No Wonder the Post Office Is Losing Money!

With mail volumes dropping, and losses mounting, it's starting to look like the days are numbered for the U.S. Postal Service. It probably doesn't help matters, either, that USPS just announced a big contract to pay one of its rivals -- FedEx (NYSE: FDX  ) -- to haul its mail.

Apparently, FedEx does a better job of this than USPS can do for itself. But that's not the Post Office's real problem. Its real problem is that FedEx knows how much its superior service is worth, and has the pricing power to charge for it, while USPS... doesn't. 

What can the Post Office do to help fix what ails it, and close the gap between revenues and losses? Fool.com contributor Rich Smith has a suggestion...

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Read/Post Comments (24) | Recommend This Article (10)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On April 30, 2013, at 8:34 PM, dolphinljs wrote:

    Why the USPS is losing money? Speaking as a past UPS manager, if you knew anything about the USPS, you would know that they do not have any aircraft. They have always used UPS, FedEx or commercial airlines to move their Express Mail & some of the priority mail. In order to meet their service commitments, they have to move it via air.

    The reason the post office is losing money, is that congress inacted pension payment that is required of the USPS and no other business in the U.S. It is just a way for the govt to get cash flow by bleeding one of their own limbs or non-limbs. as the post office is considered part of the govt when they make a profit so that the govt can siphen off the funds but when the USPS losses money, they are not apart of the govt and left out on their own.

  • Report this Comment On April 30, 2013, at 8:40 PM, LuKasAV6 wrote:

    @dolphinljs Perfect, well-educated comment! There is nothing more to add.

  • Report this Comment On April 30, 2013, at 8:43 PM, Kyriee wrote:

    The pension rules are not the only reason that the usps can't keep its head above water - my buddy has been a clerk for years and makes a $/hr wage that is absolutely ridiculous!

  • Report this Comment On April 30, 2013, at 8:52 PM, bigtn wrote:

    That's not the only reason. The postal service no longer sorts mail staying in town in that town. I lived in Bozeman, Montana and mail going to another Bozeman address went to Billings 142 miles away, was sorted, and then came 142 miles back to be delivered! Tell me how stupid that is.

  • Report this Comment On April 30, 2013, at 8:57 PM, yankeeturtle wrote:

    It is obvious that Smith knows very little about what he writes in regard to the USPS. Manpower has been cut by 300,000 in the last 25 years. It is cheaper for USPS to use FedEx as a shipper as their network is much larger. USPS still makes the delivery after FedEx delivers the shipment to the local post office. The USPS is required to pre-fund future retirees health benefits, some of the future retirees have not even been hired yet. No other company is required to do this. (Congress at work). The USPS is prohibited from making a profit. The public whine about a 2 cent increase, let alone a 15 cent increase. The cuts in manpower need to be made at the national level, not the local level.

    Craft employees EARN every dollar in spite of what Kyriee so mistakenly believes.

  • Report this Comment On April 30, 2013, at 9:01 PM, Freddbe wrote:

    This only tells me fed x is charging to much. Like most private business, you got a profit with an added cost for greed. Everyone is always worried about government taking to much control while they let big business bankrupt them.

  • Report this Comment On April 30, 2013, at 9:17 PM, reired wrote:

    The author needed to do a little more research before posting this article and they would have known why this contract is in place. As dolphinljs stated the USPS does not own any planes and the deal with Fedex is the low bid. As for Kyriee, this person you mention obviously has many years of service, they did not start out at what they now make. Try living in New York City on that wage or any other major city. There are so many employees tha are part time but still have to work six or seven days a week. If not already, it will soon be that more employees will be part time than full time.

  • Report this Comment On April 30, 2013, at 9:19 PM, Osuno1 wrote:

    Don't overlook the usps is prevented from owning their own aircraft. This is a simple renewal of the previous contract.

  • Report this Comment On April 30, 2013, at 9:35 PM, bugmenot wrote:

    Errr, you need to look elsewhere for a USPS problem.

    Prior to 9/11, first class and ExpressMail flew on common carrier airlines like Delta. Planes were filled out to carrying capacity with mail depending on passenger load. Mail was on every flight.

    Barometric bombs that could be mailed and set to detonate at a certain altitude were developed. This caused USPS to stop moving mail on passenger planes. FedEx eventually got the contract for this work and both organizations have benefited.

    It is easy to make ill informed comments about a subject if you use mainstream media sources as your information base.

  • Report this Comment On April 30, 2013, at 9:40 PM, mtndon wrote:

    Another uninformed article on the USPS. No mention that the USPS delivers packages for UPS, Fed Ex and other shippers every day. Shipped by other carriers, to to a local Post Office and the delivered to the street by letter carriers. It's called a drop shipment.

  • Report this Comment On April 30, 2013, at 9:46 PM, reired wrote:

    In response to bigtn, If you think of this in terms of manhours and dollars it makes al the sense in the world. There is a truck that has to go from Bozeman to Billings anyway because they have to take mail that is destined for the rest of the world on it. Bozeman has a population of 40,000 in the city and 90,000 in the metro area. How many manhours do you think would be spent culling Bozeman mail, sorting it, cancelling it, then having to have the carriers sort it to their case before they coulddeliver it? In billings, with LetterSorting Machines, all the mail for Bozeman can be sorted in less than 2 hours and come in delivery sequence with better than 95% accuracy. This process proably saves 10,000 manhours a year at a monetary savings of more than $250,000. And you get it at the same time you would have if it stayed in Bozeman.

