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A Postal Service Bail Out Coming?

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United States Postal ServiceThis latest WSJ article about The Coming Postal Bailout is yet another reminder of how poorly managed our nation’s postal service is. I find this absolutely astounding considering how many shipping companies, not to mention UPS and FedEx, continue to exist while our nation’s oldest has been essentially insolvent. The $15 billion line of credit the government extended to the USPS… that’ll run out at the end of the year and we’ll probably never see it again.

I don’t keep very close tabs on the USPS’s activity but the Postmaster General concedes there have been unprecedented volume declines since 2006 (that’s five years ago) and yet appears, publicly, to do very little about it. In fact, they recently negotiated an agreement with the American Postal Workers Union that would give them a 3.5% raise over 3 years (which isn’t that great, but still), cost of living wage hikes after 2012, and make it harder for the USPS to lay people off. That’s not exactly a lights out deal but you don’t continue to take cruise reservations on the Titanic after it has hit the iceberg.

The post office is run as if it has access to an unlimited bank account… mostly because it has access to an unlimited bank account. This year, they’ve lost $2.6 billion through the first two quarters of the fiscal year. Last year, they lost $8.5 billion over the course of the fiscal year. For fiscal year 2009, they lost $3.7 billion after a year in which they lost $2.8 billion. They project losses of $42 billion over the next four years. It’s mind boggling!

By comparison? UPS and FedEx have turned a profit each of those years.

It’s tragic. It’s so tragic that I feel like I’m taking crazy pills… anyone else feel the same way? If you think you’re completely wrong, let me know!

(Photo: jstephenconn)

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46 Responses to “A Postal Service Bail Out Coming?”

  1. Arvin says:

    To give the USPS credit, they ARE partially a public service. You don’t expect schools, or the fire department to report profits, do you? Do cops make the money back in tickets and fines? (I actually don’t know the answer to that one)

    Fedex and UPS manage to turn a profit because they focus on high-priced items like express and packages. While the USPS does that as well, they also do daily deliveries to every house in a neighborhood, something that UPS and Fedex would not and could not do at the same price point.

    That said, I do think the USPS has both highly undervalued their mail service (people will complain, but 46 cents to send an envelope across the country is so cheap) and overvalued demand. They need to cut service hours or days, maybe take out Saturday delivery except for those that pay for the service. Seriously, statistics back up the drop in usage, it’s time to start cutting back (for now).

    Personally I suggest increasing the rate for bulk mailouts from businesses sending flyers. They are annoying, a disaster for the environment, and at a higher price it would encourage them to pick and choose who they mail flyers out to better.

    • Nibi says:

      I agree with this reasoning.

    • Michele says:

      Do cops make the money back in tickets and fines? (I actually don’t know the answer to that one)

      I can actually answer that one. I am a Court Clerk and Finance Officer for a city in Ohio. Ticket Revenue is barely 10% of what it costs to operate our Police Department.

      • harry says:

        I find this hard to believe. I just got a speeding ticket that costs $350 in California. It took the cop 5 minutes to write me a ticket. Conservatively assume they write 5 tickets an hour. That is $1750, Multiply that by 10. That is 17,500 dollars per hour to pay for and provide services for one or two officers. Wow, I should switch businesses!

        • Dan says:

          Hi Harry,

          The problem is that we don’t have 5 people an hour that are dumb enough to speed as fast as you. Not to mention cops DO do other things – like respond to 911 calls. You also neglect to do the rest of the math – it takes 5 minutes to write the ticket, but then they have to file them, they also have to set back up to do the radar, plus just like any other business you have to account for about 75% productivity because of lunch, breaks and human needs.

    • Scott says:

      I was told by our local post office that the bulk mailers helped keep our postage rates low. I didn’t believe it then and still don’t believe it now.

    • Strebkr says:

      Arvin has a good point. Yes it is a private entity, but really its a public service. So it should expect some level of government support. BUT they still need to be run like a business and try to support themselves. This is where they are failing.

    • billsnider says:

      I think both Jim’s and your post are way off line. You should do more research.

      The post office needs goverment approval on things such as rates, locations, delivery methods, etc. They literally have both hands tied behind their backs with a gag in their mouths.

      Examples.

      The post office has to deliver to every address. Their competitors pick and choose who they will deliver to. Who do they not deliver to: small rural and other unprofitable locations.

      The PO wants to limit the number of days they deliver mail. If it is a low volume area, they want to go every other day. The government has veteod this.

