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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
  • "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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Read/Post Comments (27) | Recommend This Article (3)

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 August 18, 2013, at 11:03 AM, MrsChippy wrote:

    If raising stamp prices will help, then why not? After all, if UPS or FedEx succeeds in getting rid of the USPS, you'll be paying 10 times as much to mail or ship anything. As a city letter carrier I think the USPS can stay afloat, but don't tell that to guys like Issa or the PMG, they want to run it into the ditch so they can privatize it.

  • Report this Comment On August 18, 2013, at 11:54 AM, comosichiam wrote:


  • Report this Comment On August 18, 2013, at 12:06 PM, paulbocc wrote:

    Actually, the post office made a PROFIT of over $600 million in the third quarter. Simply remove the accounting entry for the $1.4 billion mandated quarterly future retiree healthcare expense and the $700 million loss becomes a $600 million profit. The USPS, and only the USPS is mandated to fund 75 years of payments into this fund in a 10 year period. There is already billions and billions of dollars in this fund. I'm not suggesting USPS be allowed to forgo this obligation, the expense is there and must be provided for. Simply allow USPS to amortize this over a generally accepted length of time 40 years and the money losses go away.

  • Report this Comment On August 18, 2013, at 12:23 PM, Mia479 wrote:

    The US post office has been deemed bankrupt by our capitalist system that venerates the business world and has let them send their virtually free bulk mail that has wound up in landfills around the country - unopened! And we taxpayers are forced to pay our mailmen to deliver this drivel - or use private companies to give us the service we deserve.

  • Report this Comment On August 18, 2013, at 12:44 PM, quittalking wrote:

    @ Mia479 US post office does not receive tax payer money . The republicans in a lame duck congress tried to put them out of business by funding 75 years of their obligations in a 10 year window. Name any other business that has to do that ?

  • Report this Comment On August 18, 2013, at 12:53 PM, 99hotpotatoes wrote:

    If you see the Union ads on TV you would believe that the 'evil' federal government is taking all their money...truth is they are grossly overstaffed, overpaid, over-benefited! Another great American icon falls to unionization....Let UPS and Fed Ex have it all.....

  • Report this Comment On August 18, 2013, at 1:03 PM, Realexpectations wrote:

    bite the bullet

    or fedex and ups will say

    10$ for your letter!

    Well you either want it or you dont!

    chances are it would actually take longer than the so called snail mail

  • Report this Comment On August 18, 2013, at 1:05 PM, lefty22 wrote:

    It's still just a bit scary how many uninformed people like Mia479 there are out there. Newsflash everyone.. If the USPS makes money, your taxes will NOT decrease. If the USPS loses money, your taxes will NOT increase.IE, your taxes do not pay USPS wages. Stop worrying that you're paying your 'mailmen' to deliver. If you have something you want mailed..even if it's 500,000 pieces of junkmail.. then you're helping to pay their wages, and I'm sure they thank you very much.

  • Report this Comment On August 18, 2013, at 1:47 PM, mstigg68 wrote:

    Try telling all this wonderful stuff to my husband who has worked for USPS for the past 13 years. Donahoe and Rep. Daryl Issa have been working hand in hand to reduce your service standards (which has happened on the east coast. Rumor has it Black Friday mailers were delivered after Christmas.), break the union so they can lay people off. (You mentioned the buy out. Yes, many took it, but when you continue to close facilities you have many more people that have to fill positions than you do jobs. You start digging into the younger workforce who can't take the early outs. My husband has "technically" been there for 25 years, but he is 47. Can't retire anywhere at that age.)

    The USPS is also looking to cut full time employment. It's cheaper that way and they can lay off at anytime. Someone said they are a safe haven for incompetants, or over staffed and over benefitted and over paid. Let me address that...Yes, there are rude, incompetant people there, just as there are at your local McDonalds. But, there are also hardworking, very deserving employees who are supporting families on a living wage job. (Which in case some of you haven't noticed, those jobs are going away fast!!) Their benefits are good, not as good as Congress, so don't you dare compare, but better than some businesses. (Our USPS benefits aren't as good as Boeing or Microsoft either.) And, by the way, they are trying to figure out a way to reduce those too.

    60 cents for a stamp may seem expensive, but Germany has a private mail system and they pay much more. All you people who believe USPS is outdated and needs to go away, you pay your bills online, recieve your statements online, email your family, you say why do we need a postal service? Remember when ATM's were free? Now, most of them charge unless it is your bank. My husband went to pay one of our bills online because we were late, they were going to charge us $3.00 to do so. You think that sooner or later the bank, or your electric, or garbage, or credit card isn't going to charge for online transactions? If you have no other alternative, the prices for all these things could skyrocket. A 60cent stamp seems fair to me.

