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Nov 22

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The Post Office can survive without taxpayer handouts

Technology, and with it the way people communicate, has changed rapidly.  With the evolution of digital communications, the USPS must adjust. In a November report entitled, “Action Needed to Maximize Cost-Saving Potential of Alternatives to Post Offices”, the Government Accountability Office (GAO) analyzes the problem.  Here is the GAO’s headline summary:

The U.S. Postal Service (USPS) is on the brink of financial insolvency as it faces a continuing decline in the overall demand for its products and services. USPS has reported that about 80 percent of its postal retail facilities do not generate sufficient revenue to cover their costs, yet this network of about 32,000 post offices has remained largely unchanged. As customers increasingly turn to digital communications and payment methods, mail volume has decreased precipitously, dropping almost 20 percent from its 2006 peak of 213 billion pieces to about 170 billion pieces in fiscal year 2010. USPS projects a total decrease of 37 percent from the 2006 peak by 2020. This decline in mail volume is reflected in USPS’s worsening financial condition: In fiscal year 2010, USPS recorded a loss of $8.5 billion. …

Action to modernize USPS’s retail network is urgently needed to help bring USPS’s costs in line with its revenue, and in 2011 USPS announced plans to review thousands of post offices for potential closure in the next few years. Alternatives to obtaining services at post office windows, including self-service options and partnerships with retailers, could help USPS contain facility and labor costs while still providing access for customers. In its March 2010 Action Plan, USPS included expanding access through retail alternatives as part of its overall strategy to return USPS to financial solvency.”

Putting aside the change in demand for the USPS’s services, the USPS’s underlying problem involves its underlying mandate. The GAO summarizes the problem as follows:

USPS is required by law to provide prompt, reliable, and efficient services to patrons in all areas, a standard known as universal service. In meeting this standard, USPS is required to operate as a self-sufficient, independent establishment of the executive branch. USPS receives no annual appropriations for purposes other than revenue forgone on free and reduced rate mail. USPS generates revenue through the sale of postage and postal-related products and services.

USPS has acknowledged that its operating costs must be cut, including by reducing the number of postal-operated retail facilities. Visits to post offices have decreased, with USPS reporting about 59 million fewer visits to post offices in 2010 than in 2009 and an overall decline in post office visits of about 21 percent over the last decade. However, it has been difficult for USPS to close post offices because of statutory restrictions on closing small post offices solely for operating at a deficit and resistance from employees, affected communities, and Members of Congress concerned about possible effects on service, employees, and communities.”

The GAO report provides an excellent summary of the channels through which the USPS offers services. Those channels include:

  1. Traditional post offices
  2. USPS self-service kiosks – USPS owns and operates about 2,500 kiosks, also known as automated postal centers, at which customers can buy stamps, and mail letters & packages in a self-service environment.
  3. USPS Web site (usps.com)
  4.  Contract postal units (CPU) – CPUs generally provide a broad range of retail products and services to customers at USPS prices. Like post offices, CPUs do not offer competitors’ shipping products and services. A CPU may be a stand-alone business or occupy space within a larger business, such as a counter within a store that also sells other products. There are about 3,600 CPUs.
  5. Approved Shippers – These retailers offer shipping services from a range of providers, including USPS, FedEx, UPS, and local delivery companies. There are around 4,200 Approved Shippers.
  6. Stamp retailers – . Stamps can be purchased at more than 56,000 retailers such as grocery stores, pharmacies and at banks’ automated teller machines.

In the most recent year, post office alternatives generated $5 billion of the USPS $18 billion total revenue.

Congress should make it easier for the USPS to adapt, which means allowing the USPS to close post offices, reduce its workforce, and trim services. The USPS can continue to provide adequate service to the entire country, but this needs to be done through creatively providing service in ways other than a tradition post office. Congress, and particularly those representing areas that do not have as much population density, need to allow less expensive retail alternatives to service their geographies. Otherwise, U.S. taxpayers will be left to pay billings to support an industry that could be successful, but is not because it is shackled with the requirement to provide unprofitable services to locations that cannot support the same level of service as a more urban area.

We regularly assist troubled companies in developing strategic and restructuring plans. But, our clients need to be able to implement the suggested plans. Currently, the USPS does not have the basic freedom that we would consider essential to any successful engagement.

 

About the author

David Nolte

I am a founding principal of Fulcrum Inquiry, an accounting and economic consulting firm that performs damage analysis for commercial litigation, forensic accountings, financial investigations, and business valuations. I am a Certified Public Accountant (CPA) and an Accredited Senior Appraiser (ASA), as well as having other professional credentials. I regularly serve as an expert witness involving damages measurement. My litigation-oriented resume is on Fulcrum's website.

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