      On rates, they are forced to keep consumer rates low. They pass a lot of their fixed costs on to businesses. Keep in mind that businesses bar code, carrier route sort and drop their mail off to regional centers. The consumer hand writes on all sort of envelope sizes. Wonder why businesses are leaving PO mail delivery.

      I can go on and on.

      Bill Snider

      • No Debt MBA says:

        This point is crucial. Between congressional approval for their operations and a mandate to serve all locations in the country there is likely nothing that is within the sole control of the USPS that they could do to become profitable.

        USPS is also saddled with thousands of physical locations that they are required to keep and maintain which is outrageously expensive compared to UPS or FedEx operating costs. I also imagine that USPS has a pension system that they are required to maintain.

  2. Dina says:

    I mostly blame congress. USPS has put forth numerous potential solutions over the years, none of which have been allowed by congress. They can only raise prices or cut service to the extent that they are allowed by congress.

  3. Policy Guy says:

    Echoing part of what Arvin said, the USPS is not intended to be a profit maximizing firm.

    The USPS’ mission is as follows:
    “TABLE 4.2 USPS MISSION STATEMENT
    The Postal Service shall have as its basic function the obligation to provide postal services to bind the nation together through the personal, educational, literary, and business correspondence of the people. It shall provide prompt reliable, and efficient services to patrons in all areas and shall render postal services to all communities.”

    Most important is last part about all communities. This requirement, without the tools necessary to recover costs, is going to result in financial losses as volume from profitable (i.e. high density) markets is taken over by for-profit entities and replaced with substitutes such as the internet.

    All of that being said, yes the USPS could be more efficient, but Congress would have to let them, which is not easy.

  4. glee4532 says:

    An envelope weighs less than an ounce,most junk mail weighs 2 to 3 times that yet travel for much less.Magazines catalogs,the same.Lobbyist and our fine politicians make sure they get a preferred(welfare)rate and we get stuck again. Just another government giveaway and we pay for it!!

    • billsnider says:

      Here is the answer to your post.

      “Junk mailers’ do many things consumers don’t.

      To begin with, they apply NCOA (National Change of Address) services to improve mail delivery and reduce handling.

      They computer print and bar code the mail. This process allows the PO to reduce many handling steps.

      They verify the address via AS (Address Standarization”. They eliminate problems before the PO gets involved.

      They carrier route the mail in carrier delivery sequence. Each carrier route is seperatly bundled to reduce PO handling.

      They truck/train the mail to bulk mail or sectional centers in seperate area bags. The post office does not have to get the mail or maintain a building to sort and sequence the mail.

      There are more things they do.

      Get the idea why they get lower rates?

      Bill snider

      • Strebkr says:

        Yes – Great points. Even though they account for a large portion of the volume of mail, their mail is less costly to process. So you might even venture to say they make money on it, as compared to some of the other consumer products and services they provide.

  5. RT says:

    I concur with Dina. USPS knows exactly what they need to do to run their business properly, however their proposals need to get by Congress, and Congress continues to tell them no no no. For isntance Congress must approve raising mail rates, which they have told USPS that they can not. And whenever they do agree to a raise in postage it is never by any amount that makes a large difference.

    • Courtney says:

      Congress doesn’t approve mail rates. A law passed under the Bush Administration made stamp price increases tied to inflation increases.

      • Jack says:

        Stamp price increases in excess of the Consumer Price Index must be approved by the Postal Regulatory Commission. Commissioners are appointed by the President and confirmed by the Senate.

      • Scott says:

        Yes, they got tied to inflation about 50 years after they started falling behind inflation. There’s no chance they’ll ever catch up to what it really costs to process a piece of mail.

      • billsnider says:

        Not exactly true.

        What is tied to inflation is wages. Also remember that over 80% of postal costs are labor. So their biggest expense goes up with each increase.

        Bill Snider

  6. NateUVM says:

    So, is this really that big of a deal? Either users have to pony up more cash to pay for sending a letter (which Congress won’t allow according to RT), or the American public subisidizes them, resulting in a larger tax burden. However, in doing some crude math on the figures provided above, that’s a little less than $32 per American(not per taxpayer, which would’ve been better, but I DID say it was crude…).

    Sure, those that don’t send many letters are getting ripped off. But they DO still have access to that system when they want to send a letter…

    Maybe it could be run better. Maybe Congress should let them try. I just think we’ve got bigger fish to fry in order to get our fiscal house in order (Defense Budget, SSA, Health Care, Financial Services Reform…).

  7. I’m with Arvin. I don’t think you can compare FedEx or UPS with the USPS because of the daily mail service. FedEx and UPS just aren’t going to get into that and there’s a reason. I think Arvin’s solutions would greatly help, but as Dina noted it comes down to Congressional approval…good luck with that.

