USPS Is Bleeding Money

“Neither snow nor rain nor heat nor gloom of night stays these couriers from the swift completion of their appointed rounds,” is the unofficial motto of the United States Postal Service.

But what about finance? Could losing money hand over fist spell the death knell for the government’s mail and package delivery service?

Learn more about RevenueStripe...

Thanks to the wildly creative American founding father Benjamin Franklin, Americans have been able to send stamped articles through a centralized system since 1775 when the man who proved that lightning is electricity was appointed the country’s first Postmaster General. Franklin had helped open a print shop in Philadelphia where he published and wrote much of the Pennsylvania Gazette newspaper from 1729 to 1766.

Franklin was appointed the official printer of Pennsylvania in 1730. Then, in 1737, he was appointed the postmaster of Philadelphia. By order of the Second Continental Congress, Franklin served as postmaster general of the United Colonies – but only for a short time. In 1776, he was dispatched to France to serve as an American diplomat.

The U.S. Postal Service (USPS) is an independent agency of the executive branch of the federal government responsible for providing postal service nationwide. Article I, Section 8, Clause 7 of the United States Constitution, known as the Postal Clause or the Postal Power, empowers Congress “To establish Post Offices and Post Roads.”

Franklin Franklin introduced the first postal rate chart, which standardized delivery costs based on distance and weight. One of his highest priorities was to make the Philadelphia post office profitable. His idea was to sell stamps rather than accept mail for delivery on credit. In 1738, he wrote:

“To prevent the unnecessary Trouble of keeping Accounts, and the Loss that attended delivering Letters on Trust; No Letters will be delivered hereafter to any Person whatever, without the Money immediately paid, which it’s hoped will not be taken ammis [amiss].”

Now, 280 years later, the USPS is swimming in debt. During the first fiscal quarter of 2018, the federal organization chalked up a $1.3 billion operating loss, an increase from the $562 million reported the previous year. To put the situation in perspective, the USPS has a $400 million monthly shortfall.

During the second three-month period (Q2) of 2019, the USPS was down in excess of $2 billion. This year’s estimated loss is pegged at more than $7 billion as compared to the $4 billion loss posted in 2018.

The USPS second fiscal quarter 2019 report noted that mail volume had decreased slightly but that the biggest losers were spiking expenses, notably workers’ compensation, pension, and retirement health benefits payouts.

On December 29, 2017, President Trump tweeted his take on why the national postal service is hemorrhaging money (postal rates are too low):

“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!”

When the USPS revealed its then-record loss of $3.9 billion on September 30, 2018, Postmaster General Megan Brennan admitted that her organization “cannot generate revenue or cut enough costs to pay our bills” and that she expected financial shortfalls to continue at “an accelerating rate.”

Brennan wants the Postal Regulatory Commission to allow the USPS more leeway in pricing its products and services. She has also appealed to Congress for legislative reform.

The Postal Regulatory Commission did approve a 5-cent stamp increase in 2019 with an overall rise of 2.5 percent for all postal offerings. First-Class and Marketing Mail revenues declined slightly while income from Shipping and Packages increased from the same period the previous year.

The USPS owes the U.S. Treasury $15 billion. In 2018, the agency paid back $1.8 billion of that amount and is expected to reduce the debt by another $2.2 billion this year.

Joseph Corbett, the Chief Financial Officer and Executive Vice President of the USPS responded to the mixed 2019Q2 earnings report:

“We continue to face challenges from the ongoing migration of mail to electronic alternatives, and we are legally limited under current law in how we can price our products and streamline our legacy costs.”

Corbett predicted that the USPS would be able to grow revenue and reduce operating costs. With total pension liabilities to the tune of $322 billion, of which $43.5 billion is presently unfunded, the federal postal service has “no clear path to profitability,” according to U.S. government’s 21st century reform and reorganization plan.

The more than 630,000 full- and part-time workers employed by the USPS handle about 146 billion pieces of mail each year. USPS plans to focus on providing competitive services, such as its more profitable parcel delivery.

President Trump appointed a postal reform task force in December 2018. Changes under consideration include giving the USPS more flexibility over delivery days and speed, re-evaluating the financial impact of its universal service mandate to provide delivery to every U.S. address, and letting the agency monetize its monopolistic mailbox structures.

Another option would be to privatize the U.S. postal service, forcing the USPS to compete with other capitalistic ventures. But Congress and the President seem to be heading in the other direction, applying band-aids and baling wire to the failing system.

Leave a Reply

Your email address will not be published. Required fields are marked *

Copyright Stella Management 2018, all rights reserved