Why Rural Mail Makes Privatizing USPS So Hard

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Roger McDonald drives about 150 miles a day. His route runs outside Scottsbluff, in the far northwestern corner of Nebraska, past farms and ranches and small-town mailboxes strung along roads where the next house might be a mile off. He has done it for years, so he knows something a spreadsheet can miss: how much a rancher counts on the mail showing up.

McDonald is skeptical that a private company would keep running a route like his at the price he charges now, as he told Nebraska Public Media and Iowa Public Radio. A firm chasing profit has little reason to run a long, low-density route that barely breaks even.

That instinct sits at the center of one of the hardest questions in postal policy.

The direct answer, before the mechanics: if the government fully privatized the Postal Service without building a new system to pay for rural routes, people in remote areas would almost certainly face higher prices, less frequent delivery, or both. Not because a private owner would be cruel, but because the economics of a gravel road are brutal and the law that currently papers over them would be gone.

The reason is a promise written into federal law, and a hidden subsidy tucked inside the price of a stamp. To see why rural mail makes privatization so hard, you have to understand both.

The Bargain Written Into Law

The Postal Service is not just another federally chartered business. The Constitution hands Congress the power to establish post offices and post roads, and early Congresses used that short phrase to build a national logistics network long before the telegraph.

The modern rules live in Title 39 of the U.S. Code. Section 101 sets the tone, describing the Postal Service as “a basic and fundamental service provided to the people by the Government of the United States.”

That is not marketing language. It is a legal instruction, and it does something a business mission statement never would.

The statute directs the agency to provide service to patrons in all areas and provide postal services to all communities. The same section adds a caution that reads almost like a warning against exactly the cost-cutting a private owner would want. The costs of running the Postal Service, it says, shall not be divided up in ways that impair the overall value of the service to the people.

Regulators and economists have a name for the bundle of duties this creates: the universal service obligation, usually shortened to the USO. In plain terms, it means everyone gets a minimum level of service at a price they can afford, no matter where they live.

Congress has recently doubled down rather than backed off. The Postal Service Reform Act of 2022, Public Law 117-108, approved April 6, 2022, wrote the six-day rule into statute and required USPS to keep an integrated network for letters and packages. The law’s own words: “The Postal Service shall maintain an integrated network for the delivery of market-dominant and competitive products.”

In practice: package growth is supposed to help carry letter delivery, so the two ride the same trucks. That matters later, because splitting rural mail out of that network would break the shared-truck savings Congress just protected.

Why a Gravel Road Costs So Much More

Picture the network the Postal Service actually runs. A carrier on a dense city block can hit dozens or hundreds of addresses in a short walk. A carrier on a county highway may drive several miles between mailboxes. The fuel, the time, the wear on the vehicle: all of it accumulates whether the box holds ten letters or one.

And the network keeps growing at the edges. The Inspector General reported that since fiscal 2021, delivery points on carrier routes grew by 10 percent, and that “The south and west grew more rapidly than other parts of the country.” Every new rural address adds a stop that a private firm might price differently, or skip.

The financial squeeze is real and long-standing. As letters disappear, the fixed cost of driving a rural route stays put, so the cost per piece climbs.

Now the part that trips people up. A first-class stamp costs the same whether the letter crosses the street or travels three hundred miles to a farm. The statute never uses the phrase “uniform national rate,” but its command to serve all areas and not impair the network’s value produces exactly that effect.

Economists call the result cross-subsidization. Revenue from cheap, high-volume urban and suburban routes helps pay for expensive, low-volume rural ones. The surplus generated where a carrier serves two hundred homes in an afternoon flows to the road where the carrier serves twelve.

This is the engine that keeps McDonald’s route affordable. It is also invisible on your bill, which is precisely why the privatization debate gets so slippery.

Who Actually Pays for Rural Mail?

Most Americans assume their income taxes fund the mail. They do not. The Inspector General’s own explainer is blunt: “The Postal Service generally does not receive tax dollars to support its normal operations. The Postal Service, instead, relies on the revenue it generates” from selling postage.

There are narrow exceptions: Congress appropriates limited money for free mail for blind and visually impaired people, and for overseas voting materials. When the 2018 White House reorganization plan was covered by Government Executive, the outlet noted that “The Postal Service does not currently receive any federal appropriations, aside from money the government spends for specific services.”

So when a rancher pays the same stamp price as a city dweller, the gap is not covered by the Treasury. It is absorbed inside postal revenue, funded by other mailers.

