Why Isn’t the U.S.Postal Service Profitable?
By Paul Johnson, President CMS – Complete Mailing Solutions
Since we originally posted this blog (07/2017), the Coronavirus has turned the world upside down. Like many businesses, the United States Postal Service, arguably one of the key most essential services, is struggling even more in the face of this international pandemic. In fact, mail volume declined about 30% in March and is projected to be down 50% by the end of June. Unlike UPS and Fed/Ex, the USPS is not allowed to raise pricing at will to compensate for a change in demand. At a time when the Postal Service is needed more than ever, Congress needs to get serious about providing assistance to sustain this service on which all Americans rely. #USPS_Is_Essential
Read on to find out why the USPS is in the condition that it is:
“Have you ever wondered why the USPS isn’t profitable?”
What if Congress passed a law requiring businesses to prefund employee healthcare and pensions for 75 years in advance? Can you imagine how that would impact your company financially? It’s interesting that Congress requires 100% funding for 75 years in advance for the USPS when,according to The Motley Fool,the U.S. Government is only 42% funded.
But, wait, there’s more…
- What if you couldn’t increase your pricing based on changing market conditions (such as rising fuel costs or competitive pressures)?
- What if you were required to distribute your goods/services to a broader market, even if that market was unprofitable?
If you’re like most executives you’d say: “No way! We can’t survive in that environment!”
Welcome to the Postal Service! These are just a few restrictions that the USPS must grapple with. Each of these individually would have a significant hit to the profitability and sustainability of a company. Collectively, they’re nearly untenable.
Remember, the USPS does NOT receive and revenue from the American taxpayer, their only source of revenue is for products and services!
And the list goes on:
- They cannot add a fuel surcharge to pricing (as FedEx and UPS can) to maintain profit levels.
- They are required to provide service to people and businesses in remote areas even though it may be highly unprofitable. In fact, the USPS delivers packages for UPS and FedEx in geographic areas UPS/FedEx consider unprofitable.
- Although the USPS is not a government entity, it is governed by Congress and the Postal Rate Commission (PRC), which restricts potential avenues for expansion into other products and limits competition with other companies (such as UPS and FedEx). Congress has been influenced by competitors to get the USPS to abandon new products. Here are some examples cited by The Motley Fool:
- Plans to develop an online payment system in 2000 were scuttled when the Internet industry cried foul.
- Public copy machines.
- In-store sales of phone cards and money transfers.
- Selling postal meter cartridges (Pitney Bowes objected).
- The USPS is required to invest exclusively in government bonds while private companies can invest in a wide variety of securities to improve profitability.
- The USPS is forbidden by law to lower prices to get more business.
There is much criticism of the Postal Service for losing money. However, without unreasonably burdensome restrictions, it would likely be a different story. Not only do many of these restrictions not make sense, they directly undermine the success of the USPS. Many would have us do away with the Postal Service altogether. Yet, they provide a tremendously valuable service to our country across a huge geographic expanse and at very low rates. Services in Europe that are comparable to our
first class delivery, cost at least two to three times more than in the U.S. Many projections around elimination or privatization (full or partial) of the Postal Service paint a picture or greatly increased prices and decreased service levels and quality.
So, what’s the answer? How about if we consider a simple solution? What if we just got out of the way (by relieving the USPS of unnecessary burdens) and let them run their business as a business?
For a more recent post see why we think It’s Time to Allow the USPS to Compete Fairly