  8. Ben says:

    If you want to compare to UPS and Fedex, you’d have to take into consideration it would cost about $15-$20+ to have someone from UPS or Fedex come to your door and take your letter across the country.

  9. Bob Pirong says:

    Why can’t the money from the Philatelic Sales Unit go to the Postal Service? Who gets the proceeds anyway? It seems that this would be a big help in cutting the deficit. They should also get qualified people who know how to manage a business instead of political flunkies who are only interested in sucking in the public trough.

  10. If we’re not yet at the point when the United States Postal Service has outgrown its 236-year mission, when will we be?

    USPS brags that it doesn’t directly take taxpayer dollars, as if borrowing from the Treasury is somehow different or better. Can someone explain why USPS – on any other government monopoly – would spend millions sponsoring a cycling team?

    • Strebkr says:

      At the end of the day they are selling a product. They need to build their brand so people know about them and use their service. Everyone knows about Coke & Pepsi, but that doesn’t mean they can just stop advertising. You have to keep spending to sustain the brand.

  11. freeby50 says:

    The USPS is hamstrung by various dictates and government rules. They cant raise rates faster than inflation, they have to provide door to door service to every address in the USA even though most rural routes are not close to profitable, they aren’t allowed to shut down post offices that get very little traffic, etc. Setup any company in that situation then you should expect them to have financial problems.

    The USPS is required by the government to prepay all its pension/retire healthcare obligations 100%. This is not a requirement of any other organization private or governmental. That alone is a very big part of why the USPS struggles financially.

    At the same time the USPS is arguing that it has over funded the CSRS pension fund by $50-$75B since the 1970′s. That is money that the USPS says the fed government should have been obligated to pay rather than the USPS. When the USPS was officially spun off as a separate entity in 1970 the fed. govt. was supposed to handle the pensions of anyone before 1970, but the USPS says they’ve had to fund it more then they should have.

    Yes the USPS will gradually dwindle in size and will likely lose money. I’d blame the government for setting them up to fail. In the good news category a large % of the postal workers will be retiring in the next decade so they can cut their staffing levels easily due to attrition.

  12. zapeta says:

    Arvin and Dina have nailed the roots of the problem. I think that daily delivery is an important mission and should be continued. However, they could eliminate a day of delivery and I wouldn’t mind.

  13. Shirley says:

    I could certainly see an advantage to Monday, Wednesday, Friday deliveries only. If you actually NEED more than that, you can rent a PO Box where mail is inserted every day.

    • Strebkr says:

      I think they should just cut out delivery on Saturday. People are used to things being closed on the weekend. I don’t think many people would mind.

      • Texas Wahoo says:

        I would much rather they cut out delivery on Wednesday. Not being able to go to the post-office except during peak business hours would be a huge inconvenience for a lot of people.

        • Strebkr says:

          Good point Texas. I never thought of it that way. I typically use the APC machine at my post office that is open 24 hours. I can’t remember the last time I needed to talk to a person. BUT with that said, there are always people in line. I don’t know it they dont trust the machine, or if they truly need to talk to a human.

          • Texas Wahoo says:

            The post offices around here seem to either not have a machine or the machine is located inside the post office, which closes when the normal line closes.

  14. Blackblade says:

    Assuming Nate is correct, and postal service would only cost roughly $30, per American, per year, I see that it is a spending problem. It costs too much to run the program. This seems to be a subsidization figure (since his calculations are based on the shortfall, not cost of the service entirely)– meaning there would still need to be a cost per use.

    We, in general, need to quit tying down organizations with legal mandates. Expect entities to be responsible to do what they are supposed to do – and they will. Free market economy ensures that – because the consumer demands that they get what they pay for.

    If a restaurant quits making and delivering food, either people will stop using that restaurant – and find alternatives, or die waiting for their food.

    At this point- the post office has found that people have reduced the use of thier services. Now they either should adjust for that, or close their doors.

    But they can’t.

    Unionization (seniority rules, required pay hikes, etc.) won’t allow them to make the spending cuts necessary to be sustinable.

    Congressional mandates (stamp price tied to inflation, etc) won’t let them adjust service pricing.

    I am not opposed to reducing delivery to 5-days a week. That said, I also am not positive that eliminating delivery one day a week will have much impact. Even on non-delivery days, transport and sorting facilities still run full speed.

    Assuming that having 1/6 less “delivery time” would mean 1/6 less cost doesn’t take into consideration that the workers are unionized –making staff/pay reductions tricky, if not impossible.

