The United States Postal Service is a beloved institution.
91 percent of Americans rank the post office as one of their
favorite government agencies in April 2020.
Americans depend on the post office for prescription medication,
Social Security checks, an old fashioned snail mail, like
birthday cards from your aunt.
The U.S. Postal Service is big.
It's the world's largest postal service, delivering and
processing more than 472 million pieces of mail a day.
It also employs more than 600,000 people.
Wal-mart and Amazon are the only U.S.
companies that employ more.
The Post Office has been slow to adapt to changing times, and
the rules surrounding its services and financials have made it
hard to innovate. It's a organization that provides a universal
public service by the government.
But at the same time, it's an organization that's required to be
self-financing.
The U.S. Postal Service is in the spotlight during the pandemic
as Americans turn to e-commerce and concerns grow over the USPS'
ability to deliver mail-in ballots for the upcoming presidential
election. It's no secret the Post Office has been in financial
trouble for years, a fact that has been politicized by President
Trump. The Post Office is losing billions of dollars and the
taxpayers are paying for that money because it delivers packages
for Amazon. We reached out to the U.S.
Postal Service about their financial situation.
They referred us to what Postmaster General DeJoy told the USPS
Board of Governors back in August 2020.
Our financial position is dire, stemming from substantial
declines in mail volume, a broken business model and a
management strategy that does not adequately address these
issues. As we have repeatedly stated, Congress and the Postal
Regulatory Commission have long delayed much needed legislative
and regulatory reforms to help address the situation.
Here's a look at the business model of the U.S.
Postal Service and why it's not working.
The Post Office is self-financing and a business-like entity.
Instead of receiving funds from the U.S.
government, it relies on sales from postage stamps and its
postal-related services to cover its costs.
The Post Office's duty is bound by its mission and what's called
the universal service obligations.
It has to complete these regardless of cost.
It includes delivery six days a week throughout the U.S.
and accessibility and affordability for all citizens who use it.
The Post Office's products are split into two categories.
You have market dominant products that the Post Office has a
monopoly on, like first class mail, periodicals and postcards.
And then you have competitive products, like packages.
The Post Office has competition in this space from FedEx and
UPS. Sitting above the U.S.
Post Office is an independent federal agency called The Postal
Regulatory Commission.
They keep the Post Office accountable to its obligations and
oversee rate changes.
They make sure the Post Office doesn't raise prices above
inflation and make sure their contracts with FedEx, UPS and
Amazon are profitable.
The Postal Service was allowed to raise rates for its monopoly
profits by the rate of inflation.
And the Postal Regulatory Commission was charged with
formulating the rate of inflation, reviewing the proposals of
the Postal Service to raise its rates and to assure that those
rates did not go beyond the rate of inflation.
And furthermore, the rates were by class.
The Postal Service can raise prices on items that cost less, but
take longer to process to encourage a more efficient and
profitable system.
The Post Office also has a requirement to prefund the health
benefits of its workers for 75 years into what's called the
Retiree Health Benefits Fund.
Many critics point to this as the source of the Postal Service's
financial pains.
There were a lot of postal workers who were getting into their
25th or even 30th year.
And so you had a wave of people who were moving toward
retirement and the Postal Service, even though they had promised
these workers that they would pay these retiree health benefits
when they retired, you wouldn't find any mention of that
obligation on their financial statements.
So it looks like the Postal Service was actually in good
financial condition, but in fact, there was this looming
obligation. The problem comes with this enormous financial
burden that's been put on the Postal Service that over the years
drained most of its available cash and has put
it in a situation so that its only management options over the
last 10 years have been to plan for cutbacks, and
that's not good for a business that's going to survive in the
long term. The Post Office's financial
situation is dire.
Since 2009, the U.S.
Postal Service has been on the U.S.
Government Accountability Office's high risk list for financial
viability. The 2019 report describes the biggest challenges
coming from declining mail volumes, increasing employee
compensation and the growing amount of money it has not set
aside for its retiree health benefits fund.
They have about $160 billion dollars in liabilities, debts and
other obligations.
Last year alone in 2019, they lost about $8.8 billion dollars.
They've not been paying into their retiree health fund since
around 2012 and basically have been raiding the fund to pay
those costs. And under current projections, that fund is
expected to be exhausted by 2030.
Up until the early 2000s, the Post Office's most profitable
product was first class mail.
However, since the Great Recession, it's seen a drop in volume
of more than 33 percent.
So the Postal Service's mail volumes typically follow the
business cycle. When we've had a depression or recession mail
volume slide, when the economy starts roaring again, mail
volumes go up. That recession hit mail volume down like a stone,
but then it didn't bounce back.
And that's because businesses were already in the process of
migrating their communications to electronic formats.
After the recession, e-commerce started to rise and people began
to increasingly shop online.
This caused the U.S. Post Office's package delivery service to
surge. The number of package shipments have doubled since 2009,
and they now account for more than 30 percent of its revenue.
The Postal Service's aging infrastructure wasn't built to handle
this many packages, and its financial debt has made it hard to
make the necessary upgrades to compete with private companies
like FedEx, UPS and Amazon.
The Postal Service is pretty anxious about the prospects
of being in the parcel business.
