More post office woes

  • Blog Post by: Eric Wieffering
  • June 23, 2011 - 8:30 AM

The U.S. Postal Service, which is losing billions of dollars annually, said today that it will suspend payments to the Federal Employee Retirement Service, a move that could save it $800 million a year. The USPS retirement account currently has a surplus of $6.9 billion.

I wrote about the plight of the USPS a couple of months ago,a which can be boiled down into three distinct challenges:

1. Fraying business model: It's most profitable product, first class mail - letters, etc. - volume is down. The cause is not FedEx or other competitors, it's the internet. Meanwhile, it's least profitable product, third-class mail, is up. Corporations love the cheap prices they get from the postal service and fight hard against price increases or reductions in service.

2. High legacy costs: The post office has trimmed billions of costs in recent years, but those cuts aren't coming as quickly as the business declines. Meanwhile, it's prevented from making other, much needed cuts because of ...

3. Politcal interference. It's been decades since the post office received taxpayer money, but political oversight/interference has only increased. Postal workers largely support such measures as ending Saturday delivery, but politicians do not. Ditto for closing branches. As I noted in an earlier column:

Most of its board of directors are political appointees. The same goes for the Postal Regulatory Commission (PRC), which oversees rate increases, service standards and other matters.

Unlike Federal Express or UPS, the postal service is required to deliver everywhere and charge the same rate for first-class mail no matter where it's going. Price increases on first-class stamps are capped at the rate of inflation.

Meanwhile, the post office is required to make payments of $5 billion a year to pre-fund future retiree medical costs. No federal agency has a similar obligation.

It's not hard to look at these requirements and restrictions and conclude they were design to ensure that the USPS goes out of business.

So here's what happens if that occurs:

Savings to taxpayers: $0.

Cost to mail a letter: Unknown, but you can bet it won't be 41 44 cents.

The solution is not a government bailout. The solution is for government to let the postal service run itself like the business it was mandated to be.


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