America's Post Office: Not As Doomed As You Think
The United States Postal Service reported a $740 million operating loss for its fiscal third quarter, and the hair-gnashing and teeth-pulling are everything you might have expected.
- "Big losses continue" at the USPS, lamented The Washington Post.
- "USPS incurs major loss," complained Foliomag.com.
- "Year-to-date net losses [total] $3.9 billion," notes the Los Angeles Times.
Yet the truth of the matter is that things aren't actually looking all that bad at the USPS these days. Not unsalvageable at all.
Consider where we were just two years ago, when I penned this little gem for AOL DailyFinance. Back then, The USPS was on track to lose $8.5 billion in 2011. Mail delivery volumes had been cut in half over the preceding 10 years, starving the USPS of revenues. Experts were saying that unless something was done, the Post Office could be losing money at the rate of $20 billion a year by 2015. The USPS was, in short, barreling down the highway to bankruptcy, and about to crash right into the financial equivalent of a 20-mailtruck pileup.
But then ... a miracle happened.
Shifting into crisis mode, Postmaster General Patrick Donahoe announced a plan to close nearly 3,700 post offices across the nation, shutter 250 mail processing facilities, and cut employees from the USPS payroll. (Shortly thereafter, 23,600 postal workers jumped at the chance to get "bought out.")
The Post Office also began innovating in an effort to generate new revenues. Late last year, the USPS announced a pilot "Metro Post" project to begin making same-day deliveries from retailers in San Francisco to local customers. The USPS projected that as this program rolls out, it could generate upwards of $10 million in additional revenues in every city it's run in. Just this past week, the USPS came up with a new plan to keep customers from defecting to UPS and FedEx -- offering free insurance, delivery of packages on specific days chosen by the customer, and free online package tracking. As this service rolls out, the USPS anticipates even bigger revenue gains -- as much as $500 million more per year.
Meanwhile, Postmaster Donahoe recently highlighted surprising gains in certain facets of the Post Office's business:
- Standard mail revenue grew 3% in the third quarter, despite a volume increase of only 1% (and yes, volume ... increased)!
- Revenue from shipment of packages (as opposed to envelopes) grew 9%.
- Even in the age of the electronic content delivery to iPads and via Amazon Prime, the number of subscription-based periodicals the USPS is shoving into mailboxes around the country is holding steady.
So ... problem solved, right?
Well, I wouldn't go quite that far. While things have begun looking less bleak at the USPS, one quarter does not a trend make. Also, while a $740 million quarterly loss is not as bad as the $5 billion loss doomsayers had been predicting, it's still not breakeven.
Operating at a loss, the Post Office is still pushing a raft of cost-cutting measures, from branch and processing facility closures to ending Saturday delivery. Furthermore, the USPS says there's no way it can make its legally required $5.6 billion annual contribution to its fund for paying future retiree benefits, due in September -- or its $1.4 billion workers' comp contribution due in October, either.
Say what you like about the unfairness of forcing the Post Office to prepay its obligations when other government services aren't required to do so. These are still future obligations of the Post Office. They still "count" and they affect the service's financial viability over the long term.
Long-term problems deserve long-term solutions
If you ask me, the solution to the USPS's difficulties is the same as it's always been: to match the prices it charges for its service, to the demand for that service. Assuming -- financial shenanigans with workers' retirement funds notwithstanding -- we're still looking at a worst-case scenario that the Post Office will take in $20 billion less in revenue than it needs to cover its costs, the solution here is elegantly simple.
The USPS makes $65 billion in revenue annually today. It needs $20 billion more than that to cover its costs, and this works out to a 31% difference. What the USPS really needs, therefore, is to raise its prices across the board, on first class mail, on packages, on junk mail -- on everything -- 31%, to cover the deficit. The USPS needs to charge $0.60 for a postage stamp.
Sixty cents for a stamp? Ridiculous!
If that sounds like a big increase, well, first, consider that this is basic economics. The costs are there. The Post Office must find the revenues to cover them, or else it will go broke and we'll have no postal service. So would you rather have the Post Office raise its prices a penny this year, then a penny next year, wait a year, and raise prices again a year later ... forever?
Or would you rather bite the bullet today, and pay $0.14 more for the privilege of getting somebody to carry a letter for you from NYC to LA, so you don't have to drive it out there yourself? And save the U.S. Postal Service from extinction in the process?
Well? Which will it be? Sound off below.
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The article America's Post Office: Not As Doomed As You Think originally appeared on Fool.com.Fool contributor Rich Smith has no position in any stocks mentioned. The Motley Fool recommends FedEx and UPS. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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