In its financial statements, it regularly warns of the risk
sections that parcel businesses not only highly competitive, but
that some of the Postal Service's main customers, like Amazon,
are building out their own logistics and delivery network.
And so the parcels that they're getting today from Amazon or
Walmart or others may not be there tomorrow.
The Postal Service has negotiation service agreements with
private package delivery companies like Amazon, UPS and FedEx.
They use the USPS's last mile delivery service as the final leg
in getting a package delivered to hard-to-reach areas.
One of the things the post office is losing so much money on is
delivering packages for Amazon and these others.
Every time they deliver a package they probably lose three or
four dollars. That's not good.
They have to raise the prices.
Post office experts and internal documents disagree.
In those contracts, the shipper agrees to a certain amount of
packaging that's going to be delivered into the system.
They agree upon how it's going to be labeled, what kind of
delivery system it's going to be, and they negotiate for prices
based on that.
And they are allowed to give some loss leader prices within the
contract as long as the contract as a whole covers the
costs of handling all those packages and contributes to the
overhead of the Postal Service.
The hope was that the commercial products would generate enough
revenue to, in fact, help the monopoly mail and the universal
service, rather than hinder it.
And the profits, the surplus that's made by the competitive
products are funneled into the overall operations of the Postal
Service, therefore keeping the universal obligations and letter
mail more viable than they would otherwise be.
The cost to run the U.S.
Postal Service has grown significantly.
Since 2006, the Post Office's revenues have failed to cover its
expenses. Some of those rising costs include the Post Office's
more than 600,000 workers.
They account for more than 75 percent of its operating costs.
Also, the overhead it needs to maintain to meet its universal
service obligations doesn't come cheap.
First, it has a very heavily unionized workforce.
There are four separate unions who represent all of the
so-called craftwork groups, the letter carriers, the mail
sorters, the mail handlers, mechanics who work on the various
vehicles. And so every four years, each of those unions get to
collectively bargain. And no surprise, they try to get better
compensation, working conditions for their people.
You also have the U.S. population.
As our population gets larger, there are more delivery points.
If you are in another business, that means you have discretion
usually over what products you offer or how to manage your
costs. The challenge for the post office is their mission is
largely given to them and it's not something they can walk back
from. The United States Postal Service is not short of
recommendations on how to fix its financial problems.
Ideas range from cutting back on six-day delivery, closing
unprofitable post offices, merging the retiree health benefit
program with Medicaid to adjusting collective bargaining
agreements to account for the financial viability of the post
office. The U.S.
Postal Service has tried to adopt some of the solutions, but
they often conflict directly with its universal service
obligations or have generated backlash.
Some recent examples are removing the iconic blue collection
mailboxes and mail sorting machines, all of which are routine
logistical measures.
President Trump and Republicans have suggested privatizing the
Post Office. It's an approach that some European countries have
adopted and that the Bush administration visited back in 2003.
That presidential commission actually said, no, it was not a good
idea to privatize because it would not be
attractive for a private company to run it and it would not be
feasible in terms of the obligations the Postal Service has.
The Postal Regulatory Commission has proposed adjusting the post
office's pricing system for first class mail.
The law does not allow it to raise prices above inflation, which
has hindered its ability to raise revenue.
Many businesses have opposed raising prices, and there's concern
that it could accelerate the decline of letter mail.
Other countries have allowed their postal service to go into
non-postal services, something the U.S.
law prevents the Post Office from doing.
France's post offices offer banking services.
The UK's Postal Service sells life insurance and lottery
tickets. Switzerland's post office even runs a bus service in
rural areas. The government took over huge
liabilities from those coastal operations, there's no easy
answer, there's costs and liabilities out there that don't go
away just by changing one aspect of it.
The U.S. Postmaster General Louis Dejoy' approach to get the Post
Office out of its financial rut is to cut costs, raise prices
for certain mail services and reduce service to parts of the
country. It's a business approach that many say doesn't work for
the Postal Service.
The Postal Service is not just a business.
It is something that includes social obligations.
It is enshrined in the Constitution.
It's obligated to provide essential communication services to
everybody in the country to 160 million people.
A policy that just focuses on making the Postal Service more
like a business will hurt the social obligations of the Postal
Service has. In the meantime, the Postal Service has enough cash
to get by to mid-2021.
The House of Representatives have passed two bills to alleviate
the post office of its short term financial burden.
If passed by the Senate, one would remove the Postal Service's
responsibility to prefund its retiree health benefits.
The second would be a loan of $25 billion dollars and reverse
some of Postmaster DeJoy's recent changes since post office
workers are legally entitled to their pensions and benefits.
Critics say that removing the requirement creates ambiguity over
who this financial responsibility falls on.
If they are given an infusion of cash, that will help their
short-term situation both from a cash flow position and may
allow them to do some capital investments depending what they
how they prioritize and what they do with their money.
But without restructuring the basics of the business
model, what lines of business you're in, what your fundamental
cost structure. It's a Band-Aid, not a solution.
The core questions here about what this service it needs to be
today and into the future and how to pay for it are really core
public policy questions that can't be answered by GAO
or an advisory group.
They can offer suggestions.
These are core public policy decisions that need to reflect the
values of the country.
And that is that's the role of Congress.