Dead Letters: Post Office's Harsh Cuts Will Make Its Deficits Worse

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Postal workerWhat's the best way to cure what ails the U.S. Postal Service?

If you ask the postmaster general, saving the Post Office will require shutting down about one out of every three post offices currently in operation, laying off tens of thousands of postal workers, and ending Saturday mail delivery once and for all.

Ask the actual USPS workers, though, and they say one simple move can solve all the Postal Service's problems: Raise the price of a stamp to something approaching what customers pay in other countries.

One of these solutions might work. The other definitely won't.

What You Have to Spend to Send

Citing examples drawn from postal systems around the world, the National Association of Letter Carriers (the postal workers' union) argues that the only way to close the gap between the USPS's costs and the revenue it brings in is to raise the price of a postage stamp. According to the NALC, the 45-cent price Americans pay to mail a first-class letter is "among the lowest" in the world -- and they have a point.

While it's true there are countries that charge less than what we pay here, for the most part, those countries are islands such as Bermuda and the Caymans -- places so small that most letters could be delivered by paper airplane.


Examining just "real" countries, though, if you compare the costs of mailing a letter within the U.S. to what our neighbors to the north pay, you'll find Canadian mail is about 20% more costly than our own. Frenchmen pay two-thirds more for a first-class postage stamp, while in Germany the cost is 82% higher -- and that's just the start. Japan charges twice as much as the USPS, while the Danish fork over three times as much as Americans to send a letter.

Bringing U.S. postage rates into line with global pricing would irk a lot of customers. (It would also require an act of Congress, which in 2006 passed a law tying rate hikes to the national inflation rate.) But aside from that, for the USPS to plug the hole in its projected $18 billion budget deficit, all that's needed is a price hike to about 60 cents per stamp. And this would leave Americans still paying lower postal rates than anyone in Germany or France (and less than the Italians, the Brits, and the Swiss, besides).

Or -- Or -- We Could Just Do Something Really Stupid (and Then Lie About It)

So raising prices a bit would work. So how about a few ideas that wouldn't?

As already mentioned, the postmaster general wants Congress to let him drastically cut back on postal services as a way to reduce costs. There's just one problem with that. According to a survey commissioned by USPS last summer, cutting back on services would make postal delivery so unattractive to customers that it might actually lose about $5.2 billion in revenues. That's roughly half the amount of money the Postal Service was hoping to save by making its cutbacks.

Now, this would be good news for FedEx (FDX) and UPS (UPS), which would presumably pick up that $5.2 billion of lost postal business. But as for USPS itself, as Sen. Susan Collins (R-Maine) commented, "Slower delivery and less service will force many customers to pursue delivery alternatives, dealing yet another blow to postal revenues."

Not Quite Watergate, But Definitely Not Good

It seems the USPS is no fan of bad news, however. No sooner had it gotten the survey results back than it pronounced them "flawed" and buried the report. Theorizing that if it cuts Saturday delivery first, then lays off all its workers, then closes down the post offices, customers might not be quite so upset, the USPS argued that the survey's estimated revenue loss was overblown.

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The USPS asked its market research company to redo the survey using different assumptions, and then it asked the Postal Regulatory Commission to "seal" the original survey results and keep them from the public.

So which would you prefer? A straightforward plan to save the post office at a cost of 15 cents more per letter? Or no more Saturday deliveries, no more next-day mail, tens of thousands of layoffs, and a repeat of this mess next year when the USPS's "solution" proves to solve nothing at all?

Motley Fool contributor Rich Smith owns no shares of the companies mentioned above. Motley Fool newsletter services have recommended buying shares of FedEx.
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