There is one rural-specific lever, and it is smaller than most people expect. Federal law lets USPS ask Congress for a subsidy to cover rural service. The Inspector General states it plainly: “By law, the Postal Service is allowed to ask Congress for up to $460 million annually to cover the cost of providing rural service.”

Here is the catch: the agency has not consistently requested or received the full amount. Which means most of the true cost of rural delivery still rides on internal cross-subsidies, not on a check from Washington.

The Inspector General also found how lopsided the rural math is. Nearly two-thirds of rural post offices cost more to run than they bring in, compared with about 7 percent of urban ones. U.S. law currently forbids closing a small post office solely because it runs at a deficit, an unusually strong protection.

That protection is the whole ballgame. It is exactly the kind of rule a private owner, answerable to investors rather than statute, would push hard to relax.

The Monopoly That Pays for the Promise

The universal service obligation does not float free. It is bolted to a set of legal privileges that generate the revenue to fund it.

The most important are the Private Express Statutes. The Postal Service’s own history page explains that “The group of federal laws known collectively as the Private Express Statutes gives the United States Postal Service a monopoly over the carriage of letter mail.” Private carriers can compete on parcels and express delivery, but not on ordinary letters under a certain weight.

USPS also holds a legal monopoly on your mailbox. No other carrier may put mail in it.

These privileges are the funding mechanism. The Inspector General has tried to weigh them against the cost of the obligation, and the numbers are worth sitting with.

The comparison below shows why supporters of the current structure argue the monopoly earns its keep.

Source: USPS Office of Inspector General. Estimates depend on how costs and benefits are divided among different postal products.

Read one way, the monopoly generates more than the obligation costs, so it more than covers rural service. Read another way, both figures are the output of contested accounting, a point we will return to.

Either way, for a rural customer the takeaway is simple: the monopoly and the obligation are two halves of one bargain. Repeal the first, and you have to find a new way to fund the second.

What “Privatizing USPS” Would Actually Mean

The phrase suggests one dramatic move. It covers a spectrum.

At one end sits a full sale, through a public stock offering or a purchase by an existing logistics company. In the middle sit commercial models that keep public ownership but run the agency like a business. At the other end sits deregulation: repeal the letter monopoly, open the mail to competition, and leave a slimmed-down entity to handle whatever is left.

To keep it straight, it helps to separate four dials that privatization can turn independently. Who owns the enterprise, how wide the legal monopolies run, how strong the universal service obligation stays, and where the money for unprofitable routes comes from. Different settings produce wildly different outcomes for a place like Scottsbluff.

The clearest recent blueprint came from the Trump administration. A copy of its 2018 reorganization plan, in the section on the Postal Service, stated the goal directly: “This proposal would restructure the United States Postal System to return it to a sustainable business model or prepare it for future conversion from a Government agency into a privately-held corporation.” First fix it, then sell it, either through an IPO or a direct sale.

What the plan did not spell out was the rural piece. It did not say whether a privatized USPS would keep a statutory USO, whether rural routes would draw subsidies, or whether the government would retain any obligation at all. That silence is the tell. The hard part was left blank.

The Cato Institute’s bulletin argues that “Congress should privatize the USPS, repeal its legal monopolies, and give the company the flexibility it needs to innovate and reduce costs.”

Cato does not pretend rural routes vanish costlessly. Its answer is that if universal service is worth having, it should be funded through explicit, targeted subsidies rather than cross-subsidies hidden in stamp prices. The paper also contends that the current structure obscures the problem, arguing that USPS effectively hides the cross-subsidies by attributing a large share of costs to overhead.

That is a striking concession. When the people most eager to privatize still assume a public core for rural delivery, the market alone clearly does not solve it.

The Politics: A Bipartisan Wall

Whatever the economic merits, full privatization keeps running into a political wall built out of rural districts.

A Senate resolution opposing privatization named the reason out loud. One of its whereas clauses warned that privatization “would result in higher prices and reduced services for postal customers, especially in rural communities.”

Such resolutions do not change law. They are a temperature reading, and the temperature is clear.

What Happened Abroad When the Mail Was Sold

International experience is the closest thing we have to a natural experiment, and both sides mine it.

Advocates for privatization point to New Zealand, Sweden, Germany, and the Netherlands, where former state monopolies were corporatized or partly privatized and then modernized. In New Zealand and Sweden, government postal firms slashed their workforces as they liberalized.

Critics read the same cases as a warning. Privatization in Italy, Denmark, Norway, and Finland led to slower delivery and reduced frequency, in some places to as few as three days a week. Rural delivery, in some cases, was discontinued outright. The National Association of Letter Carriers, a union, argues in its fact sheet opposing privatization that privately owned post offices “only operate in areas deemed lucrative, resulting in large sections of unserved rural, suburban, and even low‑income urban areas.”

