The United States Postal Service announced this week that they lost $3.8 billion in the most recent fiscal year which ended September 30th.  This follows losses totaling $7.8 billion in the previous two years.

In order to keep operating the quasi-governmental agency borrowed money from the U.S. Treasury and now owes the government $10.2 billion.

Federal law allows the Postal Service to borrow up to $3 billion per year- but the total debt can’t exceed $15 billion which means the agency will reach that cap in less than two years if they borrow the maximum amount each year.

That would give the Postal Service a little time to get their feet back on the ground but with an estimate that they will lose another $7.8 billion in the next year alone the clock may have already run out.

The problem for the postal agency is that they are a slow moving government behemoth trying to compete in a fast moving world.

Granted they have taken steps to cut costs by slashing 40,000 jobs, but they still have over 700,000 employees.

One of the biggest costs is retiree health insurance payments.  As the automakers and other corporations have discovered retirees are living far longer than originally predicted, the plans are far too generous and trimming the benefits is a political nightmare.  The Postal Service losses would have been even greater had the government not given the Service a $4 billion break last year but they aren’t likely to continue to do that in an era of soaring deficits.

One proposal that the Postal Service has made is to eliminate Saturday mail delivery.  This could save between $2 billion and $3.5 billion per year depending on which estimates are used.

Normally a business would be able to cut back and maybe face the wrath of some customers but with the Postal Service this proposal has raised not the ire of regular customers but politicians bent on protecting their districts.

One politician who has come to the rescue is Danny Davis (D-IL) who is supporting a government bailout to keep the Postal Service afloat.   We all know how well those government bailouts work.

Admittedly the Postal Service is in a tough spot as their mandate is to deliver mail to every address in the country.   That is a very expensive proposition.  It costs far more money to deliver to rural and remote areas than cities and suburbs where homes and businesses are clustered closer together.

But why should those that choose to live further away be subsidized by others who live in what I’ll call a more cost efficient delivery area?

Over the years UPS and FedEx have added rural and home delivery surcharges to reflect the added cost of delivery to those addresses.  The airlines have cut service to areas that aren’t profitable and in some locales cities are actually paying them to provide service.

In a true free market why shouldn’t people pay for the cost of delivery?

Another major challenge for the Postal Service is an increasingly electronic world where e-mail and text messages have largely replaced mail.

Mail volume fell by 26 billion pieces in the last fiscal year, no doubt affected by the recession and is expected to drop another 11 billion this year.  That is not a recipe for success.

So while mail volume is dropping like a stone some brilliant person in the Postal Service thought that selling greeting cards would be a great way to add revenue.  Has anyone checked the state of greeting card sales?  Even those are going electronic

The best solution will be to privatize mail delivery.  Yes that will probably mean higher costs for everyone but at the same time it will probably mean less junk mail and for environmentalists a greener planet as less paper is used- saving forests and less greenhouse gas emissions as mail delivery will no longer be mandated to every address in the country.

 

Advertisements