New U.S. Postal Service chief warns of ‘dire’ finances as quarterly loss narrows
By David Shepardson
August 7, 2020
By David Shepardson
WASHINGTON (Reuters) – The head of the U.S. Postal Service (USPS) on Friday said the agency faces a “dire” financial position even as it posted a slightly narrower third-quarter loss amid soaring package demand during the coronavirus pandemic.
Postmaster General Louis DeJoy said USPS has a “broken business model” and is in need of organizational changes. “Without dramatic change, there is no end in sight and we face an impending liquidity crisis,” DeJoy said.
USPS said quarterly revenue rose to $17.6 billion, up $547 million. The quarterly net loss shrank to $2.2 billion from $2.3 billion in the same quarter last year.
First-class mail volume declined by 1.1 billion pieces, or 8.4%. Shipping and packages revenue increased by $2.9 billion, or 53.6%, on a volume increase of 708 million pieces, up 49.9%.
Democrats Thursday called on DeJoy to reverse changes that they say are resulting in delayed mail.
“We believe these changes, made during the middle of a once-in-a-century pandemic, now threaten the timely delivery of mail—including medicines for seniors, paychecks for workers, and absentee ballots for voters—that is essential to millions of Americans,” wrote House Speaker Nancy Pelosi and Senate Democratic Leader Chuck Schumer.
Voting by mail is expected to increase dramatically this fall amid the coronavirus pandemic. Trump has claimed without evidence that absentee voting leads to rampant fraud.
“We are not slowing down election mail or any other mail,” DeJoy, a Trump supporter, said Friday.
The Postal Service has faced financial woes with the rise of email and social media, and a measure passed in 2006 requiring it to prefund 75 years of retiree health benefits over the span of 10 years at a cost of more than $100 billion.
DeJoy said the Postal Service is eliminating inefficiencies, including “unnecessary overtime.” The Postal Service has lost $80 billion since 2007.
Why is the post office so inefficient? Have they gone through the operation with a “fine tooth comb” to see what the problem is by assessing the business, its resources, and its environment. Doing an analysis of this type is a good way to better understand a business and its markets, and can also show potentials?
There’s more than one reason the Postal Service is losing money.
President Trump, one might get the impression the U.S. Postal Service is unprofitable because it is under-charging Amazon.com. “Why is the United States Post Office, which is losing many billions of dollars a year, while charging Amazon and others so little to deliver their packages, making Amazon richer and the Post Office dumber and poorer? Should be charging MUCH MORE!” the president exclaimed.
The USPS’s financial plight, however, is not merely a parcel problem. The Post Office’s problems are business-wide, because its expenses keep exceeding revenues.
The Postal Service was designed to be self-sufficient — unlike other federal agencies, it does not live off dollars collected as taxes. Rather, it tries to cover its operating expenses by charging postage.
Sorting and transporting mail is an inherently costly proposition. USPS delivers mail to 157 million addresses and post office boxes in the nation (including Puerto Rico, the American Virgin Islands, etc.) It has 230,000 trucks and other vehicles to help it haul all that mail.
But that is not the whole of it. USPS also runs a massive retail operation in the form of 31,000 post offices and another 4,000 contractor-run mail shops, each with their own overhead costs.
The Postal Service has limited tools to control its overhead. Laws and political pressures harry its every effort to reduce delivery frequency (presently mandated at six days per week) and shutter money-losing post offices. By law, the vast majority of all USPS positions are held by unionized federal employees who have robust job protections. The USPS’s ill-fated effort to install postal counters at Staples shows just how costly these protections can be – this consumer-friendly, low-cost initiative was struck down by the National Labor Relations Board because it dared to allow Staples employees to sell postage and receive parcels for shipment.
Refusing to replace employees who retire or depart has been the Postal Service’s go-to tool for cost-cutting. The agency has 300,000 fewer employees than it did a few decades ago. Still, USPS has 500,000 employees and 600,000 retirees who receive health and pension benefits. Thus, the agency’s compensation costs rose $2 billion since 2015.
This past year, USPS reported a $2.7 billion loss. A look at the revenue side of the ledger reveals why. Mail volume is sliding. Less mail means less money. A decade ago, USPS raked in $75 billion in revenue; last year its haul was a little less than $70 billion. Mail volume peaked at 213 billion mail pieces in 2006; it was 149 billion in 2017. That is a 30 percent fall-off. There are simply fewer letters, postcards, marketing mail (aka junk mail), and periodicals being sent, as big mailers and John Q. Public alike have shifted to electronic delivery.
The lone exception to this trend is parcels, the volume of which has crept upward. The Postal Service’s leadership believes its survival depends upon carrying more parcels. But that seems a little fanciful.
Packages remain a paltry portion (four percent) of what the postman carries. And it is not at all clear if the USPS reaps profits on carrying parcels. Boxes brought in a whopping 28 percent of USPS revenue last year, but the agency’s accounting for the costs related to carrying packages (which obviously are bulkier than letters and magazines) cannot be found in either its annual report or year-end financial statement. That I can purchase a polyester trombone case online for $20 — and USPS will carry it all the way from California to Washington, DC, for a portion of that purchase price — gives wonder. Good luck finding a private courier who would charge so little.
Add to all this the fact that USPS reports that its parcels income stream may take a hit. Its largest shipping customers are “building the capability which would enable them to divert volume away from the Postal Service over time.” (Think Amazon lockers, Uber delivery drivers and the like.)
The Postal Service’s business model is broken. The demand for its services has plummeted, and private couriers and 21st century delivery modes (drones and delivery robots, for instance) pose tough competition. USPS likely will continue to lose money despite the efforts of its employees and leadership.
Making the Postal Service viable for the 21st century will require a top-to-bottom rethink. Parcels priced at profitable rates may be a part of that new model, but more widespread, robust change is needed, lest taxpayers wish to find themselves bailing out the Postal Service.