Depending on where you get your news you have been led to believe that either USPS is poorly ran and needs privatized or USPS is critical to our every day life and needs funding support. This article will take a look at why USPS is in financial ruins and what can be done to improve their P&L. We will focus on why the Postal Service is essential and why it needs to be saved at all expenses.
Background
USPS is obviously a government organization that has certain requirements that it must follow. Some of these requirements have been detrimental to the Postal Service’s profitability. However, it is important to note here that USPS is and shouldn’t be built to drive profit. It is a public service that is here for the American citizens. Now would it be nice if it didn’t lose money every year? Absolutely! But there are reasons why they are losing money that are out of their control:
- Decades ago, Congress passed a law that requires USPS to prefund employee healthcare and pensions for 75 years in advance! This is just asinine. Lessgistics has been to Washington for Mailers Technical Advisory Committee (MTAC) meetings and this is always a topic of discussion. USPS has begged and pleaded for years to Congress to rewrite the law with little avail. From 2007 to 2019, USPS posted losses of $77 billion. A great deal of these losses can be attributed to this antiquated requirement. Forbes provided this snapshot of pension promises for USPS, UPS, and FedEx.
- USPS is obligated to deliver to every U.S. residential address six days a week. FedEx and UPS can cherry pick delivery points or, if they are rural destinations, they will offer delivery, but tack on expensive delivery area surcharges. USPS has to deliver to these same destinations, often at unprofitable levels
- USPS can not adjust to changing market conditions. USPS does not charge a fuel surcharge with their services. UPS and FedEx do and when the price of fuel goes up dramatically you can bet on a new fuel table from our friends in the Brown and Purple
- USPS is limited on the revenue sources they can provide. Lobbyists for years have shot down attempts that USPS has made at additional offerings. A couple of past examples are USPS wanting to sell prepaid phone cards and offer public copy machines. Seems reasonable, but these attempts were defeated by Congress due to interest groups that didn’t want to lose market share
- USPS is required to invest exclusively in private government bonds. Other companies can invest in a wide variety of services to improve profitability
Current State
USPS has been a stalwart organization throughout this COVID-19 pandemic. They are one of the largest employers in the United States with over 600,000 employees. These employees are risking their personal safety on a daily basis in honor of their civic duty. USPS is delivering millions of food, medicinal and other essential item packages on a daily basis. In 2019 alone, USPS delivered 1.2 billion prescriptions. They should be thanked as they are a lifeline in these troubled times. Instead, they often are lambasted.
Unfortunately, this pandemic has made things even worse financially for USPS. Many companies are either working from home or have closed temporarily/permanently. A lot of businesses have ceased their paid mail advertising all together. This type of mail is not the most profitable for USPS, but the volume is so substantial it helps to ‘keep the lights on.’ While package volume is noticeably up for USPS (and all other couriers), overall delivery volume is way down due to less mail being sent.
Other industries and companies have been receiving large bailouts or even debt forgiveness from the trillion dollar bailouts. However, USPS was scheduled to receive a $10 billion dollar loan (not forgiveness). It has not even been dispersed yet as the Secretary of the Treasury, Steve Mnunchin, and the Postal Service are still debating loan terms. It would be nice to see USPS recognized as an essential arm of the government. They seem to be looked at as the black sheep within some of our executive branches of government. For what it is worth, USPS has been voted the favorite federal agency by Americans every year since Gallup introduced the federal agency annual survey. USPS is simply too important to fail.
The Path Forward
There are several things that could be done to help reform the Postal Service:
- Congress could erase the antiquated legislation that requires the Postal Service to prefund healthcare benefits and pension so far in the future
- Congress could allow USPS to enter into different revenue streams. USPS should be able to sell different services to you at your local post office
- The Postal Regulatory Commission (PRC) could allow USPS more flexibility in pricing situations, whether larger increases on some services and decreases on others to continually stay market competitive
- The current administration could change its demeaning stance towards USPS. Instead of chastising the Postal Service at every turn it would be beneficial to break down and fix the current regulations imposed to ensure a sustainable Postal Service for the future
Simply put, USPS is too important to fail. Millions of individuals rely on their services six days a week. As we enter a 2020 Election that has uncertainty surrounding it due to COVID-19 concerns, mail-in ballots are going to be more critical than ever, as well. It is time for common sense legislation to help the Postal Service thrive not die.
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