«

»

May 25

Print this Post

Bailout for US Postal Service? Check is in the mail.

The U.S. Postal Service is losing money, and this comes as a surprise to no one. Postal Service deliveries maxed out in 2006. Since that time, mail volume has declined about 20%. Now the Postal Service faces cash shortfalls of $1.5 billion and $5.5 billion when contributions on promised retiree health benefits and workers compensation come due in September and October. The Postal Service is in a state of decline, and its  financial troubles will not suddenly disappear. A year ago, the Postal Service published “its action plan for the next decade”, titled “Ensuring a Viable Postal Service for America.”  Details of the plan are less comforting than the plan’s title. The report estimated financial losses of $238 billion over ten years “absent significant operational and legislative changes.”

The Postal Service wants everyone, especially politicians, to believe its services are “essential” to the U.S. economy. If it can make this case, it can fully expect the government to throw them a life raft. On this point, the Postal Service is quite clear:

“…the Postal Service is still widely recognized as providing an essential service to the American economy and there are a wide variety of potential legislative remedies that could resolve the short-term liquidity concerns.  It is unlikely that, in the event of a cash shortfall, the federal government would cause or allow the Postal Service to significantly curtail or cease operations.”

How does the federal government not “allow the Postal Service to significantly curtail or cease operations”?  Easy, funnel gobs of money their way, a.k.a. “bailout”.

A bailout for the Postal Service would be short-sighted.  The Postal Service is in decline.  It’s financial mess will not suddenly disappear if only it can “weather the storm”.  If the U.S. Government is to not “cause or allow” the Postal Service to fail, it would have to bail them out today and again tomorrow.

Blaming the recession for the Postal Service’s problems suggests the Postal Service’s decline might one day reverse. The real problem is a fundamental shift in consumer needs and behavior.  The effects of that shift will only deepen over time as people become increasingly comfortable with electronic communication.  The Postal Service seems to recognize this, even if it avoids drawing much attention the fact.  It’s recent financial report notes:

Although the economic recession has ended, its lingering impact, including the sluggish economic growth following its end, continues to affect the Postal Service. In addition, and possibly more importantly, there have been fundamental changes in the way businesses and consumers use the mail.”

The statement could have been far more blunt.  It might have said that once upon a time the mailman delivered useful items that we looked forward to receiving.  He no longer does so.  Now, every trip to the mail box is followed by a trip to the trash can where nearly all the “mail” is dumped.

We no longer send letters, we receive our bank statements and magazines online, and we pay our taxes and receive our refunds electronically.  But wait, the mailman delivers DVD’s from Netflix! True, for the moment. But postage makes up a substantial portion of Netflix’ costs. The near-zero incremental cost of electronic delivery has Netflix anxious to make a full transition away from the mailbox. Soon enough, even our DVD’s won’t arrive by mail.

Before dumping billions of dollars into yet another bailout, it may be worthwhile to question the Postal Service’s premise for doing so. Its claim that it provides “essential service to the U.S. economy” is doubtful.  The U.S. economy is happily transitioning away from reliance on the Postal Service.  In fact, it is because the Postal Service is no longer essential that the Postal Service now faces financial turmoil.  A Postal Service bailout would represent a massive subsidy for such “essentials” as coupon mailers, car insurance advertisements, wedding announcements, and holiday greeting cards.
The Postal Service’s financial crisis is a prime opportunity to revisit the special monopoly privileges that Congress extends to the Postal Service.  If the Postal Service is essential to the U.S. economy, it is only because private postage carriers are banned from non-urgent letter delivery.  The Postal Service represents a rare breed of monopolies that the federal government established and protects rather than prosecutes or regulates.  Without legally-mandated monopoly privileges, the Postal Service would not even be essential for coupon mailers and wedding announcements.  Private delivery services would gladly expand their product offerings.  Notably, Fedex and UPS have survived the recession just fine, consistently profitable before, during and after the recession.
The future is not looking good for the Postal Service and a bailout won’t change that.  If Congress mails the bailout check sometime this fall, we can be sure it won’t go anywhere.  Check the dead letter office.

About the author

Eric Madsen

Mr. Madsen is a Chartered Financial Analyst (CFA) charterholder and a Manager at Fulcrum Inquiry, a finance and economics consulting firm that performs economic damages analysis involving commercial litigation, financial investigations, business valuations, and forensic accounting. He also holds an MBA from the UCLA Anderson School of Management and a B.S. in Economics. He conducts expert analysis in finance and economics. Mr. Madsen may be contacted at 213.787.4122 or at emadsen@fulcrum.com.

Permanent link to this article: http://betweenthenumbers.net/2011/05/bailout-for-us-postal-service-check-is-in-the-mail/

1 comment

  1. Christian

    Super piece of writing, I am viewing back again often to look for upgrades.

Leave a Reply

Your email address will not be published. Required fields are marked *

You may use these HTML tags and attributes: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <s> <strike> <strong>

*