve a growing public need, it may thus survive long after Ben Franklin’s postal system closes down, despite its financial shortcomings.