Post Office Bankruptcy Ahead: Postage Increase, Historic Loss and 12 Facts You Should Know

Craig HueyEconomics, GovernmentLeave a Comment

The United States Postal Service is appallingly dysfunctional:

  • It wastes your tax dollars with inefficient business practices and wasteful spending…
  • It’s headed toward a $65 billion taxpayer bailout…
  • And, typical of any bureaucracy, it’s resistant to any sort of change or positive progress…

Now, the USPS has increased postage rates for 2019 by up to 10%…destroying businesses, hurting innovation and damaging marketing efforts.

This hike in prices comes after a total loss of $3.9 billion in 2018.

The insanity has to stop.

Here are 12 facts you need to know about the inefficient, wasteful Postal Service…and what needs to be done now to reform it.

Fact #1: The USPS has raised postal rates for 2019, killing business and innovation.

Beginning on Sunday, January 27th, the following rate increases took effect:

  • First Class Mail Letters increased to $0.55 from $0.50 – a massive 10% price hike.
  • “Metered Mail” rates for First Class Mail Letters, which includes online postage providers and postage meters, increased to $0.50 from $0.47. Each additional ounce will cost $0.15.
  • Media Mail rates increased by 2.9%.
  • Priority Mail Express will see an overall rate increase of 3.9% in 2019.
  • Priority Mail will see an average rate increase of 5.9% in 2019.
  • Priority Mail Express International will see an average rate increase of 3.9% in 2019.
  • Priority Mail International will see an average rate increase of 6.2% in 2019.
  • First Class Package International Service will see an average rate increase of 3.9% in 2019.

Combined with the massive $65 billion debt of the USPS, these price hikes mean businesses will be hurt even more.

Magazines and newspapers also will be hurt.

Postal rate hikes cause at least three unintended consequences:

  • fewer mailing pieces
  • less revenue
  • a larger deficit

The last postal rate hike was a huge job killer … and the USPS, the consumer – and private business – were the victims.

My direct-mail clients of my advertising agency won’t send as much direct mail – and some won’t send any – because of the hikes.

They’ll lose new clients and see less revenue from existing clients.

The clients’ prospects won’t get their special offers. They’ll lose a great product.

And instead of the Postal Service generating increased revenue, it will generate less.

Fact #2: The Postal Service wants to massively increase postal rates over the next 5 years…bad for thousands of businesses.

Price hikes in 2019 are only going to increase more in the future.

In fact, they’re just the beginning of the Postal Service’s destructive, inefficient “solution” to their massive debt – hiking rates 34-41% over the next 5 years, with or without approval from Congress or from the Postal Board of Governors.

These price hikes aren’t permitted under the 2006 Postal Accountability and Enhancement Act – the major law that governs the Postal Service.

This colossal increase in prices will hurt thousands of small and large businesses that rely on direct mail for revenue growth.

Fact #3: The post office saw a total net loss of $3.9 billion in 2018…an increase in net loss of $1.2 billion from 2017.

In 2018, the USPS lost a total of $3.9 billion…adding to their already appalling $65 billion debt.

In fact, they performed significantly worse than the previous year. Part of this massive loss was an $801 million increase in workers compensation and $221 million increase in retiree health benefits.

And, similarly to the last several years, the USPS was unable to make $6.9 billion in payments due the federal government to pre-fund pension and health benefits for postal retirees – sinking them deeper and deeper into debt.

Fact #4: The United States Postal Service (USPS) has lost $65.1 billion…that’s right, billion…over the last 11 fiscal years.

No private company could stay in business if it lost an average of nearly $6 billion every year for 11 years…

But government agencies don’t have to operate profitably.

Bureaucrats don’t care if they lose money because they know taxpayers will always bail them out … whether they want to or not.

USPS bureaucrats don’t care that:

  • Their government-mandated business model is unsustainable.
  • Total operating revenue grew 1.4% last year…but operating expenses increased by 3.1%.
  • Legislation requires the Postal Service to prefund 75 years-worth of retiree health benefits.

