The (Reality) Check's in the Mail for Postal Service as Doomsday Approaches

×
The news broke over the weekend ... but you probably wouldn't hear about it till Wednesday if you had to get the story by regular mail.

In a last-ditch effort to save itself from bankruptcy, the U.S. Postal Service is forging ahead with plans to close half of its 500 mail processing centers and roughly 3,700 of America's post offices. As a direct result of these moves, "one-day delivery" of first-class letters sent via USPS will become a thing of the past. For now on, two-to-three-day delivery will be the norm.

The Numbers Behind the Closures

Here's how the numbers work: Across the nation, 500 processing facilities currently work to service and distribute the 170.6 billion pieces of mail that move through the system annually. The more facilities there are, the closer each one is to a mail sender, and the closer another is to a mail recipient. But as facilities close, the distance from each remaining facility to sender/recipient increases -- and the amount of time it takes to cover that distance likewise increases.

The post office will still be able to achieve its stated goal of getting a letter across the country in no more than three days, but with growing distances, one-day delivery of first-class mail will become physically impossible.

Even in the best-case scenario, USPS says that cutting 250 processing facilities will only save it $3 billion a year. Add in 3,700 post office closures and perhaps 100,000 layoffs of postal employees -- and the savings rise to $6.5 billion. And that still isn't enough.

In fact, the post office has warned that without cutting costs, it would be running $20 billion a year in the red by 2015. So even a whopping $6.5 billion worth of cuts leaves your friendly postal carrier still stuck in a $13.5 billion-deep ditch.

A Sluggish Delivery Scenario

In order to finish closing the gap, USPS has put additional cost-cutting measures up on the whiteboard. One of the money-saving scenarios is eliminating Saturday deliveries.

Say you run out of stamps Monday, miss the pickup Tuesday, and as a result, don't get around to mailing Grandma's postcard until Wednesday. Send that postcard over the mountains and through the woods for two days out of a potential three, and it still won't reach Grandma's house when USPS closes its doors Friday. With Saturday delivery now out of the picture, and Sunday, too, you're probably looking at a Monday delivery -- five full days after you dropped that postcard in the mailbox.

The scenario's even uglier for Netflix (NFLX) users, who could find themselves hit both coming and going on their rent-DVDs-by-mail plans. We're talking potential 10-day round trip service here, folks. (And by the way, how smart was Reed Hastings to try and exit the DVDs-by-mail game?) Yet according to USPS data, this scenario will be occurring more and more frequently in the future, as the 42% of first-class mail that's currently delivered in a single day morphs into more and more two-, three-, and perhaps even five-day deliveries.

Forget Rain, Sleet or Snow -- It's Congress to Blame

If USPS' plans seem tailor-made to boost business at private parcel posts UPS (UPS) and FedEx (FDX), well, they are. But it's not entirely USPS's fault.

In a lament included in the service's 2010 Annual Report, USPS cries out against the Postal Act of 2006, which imposes "pricing constraints" that "have severely hampered our ability to remain financially solvent." As USPS explains, by imposing caps on the prices it can charge for service, Congress has deprived the post office of the "financial flexibility we need to remain viable into the future."

And much as it galls me to admit it, USPS is right. Yes, the post office needs to pick up the pace of "service" that it provides customers at its branches. Yes, it must operate more efficiently, and cut costs -- which rose 5% last year even as the amount of mail it was asked to deliver declined 3.5%. But the real solution here is elegantly simple: USPS must be allowed to charge enough for its services to cover the cost of providing them.

Consider: USPS' most alarmist warnings predict a $20 billion revenue shortfall in 2015. That's a big chunk of change, but here's the real surprise. USPS collected $67 billion in revenue last year. Seems to me, making up the $20 billion revenue gap could be easily accomplished by simply upping the price of a postage stamp by a third.

So, $0.45 per first-class stamp becomes $0.60 each, and... problem solved!

This oversimplifies the solution, of course. Postage stamps don't account for all of USPS revenues, and first-class mail doesn't comprise all of its deliveries. (Speaking of which, USPS might also consider charging bulk mailers the same rates it charges the rest of us.) But you get the point. Raise the price of a postage stamp and hike the rates on everything else proportionally, and USPS should, in theory, be back in the black.

And all it takes is an act of Congress.

