Sunday, April 4, 2010


It is tax time again. I went to my local post office to mail in my tax return. It was Thursday 1:30 pm. It was not a holiday. It was after lunch. When I got there, I was met by a ten person line and one postal employee. Now this post office has three areas for three employees to help customers. And only one person was working. All the people in line, including me, were rolling their eyes. For twenty minutes we all stood there in silence, waiting for the lone attendant to take care of each customer. Then another employee appeared and asked if anyone was “just picking up packages”. When no one stepped forward, he disappeared into the back as quickly as he appeared. By this time I had invested twenty five minutes in line, and was not about to get out of line. And the line behind me had grown by five more people. Fortunately, the line did move, and I finally mailed my tax return, marked certified mail.

This did get me thinking, though. Last year the United States Postal Service (USPS) announced that it lost $3.8 billion in the last fiscal year. That is on top of accumulated losses of $7.2 billion over 2007 and 2008. Apparently the USPS has the ability to “borrow” money from the federal government—$3 billion a year, but cannot maintain a debt greater than $15 billion. On top of all this the USPS is delivering less mail—26 billion pieces less last year, and predicted to deliver 11 billion less pieces this year.

There are several things blamed for the financial troubles of the USPS, including the rise of internet billpay, rising healthcare costs, and employee pensions. And the USPS is a leg down compared to other companies, especially competing ones such as FedEx, UPS, and DHL, because it is also beholden to federal laws governing its management. One such requirement is that it fund retired employees’ future health benefits, which costs $5 billion a year.

So what of healthcare? It is a big deal to all companies and can break profit margins over a few years. The classic case is of course GMAC and the UAW. The UAW had negotiated over the years quite a sweet little healthcare package for its union workers. It had secured healthcare benefits for retired workers for life. That is not a small chunk of change. And with more workers retiring and healthcare costs rising, more money is needed to pay for the costs. And since GMAC did not stash away money over the years to pay for it, but rather used current revenue to pay for it, there was bound to grow a discrepancy between available cash flow and costs of healthcare. Sound familiar? Our Social Security System is based on this principal, as are many pension funds. The USPS has the same setup for healthcare. Once revenues declined due to a changing environment, there was less money available for essentially fixed costs of healthcare. The solution? Reduce benefits. The problem is that you cannot just cut off benefits to long retired workers. So the solution does not help immediately when an immediate solution is necessary.

The same problem exists with pensions. Companies simply do not view pensions as an individual views the concept of a pension. For an individual, you know that you have to save now if you want to have money in your retirement. Social Security will not be enough for workers today on which to retire. It would make sense for companies to save money now to pay for pensions later as well, but they do not. They do the same thing they do for healthcare costs. They pass the cost down the road. And of course, the peril of decreasing profits in the face of fixed costs have come to be. And again, the solution is to cut pensions. And again, the solution is not immediate when an immediate solution is needed.

The last problem is the declining revenue due to fewer pieces of delivered mail. Many blame the internet and the growing popularity of online billpay. After all, if you used to send in three or more bills a month, that is a lot of mail for the US population. But there clearly is more to the story than that. There are certainly fewer correspondences sent through snail mail because of email and ability to send PDF files. And with the growing popularity of online tax filing and online advertising, regular mail is all but obsolete. Even the fax machine, long thought to be extinct with the advent of the internet, is poaching on USPS territory. So what is left for the USPS? The only things that I can think of that requires the USPS are holiday and birthday cards, wedding invitations, thank you cards, college application correspondences, legal documents, and municipal correspondences. That is not a long list. You can see that items on that list are there either because of etiquette, secure documentation, or are governmental mass mailings.

We have not even discussed the delivery of packages by the post office. I would wager good money that the USPS competes rather well against FedEx, UPS, and DHL in this area. This is not where the money drain is occurring. And since the other companies are almost exclusively package delivery companies with the exception of overnight and two day mail (which are very expensive), the problem is the regular mail. So how do you solve that problem? The first step is to realize that nobody else delivers regular mail. Nobody. That means stamps can go up in price like gasoline in 2009. And if you only expect certain pieces of mail to be delivered (see above list), then you can accurately predict revenue. Any additional pieces of mail would then be additional revenue on top of what is expected. Unfortunately, that calculation will result in a lower revenue amount than the USPS is used to seeing. So costs must also be cut elsewhere. Already many employees have been laid off, and many post offices have been shuttered. But that clearly will not be enough. They are discussing stopping Saturday mail delivery, but even that is not enough. You may think that UPS delivers six days a week and so the USPS must somehow be able to make it work. However, UPS does not stop at every house on your street for deliveries. A middle ground is needed. If the USPS only delivered regular mail three days a week it might actually staunch the money bleeding. That is right. Three days a week. Certainly it would still deliver packages six days a week, since the packages department is not the problem.

Blasphemy you say? Cutting the mail delivery to three days? Before you cry foul think about how often you actually send mail (not packages) these days and how often you complain that there is no good mail in the mailbox when you go out to retrieve it. Three days makes perfect sense. And it is better than zero days if the problem does not get better.