All they care about is collecting their paychecks and keeping their cushy taxpayer-funded benefits.

Fact #5: The USPS grossly undercharges for package delivery … and gives additional special treatment to Amazon.

Take a look at these shipping rates for domestic U.S. delivery of a standard 2-pound box-shaped package:

USPS – $10.80

UPS – $18.25

FedEx – $18.66

That’s a huge, unfair difference…

USPS claims its package delivery service is profitable despite the disparity between what it charges and what UPS and FedEx charge…

That’s because Congress has prohibited USPS from setting its parcel prices above its costs … but the formula Congress established in 2006 for calculating the share of infrastructure costs associated with package delivery is wrong. It doesn’t adjust for the fact that package delivery is a much larger share of USPS’s business in 2019 than it was 12 years ago.

Translation: USPS package revenue covers its direct costs … but not its overhead costs.

Here’s an example of how this works:

I own an advertising agency…

If I charged – let’s say – $7,000 for an advertising service, I could say it was profitable if the revenue covered my direct costs for copy and artwork. But what if that $7,000 didn’t also cover the project’s share of my utilities, rent, salaries, insurance and other overhead costs? If I operated my business that way, I’d lose money every year … just like the USPS.

But unlike the USPS, I’d be forced out of business … or be forced to declare bankruptcy.

On the other hand, if I charge $20,000 for the same advertising service, I also cover all my indirect costs as well as my direct costs … and I have profits left over to invest in new technology and to grow my business.

Because the USPS currently functions like a bureaucracy, it doesn’t respond to market forces. But if the post office were to be privatized, it would be forced to price its package delivery service in the same way as a business such as FedEx or UPS does…

And it would be forced to stop giving Amazon an even greater discount than what it’s giving to all package delivery across the board.

An independent study conducted by Citigroup found that USPS should be charging $1.46 more per package just to break even with actual costs.

If USPS had charged Amazon just the amount per package that covers its true costs, the additional revenue from the 480 million packages Amazon shipped through USPS would have wiped out the $1.3 billion loss for the last fiscal quarter.

Fact #6: The USPS management team is nonexistent.

A private business must have an efficient management team to run well. But the USPS has virtually no management team right now.

The USPS is supposed to be run by an 11-member Postal Board of Governors, including nine members appointed by the President and approved by Congress, the Postmaster General and Deputy Postmaster General.

The Postal Board of Governors has the following primary responsibilities:

  • Advise the Postal Service on management
  • Approve rate hikes
  • Fire the Postmaster General if necessary

The board must have six members to have a quorum. Currently, they only have four members: The other seven seats are vacant.

Why?

Because the Senate blocked several candidates nominated by former President Obama.

Senator Bernie Sanders (I-VT) has blocked nominees because of the postal unions – and because he believes “they would slash jobs and outsource one of America’s oldest institutions to private companies.”

No new governor has been approved by Congress since 2010 … leaving the USPS to make decisions in its own self-interest.

In fact, the Board of Governors has taken full advantage of this circumstance…

Without a quorum, the Board established three new rules out of thin air:

  • Hiring, firing, and postal rates can be decided without a quorum.
  • No specific number of governors are needed to make decisions.
  • A “Temporary Emergency Committee” has been established giving the Postmaster General and her top staff complete authority.

What the post office desperately needs is oversight and accountability – required in any efficient business.

Fact #7: The postal bureaucracy is archaic, resistant to change.

The USPS makes decisions not based on market need and business reality … but based on what pleases bureaucrats, unions, and politicians.

For example, in 2014 the Postal Service set up an agreement with Staples that allowed its employees to operate post office desks inside Staples’ retail outlets.

This was a great business decision, and convenient and popular with Staples customers … but not with the American Postal Workers Union.

The union immediately began staging protests at selected Staples outlets … and eventually succeeded in obtaining an order in 2016 by a National Labor Relations Board Administrative Law Judge to discontinue the program.

Fact #8: The Postal Service is currently a government-protected monopoly that would benefit from healthy competition.