Motley Fool contributor Rich Smith does not own shares of any companies named above. The Motley Fool owns shares of United Parcel Service and FedEx. Motley Fool newsletter services have recommended buying shares of Netflix and FedEx.



Increase your money and finance knowledge from home

Getting out of debt

Everyone hates debt. Get out of it.

View Course »

Advice for Recent College Grads

Prepare yourself for the "real world".

View Course »

Add a Comment

*0 / 3000 Character Maximum

21 Comments

Filter by:
uncommon sense

The USPS could easily be saved with just a couple of simple changes.

The Postal Service should be allowed to invest its $325,000,000,000 in retirement assets the way any other business does. The current requirement that the USPS “invests” 100% of its retirement assets in low return federal bonds is killing it.
The increased returns of around 2-4% per year that would exist using a modern diversified portfolio would cut postal expenses by $6.5 to $13 Billion dollars per year.
This simple change would save several times what the proposed consolidations and service cuts are expected to save.
The current plan is a death spiral plan. Eliminating overnight service will ultimately cost much more in lost revenue than it will ever save in expenses.

December 06 2011 at 7:06 PM Report abuse +1 rate up rate down Reply
sewalker1015

Banks were too big to fail and automobile manufacturers too big to fail but the USPS can go down the tubes because Congress won't act and won't loosen the strings. They need to be able to raise prices to compete in the market place. UPS and FEDEX aren't controlled by Congress and they can do the job efficiently. Loosen the controls on the postal service and let them raise prices. Of course Congress could also pay back the money it owes to the postal service. The proposals they make to contain cost will only cause the postal service to go into a slow death spiral. Give the postal service more autonomy or if the government insists on controlling it then pay for it as well.

December 06 2011 at 11:59 AM Report abuse rate up rate down Reply
dicklevis

Make a deal with UPs and FEDEX, they will make it happen. Most government employees are walking backwards.

December 06 2011 at 9:51 AM Report abuse rate up rate down Reply
1 reply to dicklevis's comment
hgeorgech

UPS and FedEx will gladly deliver your letter to Aunt Tilly .. for anywhere from $8 - $10 .. or more.

The USPS ... 44 cents

Your choice!

December 07 2011 at 8:10 AM Report abuse rate up rate down Reply
dpaustex

All I have to say, is two thumbs up for their management, that sees the problem, sees the trend, and is taking action to bring revenues in line with expenses.

Congress, you watching this?

December 06 2011 at 8:41 AM Report abuse -1 rate up rate down Reply
1 reply to dpaustex's comment
Mickylitz

dpaustex

Mangement is just as bad as the union's brass they're in bed with,,
The Post master making over $ 800,000 a year plus perks doesn't seem to see the problem, he is part of it.

December 06 2011 at 10:08 AM Report abuse +2 rate up rate down Reply
billyjoeobama

Dump the unions and let private contractors take over the business, more efficient and faster service.
See what happens when e government tries to run a business, and some of you people want the government to run health care.

December 06 2011 at 8:38 AM Report abuse +2 rate up rate down Reply
2 replies to billyjoeobama's comment
Mickylitz

billyjoeobama I couldn't agree with you more.
Dumping the Unions is a must , they are and have been for many years destroying work ethics and their greed surpasses logic, they are largely responsible for the loss of many jobs,,,

December 06 2011 at 9:39 AM Report abuse +1 rate up rate down Reply
sdodge4574

I agree - the union is most of the problem. We have had a private mailbox in a UPS Store for 6-7 years. They do make an occasional mistake, but nothing compared to USPS (aka postal service). At least, we feel like our mail is safer there, and they sign for and hold our packages, until we pickup. Don't even get me started on the healthcare fiasco we are facing if the government runs it also.

December 06 2011 at 11:22 AM Report abuse rate up rate down Reply
thefacts22

The post office,has been loosing money for decades, is a classic example of union goons and bad management,it is a badly run business,and we simply can not afford.to keep paying big retirement,and high salaries to low skilled labor

December 06 2011 at 7:51 AM Report abuse -2 rate up rate down Reply
1 reply to thefacts22's comment
hgeorgech

You are correct ... however, the USPS has undercharged for deliveries for decades also!

USPS rates are among the lowest, if not the lowest, on the planet! This applies to both domestic and international rates.

That it costs 44 cents to mail a letter across the street .. or to Hawaii or Alaska from Maine is plain and simple - NUTS!

