Without An Extreme Makeover, The Postal Service Is Doomed

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Post OfficeAccording to Post Office lore, "Neither snow nor rain nor heat nor gloom of night stays these couriers from the swift completion of their appointed rounds." But fearless as its couriers may be in the face of meteorological adversity, the U.S. Postal Service makes no claims to skill at dealing with storms of an economic sort -- and that's the danger it faces today.

On Tuesday, Postmaster General Patrick Donahoe went hat-in-hand before the Senate Homeland Security and Governmental Affairs Committee to plead for a government bailout. USPS, you see, is losing $9.2 billion a year running those appointed rounds. That's bad; worse, the Post Office is on track for $20 billion in annual losses by 2015.

The more immediate issue, though, is that later this month the agency must find $5.5 billion to pay for future employee health-care obligations. Problem is, it doesn't have the cash -- and has no way to get it.

How Likely Is a Sept. 30 Shutdown?

Within just a few weeks, the Post Office's growing deficit will take it right up to its federally mandated borrowing limit of $15 billion. At that point, barring a miracle, the agency will be unable to pay salaries to its 560,000 employees.

Now, don't go panicking just yet. With the memory of the federal government's near-shutdown over another supposed debt ceiling so fresh in everyone's minds, it's unlikely that Congress will let USPS shut down on Sept. 30. Somewhere, somehow, the feds will find the money -- whether by lifting the borrowing limit, postponing the $5.5 billion health-care payment, or tossing some other sort of financial life preserver.

A temporary fix, however, will not solve the Post Office's real problems, which boil down to two things: costs and revenues.

Problem No. 1: Budget Bloat

On the cost side of things, the USPS is bloated. Having 560,000 employees may not sound like much, compared with the 670,000 workers USPS had just four years ago -- more than the payrolls at FedEx (FDX), UPS (UPS), YRC Worldwide (YRCW), and Expeditors International (EXPD) combined -- but apparently, it's a whole lot more workers than even the Post Office thinks it needs.

In a break from its no-layoffs tradition, Donahoe hopes to eliminate 220,000 Post Office positions by 2015, including 120,000 layoffs.

In part, these workforce reductions will track Post Office plans to close 3,700 outlets in smaller American towns. But that's just a start. Donahoe admits that the planned closures will reduce annual costs by no more than $200 million. A bigger move toward efficiency, if that's what you call it, is also in the works, as the Post Office presses forward on proposals to eliminate Saturday delivery. Here USPS hopes to save $3.1 billion. But even that won't be enough to close the gap. To truly repair the service's income statement, USPS must also address revenues.

Problem No. 2: Disappointing Deliverables

Revenues are what a business collects in exchange for providing a valuable service. But what real value does the Post Office provide you today? In a wholly unscientific experiment, I opened my mailbox today to find out. Within I found:

  • One (1) Victoria's Secret catalog. (Stop giggling. I have three women living with me in this house.)
  • One (1) package ValPak coupons.
  • One (1) bubble-wrapped package from an e-tailer.

No postcards -- all my friends and relatives have email, and most are on Facebook. No bills -- I have an online bank account and online billpay. So this wasn't an atypical haul at the Smith household.

But think for a moment: What is there in the catalog that I can't get, in interactive detail and with chat support from customer service, on victoriassecret.com? What can ValPak give me that Groupon can't? In either case, I doubt that the Post Office delivers much "value" to its customers -- so even though the postage rates aren't printed on the envelopes, I seriously doubt that these companies are paying top dollar.

As for the one item of mail I actually wanted to receive -- the package -- well, UPS or FedEx could have delivered that just as easily. True, they'd probably charge more, but that's just the point. Even where the Post Office does deliver value, it doesn't charge enough to cover its costs!

3 Solutions to Fix the Postal Service's Problems

If the Post Office is to escape the fix it's gotten itself into, it must start acting like a business. Here are three ways it can do that.

1. Raise rates -- on everyone -- enough to cover costs. If this means losing customers, well, that's where we're headed anyway. USPS estimates that mail volume dropped 17% from 2006 through 2009 and will decline by a further 37% from now through 2021. "Always low prices" may be a fine business philosophy for Wal-Mart (WMT), but it doesn't seem to be working out for USPS.

2. Think outside the mailbox. The Post Office has to start thinking about where else it can add value. Proposals on the table today include permitting the service to deliver alcohol by mail, doubling down on the use of labor-saving self-service kiosks and stamp vending machines, and permitting USPS trucks to do contract work covering the "last mile" of delivery for FedEx and UPS.

3. Provide door-to-door delivery service on, well, everything else, too. As long as we're talking about deliveries, one thing I'd add to the mail truck and revenue stream is newspaper delivery. (Why do two separate fleets of vehicles need to circle the same neighborhoods daily, for essentially the same purpose?) And what about grocery delivery -- perhaps in partnership with Amazon.com (AMZN), which is turning itself into a true supermarket to the world?

And I'm sure even that's just the beginning of the possible ideas for improvement. If you had the chance to tell the Postmaster General how to fix his business, what would you say? Give him a shout in the comments section below.

