Goodbye, Post Office, We Hardly Knew You
Aug 4th 2011 1:41PM
Updated Aug 4th 2011 1:42PM
In June, FedEx (NYS: FDX) reported its most profitable quarter since June 2007. A few weeks later, UPS (NYS: UPS) boasted of a 25% year-over-year pop in profit. And you know what, folks? The news will only get better for them. Their biggest competitor in less-than-truckload shipping, YRC Worldwide (NAS: YRCW) , is on the ropes, losing money and alienating its owners. And their biggest competitor, period, isn't doing much better.
Last week, Postmaster General Patrick Donahoe announced a plan to close nearly 3,700 post offices across the nation. Beginning in January, branch closures will begin hitting towns in all 50 states of the Union, along with Washington, D.C.
The U.S. Postal Service (USPS) is losing about $8.5 billion per year. Studies show that by 2015, it will be losing $20 billion annually. Plans for biweekly stamp-price increases (I hyperbolize, but only a bit) and truncated mail-delivery weeks (axing Saturday delivery) won't close the gap. To break even, USPS will retrench -- become "smaller, leaner and more competitive" by closing offices with "so little foot traffic that workers average less than two hours of work per day and average sales are less than $50 a day." And even that may not be enough.
It's hard to overestimate the impact a post office closure has on a small American town -- but it's actually pretty easy to estimate how little this move will help USPS. According to Donahoe, annual savings from the closures will amount to no more than $200 million. So congratulations, Mr. Postmaster General. You've solved 1% of the problem.
Now for the other 99%
Granted, USPS's plan to close post offices imperils our access to junk mail, Bed Bath & Beyond 20% off coupons, and credit card preapprovals. Indeed, once eBay's (NAS: EBAY) PayPal (where revenue is growing 30% per year) and the banks' online billpay services have finished stomping out snail-mail-borne invoices, it's hard to see what purpose USPS will still serve.
Perversely, all this will boost business at FedEx and UPS. Unlike the post office, they focus on delivering packages that people actually want to receive. As USPS becomes increasingly customer-unfriendly, the quality gap between it and the services provided by "privatized mailmen" can only widen.
My guess: USPS is now 99% certain of eventually going out of business. And it's got only itself to blame.
Disagree? Feel free. If you think there's still a future for the post office, scroll down and tell me why.
At the time this article was published The Motley Fool owns shares of FedEx and United Parcel Service. Motley Fool newsletter services have recommended buying shares of Bed Bath & Beyond, eBay and FedEx.Fool contributor Rich Smith does not own (or short) shares of any company named above. Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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