  • Report this Comment On August 18, 2013, at 2:24 PM, Oclaus wrote:

    The same law (one that Congress is exempt from,as usual) that forces the Post Office to pay $5.6 billion per year for 10 years to cover 75 years of retiree health care costs also prohibits the Post office from raising rates faster than the rate of inflation - a rate that politicians naturally have also "modified" so that the official inflation rate is as honest (and low) as a proverbial politician. Strange but true - a Republican controlled Washington is killing the Post Office, and a Democrat controlled Washington refuses to resurrect it. We know Republicans want less government (how the Post Office "governs" with no tax payer funding is a miracle to me). What we do not know is why in the name of Obamacare the Democrats want to let the Post Office bleed its last dollars into the black hole of a US Treasury fictional lock box . My guess is that Progressive Al Gore blabbed the answer when he spoke about a "need" to put birth control and/or abortifacent chemicals in the public's water supply to reduce the world's population. Hillary Clinton and Margaret Sanger are/were loyal Progressives. President Obama spoke in Europe in about February 2009 about how when the Great Recession ends, America will no longer be a consuming nation. Progressive and Democrat policies are destroying jobs (Postal and other). These Policies also lower average work hours, average wages, and eliminate or curtail fringe benefits beyond health care (vacation time, sick leave, scheduled raises, seniority, etc). This leads voters who don't want to nurse at the Federal Piggy Bank to produce less children so they may pay the bills. Surprise - we are seeing the lowest birth rates in American history.

  • Report this Comment On August 18, 2013, at 2:27 PM, rere8290 wrote:

    i think the postal service is too top heavy. the ones that actually do all the work are the ones that constantly get screwed. if you cut out postmasters in all these podunk little towns think how much money they could save. also quit giving financial rewards to postmasters for any thing and every thing. they don't do anything anyway

  • Report this Comment On August 18, 2013, at 2:40 PM, dkozin wrote:

    I do not know if many of you realize that the Letter Carrier is "the last mile" for many of the parcels you think you are receiving from UPS and/or FedEx. They drop off pallets of parcels for us to deliver since it is not economically worthwhile for them. If the P.O. is disbanded many people in rural or even lower class urban areas simply will not be served. UPS and FedEx would just cherry pick the profitable areas for delivery. Universal Service is the P.O.'s mission to deliver to everyone everywhere even if it doesn't make economic sense, not everyone has a computer or broadband access. I will have three sources of income for my retirement. A very small monthly annuity that I contribute to (about 1366.00 if I were to retire now), Social Security if it is still around (yes we do pay into Social Security) and the Thrift Savings Plan or TSP which is basically a 401K (I put about 10% of my pay into it and it has taken several hits over the last 5 or 6 years). We also pay for our health care. No Cadillac pensions or health plans, those are an urban legend. The pre-funding 75 years into the future of Future Retiree Health Care for postal employees who have not even been born yet is where the current problem has come from. In 2003 USPS had 729,035 employees

    In 2012 USPS had 522,144 employees

    a reduction of 206,891 employees

    while adding 10.8 million delivery points

  • Report this Comment On August 18, 2013, at 3:22 PM, kktex12 wrote:

    The easiest way to bring the PO to profitability is to get rid of the bloated management at the top. When the PO hired EDS back in the 70/80s to do a managerial study, H Ross Perot told PO management 30 per cent needed to start looking for a job. Quickly the EDS contract was canceled and paid in full. The current PO has too many college no nothings who have never carried a day in their life making decisions about day to day ops and doing their best to destroy the PO. I know of no business that destroys their distribution system that stays in business.

  • Report this Comment On August 18, 2013, at 3:31 PM, kktex12 wrote:

    mistigg68, Your attempt to bring politics into the equation falls short on facts. It is every pol in Washington that can be bought that is working to destroy the post office. That includes your precious demorats. You and I both know the problem is not at the worker level but at the national level to include the national level of NALC. I was assigned to a Texas city that had a grievance filed that would have rectified a territory problem and the letter carriers would have received a large compensation but the national union sold them out. I have no use for the national letter carrier union officers.

  • Report this Comment On August 18, 2013, at 3:41 PM, 9novice wrote:

    Only nine cent of every piece of mail goes to labor cost. The PO is only acting like they are broke so management can bust the union and rewrite the contract to hire non-union workers. Don't fall for it. Union workers of the PO have more pride than a non-union worker. No matter what the PO does, it will always have money issues until it can cut the top half of the rank along with their bonus.

  • Report this Comment On August 18, 2013, at 3:44 PM, 9novice wrote:

    The PO is acting broke so it can file for the bankruptcy chapters and make a new contract that turns back a promise made by them self to fund the healthcare. Don't let the rich get richer at our expense. Play fair.

  • Report this Comment On August 18, 2013, at 3:46 PM, MIJamison wrote:

    Unfortunately this article is based on a fairly poor understanding of the forces a work and the economics of the issue. The RHBF payments are not actuarially necessary; they were essentially designed to solve a budget scoring issue when PAEA was enacted. There are also major issues with OWCP accounting.