Motley Fool contributor Rich Smith does not own shares of any companies named above. The Motley Fool owns shares of Limited Brands, FedEx, United Parcel Service, and Wal-Mart Stores. Motley Fool newsletter services have recommended buying shares of FedEx, Wal-Mart Stores, and Amazon.com and creating a diagonal call position in Wal-Mart Stores.


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430 Comments

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medcoderpat

This is carl who works for the post office and think his salary comes from selling stamps what a moron this guy is.

November 08 2012 at 8:17 PM Report abuse rate up rate down Reply
natezim

The postal service should go bankrupt!! Donohoe is a moron and couldn't run a washing machine! If there was any cost conciousness in the management of this entity it would not be in the financial position it is now!!!

October 26 2011 at 1:21 PM Report abuse rate up rate down Reply
acweydahl

Rich:
I just read your ditty on ideas for improving(eliminating?) the post office. Thru all your commentary you never mention, or hint, about the charter of the Post Office and their lack of control to "run it like a business". To be fair to your readers I'd like to urge you to check out what they can't do w/o Congress's approval.

Here are some hints.

They can't arbitrarily raise prices.

They can't cut services.

They can't cut outlets.

They can't cut Saturday deliveries.

They can't hire/fire based on performance.

And all that junk mail we get? Well, your Chamber of Commerce lobby continues to make sure we keep getting that crap because the Post Office can't say no w/o Congress's approval.

You also forgot to mention that the Post Office is now delivering UPS and FedEx packages to rural areas because UPS and FedEx can't do it profitably. Yes, you may have guessed it, your congress got involved in this decision, too. How nice that the Post Office (you and me) subsidize UPS and FedEx. No wonder you own their stock.

So, pls, man up and tell the whole story. Please.

A.W.

October 11 2011 at 11:17 PM Report abuse rate up rate down Reply
carla

To dghrtymrd06 ok now that makes sense to me. I know what they are doing. In new subdivisions they are making them put the boxes in a row or in cluster boxes or units. Why: you ask. Because the upper management is trying to cut the salary of people like me. I do not get paid by the hour. I get paid by the number of mail boxes I deliver to. Regular boxes pay more "seconds" than boxes in a row or in clusters. We have a national mail count every year where every piece of mail and every occupied mail box is counted along with mileage. We get so many seconds or minutes for each.. That is how we get paid for the rest of the year. If the mail volume goes up and it takes us longer we get no more pay. They hold delay mail during mail count so we cannont get counted for it to lower our evaluation. Then when management has been able to cut our wages they get a big bonus. We carriers are willing to take a cut. We have been taking cuts ever since 9/11. But the savings goes to bonuses for upper management. Also, the Fed gov mandated that the postal service prefund health care benefits 75 years into the future and it be done in 10 years. We have overpaid into 2 different funds.....that is in the treasury general fund. if we did not have to pay that we would have made money for the past 4 years. Gongress is plundering the postal service, We also fund a portion of the military health care cost. Google this and you will see I am right. More to this than meets the eye. Just like what I said about your comment. It is not that your carrier just doesnt want to deliver your mal. Upper management won 't let them.

September 08 2011 at 7:37 PM Report abuse rate up rate down Reply
kasedekker

The usps lost a lot of ebay biz (and other) when it went to international mail via airmail only.So I sent a package to Japan with stuff 30 some years old. No hurry to get there but only via airmail at 51.00 dollars.
USPS needs more biz and airlines need more cargo. So what about the following. Stand-by airmail.
Sending via stand-by airmail at solid savings and a 30 day "get is on the plane" guarantee. Stand by airmail is at the airport, ready to go to London and the first plane (any carrier) having space/weight available takes it.
I hope that this idea is not too simple.
Kase Dekker

September 08 2011 at 2:48 PM Report abuse rate up rate down Reply
RLo

Post Office could be used to provide a banking service.

September 08 2011 at 2:46 PM Report abuse rate up rate down Reply
jvanlen831

If they turned the heat down in the winter & turned the a/c back in the summer in the larger faciities ..................

September 08 2011 at 11:54 AM Report abuse rate up rate down Reply
paper7559

Many have made concessions to keep their jobs. It's time the USPS employees consider doing the same. I think getting rid of the Saturday delivery is a good start. In this ever changing world/economy, businesses must constantly be rethinking their position/strategies in order to stay solvent.
I am still a big fan of the USPS. I still mail almost all my bills, as I do not trust paying online even though it would save me money on postage for every letter.

September 08 2011 at 11:39 AM Report abuse rate up rate down Reply
neecaps2

With the economy in BAD shape, corporations, federal, state and local employees as well as the USPS should
think of reducing perks like paid holidays and maybe they can operate proifitably

September 08 2011 at 10:35 AM Report abuse rate up rate down Reply
Frank

I stopped using UPS and Fed Ex some time ago for packages. The post office is much less expensive most of the time, and I've never had any problem with a package getting lost. Delivery time might be just a bit slower...but I can use Express Mail if I'm really in a hurry (which I rarely am). That new flat rate service (If it fits, it ships) is great. People have just gotten out of the habit of using the post office. They really do a good job.

September 08 2011 at 10:16 AM Report abuse rate up rate down Reply