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.

 

The US Postal Service announced yesterday that they posted a loss of $2.8 billion dollars in the fiscal year ended September 30.

The main culprits according to the USPS was slowing mail volume and costs associated with pre-funding retiree health benefits.

This continues a general pattern that despite efforts of the Postmaster General and others to cut costs and streamline the agency that as a stand alone entity the USPS can’t survive using a flawed business model.

Mail volume has been slowing for several years now and has accelerated as internet usage has increased.  How many of us now receive our bank, credit card, brokerage and other statements via e-mail instead of by regular postal or snail mail?  To add to that how many of us pay our bills online for the convenience and to save the hassle of finding a stamp?  Charities now receive millions of dollars in contributions online which helps their cash flow, but cuts mail volume for the postal service.

The younger generation has grown up on e-mail and prefers to use e-mail, text messaging and e-cards rather than mail a letter or a card.  That has resulted in a nation of youth that also doesn’t know how to compose a letter ( a different subject altogether) and once again nothing for the postal service to deliver.

And what about the current economic crisis we are in?  The wave of bankruptcies and mergers is already having an effect on mail volume as financial firms that once flooded the mail with refinancing and credit card offers have either gone out of business or cut back because the credit crunch has dried up lending opportunities.

Most businesses manage to adapt to change.  If they don’t they go out of business.  The USPS has been taking baby steps to address their problems, but their biggest one is still the one they would rather avoid.  I am speaking about labor costs.  Just like our very troubled auto industry the postal service is being weighed down by high labor costs for both current employees and retirees.  Yes that have somehow managed to reduce overall work hours but that is not enough.

As automation has swept through virtually every industry on earth the postal service is still very wedded to labor intensive activities.  But it isn’t for a lack of effort.  While they have managed to automate some tasks, the powerful labor union the represents the workers has rebuffed efforts to truly streamline the agency and allow them to reduce the overhead associated with sorting and delivering the mail.

Postal customers need to share some of the blame here as well.  We are very spoiled by six day-a-week mail delivery, cheap postage rates and literally thousands of post offices that serve a small customer base all for the sake of convenience.  Retailers close unprofitable locations, the postal service just subsidizes them as there is very little incentive to close them.

Well I hate to tell you this but times have changed.  We are in a fast paced technologically centered world now and mail services and delivery are inefficient and costly bureaucracies that need to be torn apart and restructured to meet the challenges of what lies ahead.

The postal service is an anachronism in today’s world and will die a slow and painful death unless swift action is taken to overhaul it immediately.