Sunday, November 20, 2011
Life after the U.S. Postal Service
The USPS has been in the headlines again lamenting a $5.1 billion lost for the fiscal year ending September 30, 2011 on revenues of $65.7 billion. Are we bracing for yet another bail out?
Irrespective of the spin generated by the American Postal Workers Union (click here to read it), two fundamental problems have created the five-year streak of multi-billion dollar losses:
1) Competition with online services and private sector package delivery companies.
2) Cost of retiree benefits.
There is no question that first class letters have been hit hard by email. Though only representing about 3% of total revenue, letters from household to household have become a rarity and will continue to go the way of Buicks and hair salon “permanents” as our oldest generation moves on to the
Online services by banks, credit card companies, investment houses, the federal government, etc., have had a more dramatic effect. Fewer and fewer people receive their monthly statements in the mail. The Social Security Administration has replaced those monthly kisses in the mail with direct deposit.
The effect of these changes is that a greater percentage of what shows up in your mailbox is junk mail (aka advertising). On an average day, I immediately throw out all of the mail I recover from my PO box. Once in awhile, I open an envelope, quickly peruse the contents, and then throw it out.
This begs the question: Just how much (in terms of billions of dollars a year) should the taxpayers subsidize the USPS for delivering advertisements from private sector companies? Does this not represent an indirect transfer of taxpayer money to companies that offer low interest rate, guaranteed acceptance credit cards? Or to the Mitt Romney for President campaign?
On the package delivery front, UPS, FedEx and others offer strong competition featuring better websites, tracking tools, and on-time deliveries. It is an excellent example of how competition in a free market can lead to better service at a reasonable price.
This is the 480,000 pound gorilla in the room. Although funding for the current retirees and survivors is in place ($42.5 billion), Congress has smartly required the USPS to fund future retirement benefits with contributions of about $2.5 billion per year. The American Postal Workers Union argues that this funding should be waived in order to shore up current operations. One might argue that this is a short-sighted view.
There are about 560,000 active employees of the USPS, the second-largest employer in the private sector behind Walmart, if you concede that the USPS is a private sector employer. It doesn’t receive any taxpayer money (yet), but Congress does allow it to borrow up to $15 billion per year.
At 480,000 strong, retirees of the USPS and their survivors almost equal the number of active employees. Promises of making changes to the retirement benefits system without affecting any current or retired employees are likely to be empty. That is, of course, unless taxpayers come to the rescue.
All of this stacks up to a shrinking number of employees (already down by 121,000 since 2007) and a tipping point of more people drawing on retiree benefits than the number of people contributing to the system. Click here to read how the USPS proposes to manage this issue.
Life after the postal service
I don’t know if it will ever come to it, but I started thinking about how I would manage my affairs without the USPS. What would take its place? Does anything need to take its place?
All of our bill payments and statements are handled online. Investment statements and transactions—all online. As a CPA, we send client organizers in the mail, but my software system has an online organizer feature. I send thank you cards to my campaign contributors, but could hand deliver most of them.
My guess is that competition for what’s left of the first class mail would result in UPS and FedEx creating a Buck-An-Envelope service that would deliver up to 8 ounces or so (about 8 sheets of paper) for $1. Though more than twice as much as First Class rates of today, I would use it because my need would be infrequent.