Monopolies don’t work – especially the bureaucracy monopoly…

Only choice and competition can create efficiency, profitability and progress.

If the auto industry, the computer industry – including email and texting – and eye surgery were bureaucratic monopolies, their products would be very expensive, second-rate, and resistant to positive improvements.

If the horse and the buggy industry were protected the way the Postal Service is, we’d still be riding horses instead of driving high-powered cars…

We’d have giant computers like in the 1960s, not iPhones in every home…

We’d have government-approved glasses, not Lasik.

The USPS has tried to stop innovations and advances in postal delivery…

Years ago, it tried to stop UPS, FedEx, and other private delivery services…

Fortunately for businesses and consumers, the government monopoly failed.

Then the USPS tried to control email … but fortunately for businesses and the consumer, they failed.

Fact #9: Post offices have fallen into desperate disrepair…creating even more debt.

Nationwide, post offices are a wreck.

Even the USPS Office of Inspector General has said that the majority of facilities nationwide violate security and building codes…

And nearly half of them violate cleanliness and maintenance guidelines.

Many buildings have been found to be infested with mold, bugs, or rodents … and even have foliage growing inside the facilities!

Plus, most post offices do not even maintain a customer complaint log … meaning that most issues go unresolved and unacknowledged.

Run as a business, the USPS would rise out of debt … see a boost in profits …. and finally repair its offices and invest in efficient and streamlined facilities and equipment.

Fact #10: Postal vehicles are falling apart – and now the USPS has responded with a pricey, “eco-friendly” and wasteful “solution.”

More than half of all postal vehicles are more than 20 years old, and desperately need to be replaced.

But despite their massive debt, the post office has decided to purchase massively expensive “green” hybrid vehicles.

Even with better mileage, hybrid vehicles are more expensive to operate and maintain. And the USPS is planning on spending $6 billion for these new cars in the next 10 years – sinking them further into debt.

A private business could never make this sort of a business decision. But bureaucrats – removed from reality and totally unaccountable to the effects of spending – don’t make decisions to benefit taxpayers. They make decisions to advance their own self-interest and advance a political agenda.

Fact #11: The Post Service shouldn’t be controlled by Congress.

Much of the post office’s dysfunction is caused by the United States Senate and House of Representatives.

Individual members of Congress prevent the free market from working:

  • They prevent the closure of inefficient postal facilities.
  • They prevent the hiring of good people.
  • They block implementation of technical improvements.
  • They act to please their union donors rather than to benefit the American people.

Any proposal to reform the USPS will see pushback from members of Congress who want to push a socialist agenda.

Fact #12: President Trump is proposing to privatize the post office in a massive restructuring.

The solution to the dysfunction of the USPS is privatization.

Now, Trump is taking action against the incompetency and wastefulness of the USPS by proposing to privatize it.

The proposal was made in a recent report that recommends the USPS be returned to a “sustainable business model” – in other words, that the post office would no longer function like a self-serving bureaucracy that wastes your taxpayer dollars.

Instead, it would function more like a private business – promoting innovation, profits and healthy competition.

 

The report also revealed that the President has created a task force to help promote postal reform, keeping the USPS accountable.

The USPS has responded to the proposal for postal reform, saying that “potential reforms” must “fully analyze the interests of America’s consumers and businesses.”

That’s a step in the right direction – but they must be willing to radically change.

Privatization could transform the post office…help get it out of debt…and ultimately benefit taxpayers and consumers.

Here are further steps President Trump must take that will help end the appalling dysfunction of the USPS…and protect taxpayers like you and me from paying for it:

  • He must ignore the bureaucracy, unions, and politicians who want to stop this proposed change and any other kind of progress.
  • He must fight against the new postal rate hike.
  • He must fire bad personnel and downsize departments.
  • He must nominate members to the Board of Governors and hire staffers who understand business, competition and job creation.

Contact your representatives right now and tell them you support the proposed privatization of the USPS!

What do you think? Email me at [email protected]

Here are the rest this week’s articles:

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