    Since cutting a delivery day would also reduce the “value” to advertisers – it would also mean another decrease in revenue, as less mail based advertisments (junk mail, catalogues) would remain interested in using the service.

    Like everywhere else- they probably need to reduce management numbers / pay rates – to be more sustainable. Front-line employees (letter carriers, desk clerks) should be re-evaluated too, but you can’t realistically reduce them too much, while maintaining consistent service levels. But it should be looked at with a critical eye.

  15. Adam says:

    Actually why not take the concept of PO boxes a bit further. Right now my post office charges $44 a year for a small PO Box, but to have someone deliver mail to me every day at a rate of $17.83 an hour with overtime because he can’t complete his route in a full work day.

    Perhaps we should make the PO Boxes free and charge for home delivery. To do this, take a tip from the big banks and put in PO Box kiosks in different locations just like there are atm kiosks. Your PO Box key would open both the door and your box. It would be cheaper to maintain the kiosks because the number of “mailpersons” needed for delivery would be greatly reduced with a lack of door to door delivery.

    • daenyll says:

      I agree with the P.O. box or kiosk/neighborhood delivery idea. Especially if it were tied to some sort of electronic notification when there is actually mail to be picked up, I hate walking out to the mailbox only to find it empty. I mean most apartments have a bank of mailboxes in one spot rather than at each individual unit, why not just have one at the main entrance to a neighborhood, and have door to door only in rural areas and places where everyone is located far apart. And provide for disabled residences delivery at least once or twice a week.

      • Strebkr says:

        I have a friend who lives in a condo. Their whole complex has one block of boxes. It sounds great, and I’m sure it is for the letter carriers, but they complain that there are always cars parked in random driveways while people check their mail, loud music from cars, trash everywhere as people sort their junk from real mail right away. Its an eyesore.

  16. Kasia says:

    I agree but one also must consider that the USPS is saddled with a lot of services that Fedex and UPS essentially have decided not to do because it is not profitable. The main example that comes to mind is extreme rural delivery. USPS charges the same to rural customers, even if they are say 50 miles from the nearest post office. If you are an American in the most remote region of Alaska, you are still entitled to six days of mail delivery, I presume. UPS/FedEx don’t impose those kinds of restrictions on themselves. In the past at least, they simply didn’t include those areas in their serviced population. Easy to be profitable when you can pick and choose what services to offer (or not).

    • Dave says:

      I was under the same impression, that by law, the Post Office had to deliver to every person in this country, regardless of where they lived. UPS and Fedex don’t have that problem and accutally “subcontract” the Post Office to deliver their packages to inconvienient places.

    • Sarah in Alaska says:

      Exactly. Shipping to Alaska that costs $50 through Fed EX or UPS costs $10 or less for priority mail at USPS.

      There is an awful lot of subsidizing happening for those of us in rural areas.

  17. Strebkr says:

    As someone who ships high volumes of 8lb packages (Cornhole bags) I have watched the price of a priority package go from $7.10 to its current $10.50. And this is with my online discount. I just can’t keep passing these increases along to customers. They can’t keep up with them.

    • Arvin says:

      Does Fedex/UPS do it for any cheaper? If not, then I’m sorry, but the problem seems to be that USPS made the mistake of severely undervaluing the cost of shipping 8lb packages for a flat rate across the country. The terrible side effect is they’ve created an assumption in the public that the current price is how much it costs, when clearly it’s making them lose money.

      • Strebkr says:

        FedEx and USPS used to be the same price, but then FedEx started adding fuel surcharges and residential delivery surcharges. So while Fedex was getting more expensive, USPS was getting easier because they started picking up packages from my house for free. They made it super easy on me.

  18. In mind, UPS and FedEx are turning the profits that they are because they work in a “eat what you kill” environment. They have to try harder, they have shareholders to please so that the businesses keep going.

    I wonder if either UPS or FedEx ran their businesses as poorly as the USPS over many, many years would they be the recipients of a bailout. In my opinion, no.

    I do believe that the USPS provides a needed service. Like discussed above, there are some common sense things that they can do to help their deficit which is fine. But in the end, being of the capitalist mindset: if they cannot make it, let them fail. There will be someone that will take their place – capitalism and Economics.

  19. LovePrepaid says:

    If they were allowed to run like a business, they could be fine, however, changes need to be approved by Congress. Look how many years it took for them to approve the post office taking passport photos! It was along the lines of 15 or 20 years to finally approve that!

    • Strebkr says:

      Nothing happens fast when you have all that red tape to cut through. The government was waiting on more red tape, but USPS lost the shipment.


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