    I work on postal issues and write for the Blog This article is simply a waste of good electrons coming from a writer who hasn't bothered to study the issues yet feels free to pass on useful advice.

  • Report this Comment On August 18, 2013, at 3:47 PM, 9novice wrote:

    Many jobs at the bottom were abolished, but the boss got to keep their job with another management title of answering the phone for $100,000.00 salary. Or sent to duplicate a section with an additional boss. How many bosses does a section need?

  • Report this Comment On August 18, 2013, at 3:48 PM, 9novice wrote:

    Paid my dues at the PO. Just speaking up for the next generation of Postal Workers.

  • Report this Comment On August 18, 2013, at 3:49 PM, 9novice wrote:

    Issa is a typical bust the union Republican.

  • Report this Comment On August 18, 2013, at 7:15 PM, jarata69 wrote:

    Some stupid comments here.If the post office goes private who do you think will want to trudge through the snow,work rainy hot days.Also how much are you going to pay them.The post office is advertising carrier jobs for 17.00 an hour yet none wants them.Do you think your mail will be sucure if they pay people 10.00 an hour to deliver it.You will find all your credit cards missing,packages missing.Also mail in the garbage.Wake up people i remember when newspapers were 10 cents

  • Report this Comment On August 18, 2013, at 9:15 PM, savage393 wrote:

    msrigg: My computer screen is all wet from your crying. Like everyone else, if your husband works for a boss he doesn't like, quit, and find a new job. If he doesn't quit, then quit crying about the working conditions. jarata69: My mail man hasn't left his cushy jeep since I was 20 year old. If he can't reach my mailbox from his heated cab, he doesn't leave it. These folks are not the hard working (walking) people of my youth. Mail to the door service disappeared many years ago.

  • Report this Comment On August 19, 2013, at 12:53 AM, Vegaprime wrote:

    The mandate actually failed to end the post office. In 2006 there were 800k employees and it was set for 75b for 75 years. Now they are down to 600k. What is already in the fund (46b) has been found to be more then enough for these employees. They are making a stink because if they do not act now they have no chance of ending the usps because the mandate ends in 2016. Last three quarters have shown a 700m profit without the mandate. Prices do not need to raise and the american public needs to assert, that given all the current info, they are being overcharged if anything.

  • Report this Comment On August 19, 2013, at 12:58 AM, dkozin wrote:

    savage393: I have a city park and loop route, this means that I drive the LLV (Long Life Vehicle) to the middle of a block and get out and walk a loop either way. I have 650 deliveries with about 5 stairs up and 5 stairs down. I figure that on a daily basis I walk about 6000 stairs a day plus the level walking. I have not missed a day of work so far this year. I am out there in all sorts of fun weather and situations. I work in the Northeast and when snow shuts down the city we are exempt from driving bans so I still make what on a normal day would be a 25 minute commute, even though it is dangerous and now an hour or more commute. I have had gunshots go off within 20 feet of my vehicle, shown the police where the casings were and then gone on to finish my route. Please think twice about making blanket statements with regard to the work ethics of an entire group of people, most of whom you do not know.

  • Report this Comment On August 19, 2013, at 1:09 AM, dkozin wrote:

    savage393: I have a city route with 650 deliveries each having about 5 steps up and 5 down. I estimate that I walk about 6000 stairs on any given day plus a couple miles of level walking. I have not missed a day of work so far this year. I walk in all kinds of fun weather and interesting situations. I have had gunfire go off within 20 feet of my postal vehicle and after showing the police where the shell casings were I finished my route. When everybody else is banned from driving in the snow we are exempt so I make my 25 minute commute even though it is now dangerous and more like an hour. I have lost a part of my nose due to skin cancer, I have Plantar fasciitis and an arthritic big toe and still I continue to serve the community. Overall I enjoy my job and am very thankful to have a decent middle class job but make no mistake that I work for it. Please think twice about making blanket statements about a whole group of people that you do not even know.

  • Report this Comment On August 19, 2013, at 2:40 AM, dkozin wrote:

    Sorry about the double post, the first one did not seem to have worked so I typed it over.

  • Report this Comment On August 27, 2013, at 12:21 PM, Rhondabarts wrote:

    The solution is to eliminate the unfair prefunding burden that is mentioned in this article. It is crippling the Postal Service, causing them to make unnecessary cuts to service that Americans have depended on for 275 years. There's enough money built up in this fund to cover retiree health benefits decades into the future! The USPS is the richest "broke" business in America.

    There is no need to raise prices so drastically or degrade service by eliminating Saturday and door to door delivery. Congress created this problem in 2006. Congress can fix it. If they don't, The losers in all of this are ordinary American people.

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