Goodbye, Post Office, We Hardly Knew You

In June, FedEx (NYSE: FDX  ) reported its most profitable quarter since June 2007. A few weeks later, UPS (NYSE: UPS  ) boasted of a 25% year-over-year pop in profit. And you know what, folks? The news will only get better for them. Their biggest competitor in less-than-truckload shipping, YRC Worldwide (Nasdaq: YRCW  ) , is on the ropes, losing money and alienating its owners. And their biggest competitor, period, isn't doing much better.

Last week, Postmaster General Patrick Donahoe announced a plan to close nearly 3,700 post offices across the nation. Beginning in January, branch closures will begin hitting towns in all 50 states of the Union, along with Washington, D.C.

The U.S. Postal Service is losing about $8.5 billion per year. Studies show that by 2015, it will be losing $20 billion annually. Plans for biweekly stamp-price increases (I hyperbolize, but only a bit) and truncated mail-delivery weeks (axing Saturday delivery) won't close the gap. To break even, USPS will retrench -- become "smaller, leaner and more competitive" by closing offices with "so little foot traffic that workers average less than two hours of work per day and average sales are less than $50 a day." And even that may not be enough.

It's hard to overestimate the impact a post office closure has on a small American town -- but it's actually pretty easy to estimate how little this move will help USPS. According to Donahoe, annual savings from the closures will amount to no more than $200 million. So congratulations, Mr. Postmaster General. You've solved 1% of the problem.

Now for the other 99%
Granted, USPS's plan to close post offices imperils our access to junk mail, Bed Bath & Beyond 20% off coupons, and credit card preapprovals. Indeed, once eBay's (Nasdaq: EBAY  ) PayPal (where revenue is growing 30% per year) and the banks' online billpay services have finished stomping out snail-mail-borne invoices, it's hard to see what purpose USPS will still serve.

Perversely, all this will boost business at FedEx and UPS. Unlike the post office, they focus on delivering packages that people actually want to receive. As USPS becomes increasingly customer-unfriendly, the quality gap between it and the services provided by "privatized mailmen" can only widen.

My guess: USPS is now 99% certain of eventually going out of business. And it's got only itself to blame.

Disagree? Feel free. If you think there's still a future for the post office, scroll down and tell me why.

The Motley Fool owns shares of FedEx and United Parcel Service. Motley Fool newsletter services have recommended buying shares of Bed Bath & Beyond, eBay and FedEx.

Fool contributor Rich Smith does not own (or short) shares of any company named above. Fools may not 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.


Read/Post Comments (7) | Recommend This Article (7)

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  • Report this Comment On August 04, 2011, at 2:17 PM, EdFromOhio wrote:

    The post office may morph into something different and very likely smaller, but the government will never allow it to completely die. If they won't let auto manufacturers shut down, whom they had no control over previously, what makes anyone think they will allow the post office to fail, which they do have control over?

    Actually, government is the epitome of waste, so the post office will be around for a very long time.

  • Report this Comment On August 04, 2011, at 4:22 PM, RobHunterJohnson wrote:

    Article 1 section 8 to establish POST OFFICES and post roads. That is from the constitution, I like fed ex, and ups, but The POST OFFICE is needed and required by the Constitution. What we need to do is make the congress, and senate join the entitlement club. How is a good helping of SOCIAL SECURITY, MEDICARE, FEEDING THEIR OWN $401Ks, and FETCHING THEIR OWN HEALTH CARE FOR THEMSELVES AND FAMILY? Then maybe they would understand what AMERICANS are going through.They are CLUELESS! Hey have you checked the DOW today? Rob

  • Report this Comment On August 04, 2011, at 8:45 PM, NobodysFool111 wrote:

    Perhaps Congress can solve the USPS financial problems by passing a trade agreement to ship postal jobs overseas like they've done for so many other Americans.

    Yes, I jest.

  • Report this Comment On August 05, 2011, at 12:49 PM, marielaina wrote:

    The Postal Service has been mismanagedfor years. The boys at HQ have created this mess with their huge salary and benefit packages. They are crooks who have selfishly destroyed our service. Congress should investigate the wasteful spending. Contrct violation grievances, lawsuits, and overtime are costing billions, along with management's Pay for Performance bonuses. Don't buy in to the smoke screen of loss of mail volume; it's not that bad, just ask any carrier. The American public is being played like a violin.

  • Report this Comment On August 05, 2011, at 3:09 PM, midon1 wrote:

    Sort your mail for a week.

    Two piles mail I need and do not.

    See how much mail you have in I need pile.

    That should answer the following question.

    Do we need the post office any more.

  • Report this Comment On August 08, 2011, at 7:56 AM, prginww wrote:

    I am a retired ups manger.I belive it can be run and make money.Clean out the dead wood frist.

  • Report this Comment On December 17, 2011, at 3:37 AM, chewbacca25 wrote:

    so, i am curious. i own a bit of ups stock and was thinking about selling and finding something more prone to faster growth. in regards to the usps troubles, would that be a mistake? will the extra business amount to a significant gain in share prices?

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