But it lines up with a more neutral finding.

The Inspector General examined six foreign postal operators to see how they kept rural service affordable after liberalization. The answer: they leaned on retail subsidies, outsourced retail outlets, and diversified revenue. Even the success stories needed extra tools to keep rural networks alive.

On how to fund that, the Inspector General’s review found that European “compensation funds,” where competitors pay into a pot for the incumbent’s rural burden, generally worked poorly, because they were costly to administer and rarely raised enough. It described direct subsidies from the general budget as the more workable option, citing their relatively low administration costs.

The lesson is narrow but firm. Privatization abroad did not end universal service, but preserving it required deliberate, ongoing policy choices about who pays. And the United States has a harder version of the problem, because its rural geography is more extreme than most of Europe’s.

The Cross-Subsidy Nobody Can Precisely Measure

Here is a complication that cuts against easy answers on both sides: nobody has a clean number for how much urban mailers actually subsidize rural ones.

The problem is accounting. In a network industry, the split between costs you can pin on a specific product and costs that just keep the whole machine running is a modeling choice, not a fact of nature. The Inspector General distinguishes attributable costs, tied to specific products, from institutional costs that support the entire network. How you divide those buckets changes the answer.

Economists who study this, including John Panzar and the postal specialists Michael Crew and Paul Kleindorfer, have long argued that fully distributed cost accounting can overstate cross-subsidies. A key question in this line of economic analysis is whether a rural route covers its incremental cost, the extra cost of adding it, rather than its assigned share of overhead.

Once you count parcels, the picture shifts again. Rural households now receive real e-commerce volume, and a carrier who drops a package and a letter on the same trip spreads the cost of the miles across both. The USO is essentially a required service with no money attached to pay for it, one that arguably ought to be funded openly rather than hidden in the books.

There is even a market benchmark for rural delivery cost. UPS and FedEx already charge surcharges to deliver to ZIP codes where more than 100 million Americans live, including 70 million in small towns and rural areas. Those surcharges are real but usually modest, which suggests the incremental cost of rural delivery is meaningful without being astronomical.

So the honest position is uncomfortable for everyone. Cross-subsidies clearly exist. Their size is genuinely uncertain, and strong claims in either direction rest on contested accounting rather than settled fact.

Why the Private Carriers Quietly Want USPS to Survive

One group has stayed conspicuously quiet in this debate: the private carriers themselves.

FedEx and UPS rarely issue detailed public positions on postal privatization, which makes sense given that USPS is simultaneously a competitor, a contractor, and a political landmine. But their operations tell a story their press releases do not.

Both carriers rely on USPS for the final mile to many rural addresses, handing off packages for the Postal Service to complete the delivery. It is cheaper to inject a parcel into a route USPS already runs than to send a FedEx truck fifty miles for one box. In effect, private carriers rent access to a federally mandated rural network they do not have to build or fund.

Investment analysts have noticed the dependency. A 2025 Wells Fargo research framework, circulated to institutional investors and headlined with the observation that “Postal Reform Provides Positive Optionality to FedEx and UPS,” suggested that reform could push USPS parcel rates higher.

Cherry-pick the dense, lucrative lanes; hand off the gravel roads. That is the fear, and the network economics make it plausible.

The Tension That Will Not Resolve Itself

Strip away the ideology and a stubborn structural fact remains. The law demands an expansive, uniform service footprint, and it also expects the Postal Service to pay for itself. In dense cities, those two goals get along. On a 150-mile route outside Scottsbluff, they collide.

Privatization does not make that collision disappear. It just changes who has to manage it and how visible the subsidy becomes.

The Center for Rural Affairs, a Nebraska nonprofit, warns that a sale would end the guarantee entirely, arguing in a blog post that “postal costs will no longer be the same regardless of location, and those living farther from major cities and mail hubs will likely see a drastic increase in service costs or lose access completely.” But the economics it describes are not in serious dispute; only the remedy is.

The real fork is not public versus private. It is whether a rural route gets funded by an invisible cross-subsidy in a stamp, an explicit line item in the federal budget, or nothing at all.

Watch the next round of that fight for one specific signal. The Postal Service Reform Act of 2022, whose title promised “stability to and enhance the services of the United States Postal Service,” locked in six-day delivery and the integrated network. Any serious privatization push will have to either preserve those guarantees, pay for them openly, or ask Congress to repeal them.

Whichever of those three a proposal chooses tells you exactly what it plans to do about the gravel road. And so far, the plans that dodge the question have simply left that page blank.

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