USPS – Goes Through the Motions

For 2014, the U.S. Postal Service (USPS) revenue grew by $569 million and packages delivery grew a healthy 9%, but USPS loses totaled $5.5 Billion.  The loss is in line with the $5.7 billion in pre-funded retiree benefits that Congress requires it to pay.  In the period 2010 through 2014, USPS lost a cumulative $40 billion.

Chronic losses disturb both supporters and critics of USPS.  USPS has been looking for additional lines of business that it thinks will help it diversify away from reliance on first class mail delivery margins.

As well as searching for new revenues, USPS is considering cost saving programs such as reducing delivery days and shuttering post offices with low volumes.  Each proposed change in services seems to draw critics, yet USPS patrons seem willing to pay higher fees to prevent reductions in service.

In a 2011, American Consumer Institute survey of postal customers, 53% said it would be very or somewhat inconvenient to endure the loss of delivery for one day per week, and they opposed closure of 4,000 offices that were under consideration.  However, their perspective was not all negative, since 76% strongly or somewhat supported a small stamp price increase to thwart closures or losing a day of delivery.

First class may appear be a winner today, but looking forward, it is a doomed technology.  Reliance on collecting and delivering small packets of 8½ by 11 sheets of paper will eventually be a business model that is too archaic to support payroll for the USPS’s huge workforce.  For USPS to survive, it will need to master new services that have a future.

Among the new businesses USPS has considered are financial services and variants on one-day delivery.  The one-day services run into strong competition against private sector firms such as Peapod, UberRush, Instacart, Postmates, FreshDirect and Quicksilver Express Courier.  Furthermore, in trials the new USPS services were unprofitable.

USPS has also considered increasing the kinds of financial services it offers – such as check cashing, pre-paid credit cards, money orders and similar light-banking services.  These might be attractive to some of its patrons, who typically visit a USPS office about once per week, but there is plenty of competition here too.  Unfortunately, the postal service continues to lose money in its new ventures, which suggests that they should stick with what they do best – deliver first class mail and related profitable mail services.  Entering into unprofitable ventures wastes time that the USPS does not have.  Also, having a government enterprise enter new business where compete private enterprises competes and use its monopoly services to fund these ventures is not in the public’s interest.

One radical option to consider may be to fully privatize the USPS.  In the United Kingdom, the Royal Mail has been privatized and although its first class mail costs about $1 per letter, the enterprise seems to be thriving and it earns an operating profit of about 7% of revenues.  It is undergoing a protracted “transformation” away from being a government entity, including shedding about 20,000 employees since 2008.

If privatization were considered for USPS, we can expect a political quagmire associated with office closures and ownership of the real estate and offices themselves.  Privatization may also be doomed by costs for the sheer number of Postal retirees and the pension obligations due to them.

While the USPS is obligated to pre-fund retiree benefits, to avoid competing with private sector and stay within narrow lines of business, it will be a chronic financial zombie.  However, gambling on new ventures could be a big drain profits. It will take radical change in lines of business or governance for USPS to show signs of vigorous life.

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