There’s more than one reason the Postal Service is losing money

Listening to President Trump, one might get the impression the U.S. Postal Service is unprofitable because it is under-charging Amazon.com. “Why is the United States Post Office, which is losing many billions of dollars a year, while charging Amazon and others so little to deliver their packages, making Amazon richer and the Post Office dumber and poorer? Should be charging MUCH MORE!” the president exclaimed. 

The USPS’s financial plight, however, is not merely a parcel problem. The Post Office’s problems are business-wide, because its expenses keep exceeding revenues.

The Postal Service was designed to be self-sufficient — unlike other federal agencies, it does not live off dollars collected as taxes. Rather, it tries to cover its operating expenses by charging postage.

{mosads}Sorting and transporting mail is an inherently costly proposition. USPS delivers mail to 157 million addresses and post office boxes in the nation (including Puerto Rico, the American Virgin Islands, etc.) It has 230,000 trucks and other vehicles to help it haul all that mail.

But that is not the whole of it. USPS also runs a massive retail operation in the form of 31,000 post offices and another 4,000 contractor-run mail shops, each with their own overhead costs.

The Postal Service has limited tools to control its overhead. Laws and political pressures harry its every effort to reduce delivery frequency (presently mandated at six days per week) and shutter money-losing post offices. By law, the vast majority of all USPS positions are held by unionized federal employees who have robust job protections. The USPS’s ill-fated effort to install postal counters at Staples shows just how costly these protections can be – this consumer-friendly, low-cost initiative was struck down by the National Labor Relations Board because it dared to allow Staples employees to sell postage and receive parcels for shipment.

Refusing to replace employees who retire or depart has been the Postal Service’s go-to tool for cost-cutting. The agency has 300,000 fewer employees than it did a few decades ago. Still, USPS has 500,000 employees and 600,000 retirees who receive health and pension benefits. Thus, the agency’s compensation costs rose $2 billion since 2015.

This past year, USPS reported a $2.7 billion loss. A look at the revenue side of the ledger reveals why. Mail volume is sliding. Less mail means less money. A decade ago, USPS raked in $75 billion in revenue; last year its haul was a little less than $70 billion. Mail volume peaked at 213 billion mail pieces in 2006; it was 149 billion in 2017. That is a 30 percent fall-off. There are simply fewer letters, postcards, marketing mail (aka junk mail), and periodicals being sent, as big mailers and John Q. Public alike have shifted to electronic delivery. 

The lone exception to this trend is parcels, the volume of which has crept upward. The Postal Service’s leadership believes its survival depends upon carrying more parcels. But that seems a little fanciful.

Packages remain a paltry portion (four percent) of what the postman carries. And it is not at all clear if the USPS reaps profits on carrying parcels. Boxes brought in a whopping 28 percent of USPS revenue last year, but the agency’s accounting for the costs related to carrying packages (which obviously are bulkier than letters and magazines) cannot be found in either its annual report or year-end financial statement. That I can purchase a polyester trombone case online for $20 — and USPS will carry it all the way from California to Washington, DC, for a portion of that purchase price — gives wonder. Good luck finding a private courier who would charge so little.

Add to all this the fact that USPS reports that its parcels income stream may take a hit. Its largest shipping customers are “building the capability which would enable them to divert volume away from the Postal Service over time.” (Think Amazon lockers, Uber delivery drivers and the like.)

The Postal Service’s business model is broken. The demand for its services has plummeted, and private couriers and 21st century delivery modes (drones and delivery robots, for instance) pose tough competition. USPS likely will continue to lose money despite the efforts of its employees and leadership.

Making the Postal Service viable for the 21st century will require a top-to-bottom rethink. Parcels priced at profitable rates may be a part of that new model, but more widespread, robust change is needed, lest taxpayers wish to find themselves bailing out the Postal Service.

Kevin R. Kosar (@KevinKosar) is the vice president of policy at the R Street Institute, a free market think-tank in Washington, DC.