  • Report this Comment On April 30, 2013, at 9:47 PM, dolphinljs wrote:

    Business wise there would be no reason for the USPS to own their own planes. The rate that they get per piece on the UPS or FedEx plan is very economical. the amount of money that it would take to own & operate their own fleet would price the usps out of the market niche that they have. Regarding the comment Freddbe made, you really can't determine that FedEx is charging too much until you know the true facts behind the number of pieces, etc. which I doubt that the USPS will release. Regarding Kyriee's comment, I agree with retired. If you think the amount your friend makes is crazy, it is comparable to what employees at UPS & FedEx employees make, but they are expected also to work at a high effeciency rate. But like in any company you do have your slackers, and since the union protects everyone equally, you can't get the slackers out.

    The problem, which is going to be the downfall of the USPS, is going to be Congress. Congress doesn't understand business and best business practices. That is probobly why the country is in trouble too. They don't understand business. all these social programs are great but there has to be something that pays for all of them. Kind of like your bank account. If you don't have the money to spend, you don't.

  • Report this Comment On April 30, 2013, at 9:58 PM, taug99 wrote:

    THE POST OFFICE IS LOSING MONEY FOR ONE SIMPLE REASON,

    THE UNION.

    THE ONLY ONES THAT NEED SATURDAY DELIVERY, ARE THE UNION.

    CONSTANTLY LOSING MONEY, AND JUST LIKE OTHER GOVERNMENT PROGRAMS,

    NO ONE CARES.

  • Report this Comment On April 30, 2013, at 10:54 PM, guitaristbass wrote:

    Hey, Rick, your post suxs, as the USPS has used independent contractors for years to get your hard mail in your hands & not just the above mentioned national contractor, so what's your point, hum? The fact is by a meeting with our regional postal service rep, you & your buddies & the rest of America don't use the postal service as in the days of old so they are reducing hours of operations & Saturday delivery this year; does this satisfy your mad axx?

  • Report this Comment On April 30, 2013, at 11:21 PM, Cal1h wrote:

    I can't express the joy of so many knowlegable comments in regards to Rick Smiths comments of why the U.S. Postal Service is loosing money. Clearly, Mr. Smith has little knowledge of what he is talking about. Everyone would be well served by reading the comments critizing Mr. Smiths article.

    I am baffled why Motley Fool would want to be linked to this mans uninformed and biased remarks.

  • Report this Comment On April 30, 2013, at 11:21 PM, mtndon wrote:

    Alright who let USPS management in here!

  • Report this Comment On April 30, 2013, at 11:26 PM, warrantldo wrote:

    Now everyone I know has been to the post office,,they have seen what their problem is

  • Report this Comment On May 01, 2013, at 12:15 AM, avolcano wrote:

    Let's be honest about the Post office, Its a dying horse on life support system. The answers to fix the problems are not being done. The waste within the Postal Office is never addressed, over pay managers, paying rocket cost for leasing for postal offices around the United States, insurances, vehicle cost, providing crazy service to remote location, the union, and the government red tape..we can go on and on. This is the same for all federal government agencies, no one really wants to change the broken, corrupt and mismanaged system. Its very sad to the postal office going down, its part of the American history and treating like a piggy bank for Congress.

  • Report this Comment On May 01, 2013, at 12:27 AM, Baldmor wrote:

    Misinformation by this guy to sell FedEx stock! In this case the fool did not do his due diligence.

  • Report this Comment On May 01, 2013, at 1:31 AM, Wenmomojo wrote:

    Why has there been such a huge gap between what USPS charges and FedEx? The postal service will deliver a letter anywhere in the country for less than fifty cents. I just priced a FedEx letter shipped from New York to California, cheapest rate over $21. That is FORTY TIMES what the postal system costs. Why doesn't the post office charge more?

  • Report this Comment On May 01, 2013, at 1:36 AM, mtndon wrote:

    The PO is shifting it's main business of letters to parcels (whether we like it or not), it's closing or consolidating offices when ever it can or putting them into retail or a shared retail space. It's shifting to a distribution model like UPS and remember UPS has a union and is doing fine. The Wall Street Journal did an article a while ago and I think it said there are over 2000 communities with out cell phones, or internet and a lot of times the PO is the central gathering point for the folks. The PO has to change, but it shouldn't be destroyed in doing so.

  • Report this Comment On May 01, 2013, at 3:23 AM, rcklbstr wrote:

    While I know the USPS is losing money, it's no surprise when almost all people now use the internet to pay their bills and communicate. I don't feel sorry for the USPS though. I am a 11 year veteran that looked to get into the post office to fulfill a government retirement years ago. I was supposed to have a "leg up" or 5 point preference for hiring, but alas, I am a white male. When the post office hires, they hire black females which gives them 2 minority hiring picks. No wonder you see very few white males in the mail service anymore and if you do, it is extremely rare. On the other hand, how many black females do you see? I know many of you will think this is racist, but you are wrong, it is only the facts that stand up for themselves. Deal with it.

  • Report this Comment On May 01, 2013, at 6:07 AM, mw3051 wrote:

    i now know why this place is called the fool.

    so called writers like Rich Smith are full of crap.

    next time how about facts and less crap ?

  • Report this Comment On May 01, 2013, at 3:46 PM, TMFDitty wrote:

    Addressing these points seriatim:

    No, USPS does not have its own cargo airplanes.

    Yes, it historically has contracted out air transport.

    Yes, if USPS bought airplanes, it would lose even more money.

    Maybe, the FedEx bid was the best offered.

    But no, that does not necessarily mean it was a "good" price. (Without its own planes, USPS is in the position of a price-taker -- much like NASA having to pay $70 million to rent rides to the ISS on Russian rockets, USPS has no other choice but to pay.)

    No, the retirement contributions are not the reason USPS is unprofitable. They actually account for only about 35% of last year's net loss.

    All of which still adds up to my primary conclusion: USPS doesn't charge enough to cover its costs. A significant price hike is needed to close the gap.

    TMFDitty

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