USPS problems a are multi-fold .. bloat, unions, mismanagement and ... rates far too low!

As to USPS private competitors in the USA ... check the rates of UPS or FedEx ............. they are FAR higher; that's why they actually turn a profit!!

December 07 2011 at 8:20 AM Report abuse +1 rate up rate down Reply
gberes7

They would probably be better off keeping the processing centers and cut back residential delivery to three days a week (every other day) and continue to deliver certified, registered and express mail six days a week. Cutting back in that fashion should limit the impact on the out of the way cities and towns where the postal service is more depended on.

December 06 2011 at 4:20 AM Report abuse rate up rate down Reply
shorthosep

The reason the post office is in this jam is because the republicons in congress forced the post office to fund their pension system for the next 75 years and gave them 5 years to do it. If you forced the state of New Jesey or Illinois to do that they would declare bankrupcy the next day. And if they wanted to they could do exactly like Fed-Ex does they could eliminate delivery to RURAL areas and just deliver to large cities or counties for a huge profit. You anti-post office people do realize that in rural area packages that are sent by Fed Ex and UPS are delivered door to door by the post office. The reason is that these companies can not make a profit delivering to houses 2 miles away from each other. Fed Ex and UPS sends these packages to the largest city close by and the final leg of the delivery is made by the post office. So to rural farmers and retirees who for example get their PRESCRIPTIONS by U.S. mail too bad for you the T-baggers don't want to spend 42 cents to send a letter from Florida to Alaska.

December 06 2011 at 1:07 AM Report abuse rate up rate down Reply
1 reply to shorthosep's comment
Ed Invests

The post office got itself in that jam by not having the pension plan funded to the guidelines for many years. However, the more significant problem is that they postal employees fall under the federal retirement plan, and it is far too generous in retirement benefits, and the salaries aren't comenserate to the work performed. I saw on the news that if they raised the cost of a stamp to almost 70 cents they would be ok. I was a kid with 3 cent stamps, and postcards were a penny. I think it is high time that they cut costs, but we will, of course, still have to pay retirement for them also. It is high time that we run government like a business and pay wages appropriate for work performed and eliminate the federal retirement plan across the board.....Especially in Congress. We have similar problems in state and local governments, and we the taxpayer pay for retirement benefits far higher than most of us receive. We have allowed government run amok. ED

December 06 2011 at 2:59 AM Report abuse rate up rate down Reply
1 reply to Ed Invests's comment
uncommon sense

The USPS has been funding its retirement funds at very high rates for many years. The reason congress came up with the healthcare pre-funding requirement in the first place was they had to figure out a way to keep from paying back the huge amounts the USPS had over funded into their retirement accounts that the government was holding.
The USPS has pre-funded 325 BILLION dollars in retiree benefits. I am not aware of any other company in the world that has set aside that much money for retiree expenses. The reason the USPS has to set aside so much is because it can't invest its retiree funds prudently like a private company but is required by law to "invest" ALL of its funds in low return federal gov't bonds so the gov't can pretend its debt is 325 Billion dollars lower than it actually is. If the USPS were allowed to invest its retirement asserts in a professional manner it could lower "labor" expenses by around 20%.

December 06 2011 at 10:32 PM Report abuse rate up rate down
jerald3739

Another case of what unions and mis-management cost our citizens. The wages paid by the post office, across the board, are exhorbitant for the nature of the work performed.

December 06 2011 at 12:36 AM Report abuse rate up rate down Reply
1 reply to jerald3739's comment
postalchick88

How would you know about the nature of the work performed? Are you a postal worker? I work in a processing plant, and it is hard physical work. It involves a lot of heavy lifting and pushing equipment full of mail that weighs up to 10 times my weight. As a reward for tearing up our knees, shoulders, backs, necks, and elbows, we get to work weekends, holidays, and second and third shifts and are mandated 10 to 12 hours a night when needed. The reason we do this is because we are making a living wage, not an exhorbitant one. Postal Management? Now there's the exhorbitancy.

December 08 2011 at 1:20 AM Report abuse rate up rate down Reply
ronafishon

Once again the a;; powerful unions and their outrageous pensions rear their ugly heads. Quit blaming the internet. UPS and Fed Ex can turn a profit.

December 05 2011 at 10:20 PM Report abuse rate up rate down Reply