Dead Letters: Post Office's Harsh Cuts Will Make Its Deficits Worse

Postal workerWhat's the best way to cure what ails the U.S. Postal Service?

If you ask the postmaster general, saving the Post Office will require shutting down about one out of every three post offices currently in operation, laying off tens of thousands of postal workers, and ending Saturday mail delivery once and for all.

Ask the actual USPS workers, though, and they say one simple move can solve all the Postal Service's problems: Raise the price of a stamp to something approaching what customers pay in other countries.

One of these solutions might work. The other definitely won't.

What You Have to Spend to Send

Citing examples drawn from postal systems around the world, the National Association of Letter Carriers (the postal workers' union) argues that the only way to close the gap between the USPS's costs and the revenue it brings in is to raise the price of a postage stamp. According to the NALC, the 45-cent price Americans pay to mail a first-class letter is "among the lowest" in the world -- and they have a point.

While it's true there are countries that charge less than what we pay here, for the most part, those countries are islands such as Bermuda and the Caymans -- places so small that most letters could be delivered by paper airplane.


Examining just "real" countries, though, if you compare the costs of mailing a letter within the U.S. to what our neighbors to the north pay, you'll find Canadian mail is about 20% more costly than our own. Frenchmen pay two-thirds more for a first-class postage stamp, while in Germany the cost is 82% higher -- and that's just the start. Japan charges twice as much as the USPS, while the Danish fork over three times as much as Americans to send a letter.

Bringing U.S. postage rates into line with global pricing would irk a lot of customers. (It would also require an act of Congress, which in 2006 passed a law tying rate hikes to the national inflation rate.) But aside from that, for the USPS to plug the hole in its projected $18 billion budget deficit, all that's needed is a price hike to about 60 cents per stamp. And this would leave Americans still paying lower postal rates than anyone in Germany or France (and less than the Italians, the Brits, and the Swiss, besides).

Or -- Or -- We Could Just Do Something Really Stupid (and Then Lie About It)

So raising prices a bit would work. So how about a few ideas that wouldn't?

As already mentioned, the postmaster general wants Congress to let him drastically cut back on postal services as a way to reduce costs. There's just one problem with that. According to a survey commissioned by USPS last summer, cutting back on services would make postal delivery so unattractive to customers that it might actually lose about $5.2 billion in revenues. That's roughly half the amount of money the Postal Service was hoping to save by making its cutbacks.

Now, this would be good news for FedEx (FDX) and UPS (UPS), which would presumably pick up that $5.2 billion of lost postal business. But as for USPS itself, as Sen. Susan Collins (R-Maine) commented, "Slower delivery and less service will force many customers to pursue delivery alternatives, dealing yet another blow to postal revenues."

Not Quite Watergate, But Definitely Not Good

It seems the USPS is no fan of bad news, however. No sooner had it gotten the survey results back than it pronounced them "flawed" and buried the report. Theorizing that if it cuts Saturday delivery first, then lays off all its workers, then closes down the post offices, customers might not be quite so upset, the USPS argued that the survey's estimated revenue loss was overblown.

The USPS asked its market research company to redo the survey using different assumptions, and then it asked the Postal Regulatory Commission to "seal" the original survey results and keep them from the public.

So which would you prefer? A straightforward plan to save the post office at a cost of 15 cents more per letter? Or no more Saturday deliveries, no more next-day mail, tens of thousands of layoffs, and a repeat of this mess next year when the USPS's "solution" proves to solve nothing at all?

Motley Fool contributor Rich Smith owns no shares of the companies mentioned above. Motley Fool newsletter services have recommended buying shares of FedEx.

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334 Comments

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gkstemple

Locally, the USPS had enticed the two local postmasters into early retirement. That move "allowed" them to "consider" "service changes" at both offices. Mind you, they are now operating BOTH with "interims" (abt $15/hr, NO benefits). Starting 12 Jan 2013 they will CUT service hours at BOTH offices to 4 hours: 8 - 12 and 9 - 1 PM. No chance for the working stiff to respond to a "you have a package" notice in their mail. Our only choice is to demand senders NOT use the Post Office to send packages (and often pay extra for UPS/FEDEX shipments). Superstorm Sandy Had our Post Offices without electricity and phone for a week, during which the office was OPEN (no heat, no water). The INTERIM drove 25 miles round trip (not reimbursed) to reach an internet connection so she could submit her daily report. Her "BONUS" for her performance above and beyond duty? Half pay after 12 Jan! BTW, UPS drops THEIR packages off at the Post Office, for the Postal Service to deliver.
Their current proposal, however, calls for them to continue to LEASE and PAY UTILITIES at both buildings, as well as continue Saturday deliveries. Once they have made it as inconvienent as possible to use our local post offices, they will see revenues plunge and they will likely have to close both of them.
Nearest Post Offices are more than ten miles away over treacherous mountain secondary WV roads. Guess our business will go to their competition, who offers a choice of shipping companies, hours that acomdodate working people, email notification when there is mail in your box (yes they offer box rental with a STREET address), and more services than the Post Office. Just to pour salt on the P.O. wound, these guys sent flyers (BULK MAIL RATE) to local postal patrons. Oh, and they are located next to a WalMart, with fewer miles of WVs bad roads to be driven over than if I went to one of the "other" (WV) post offices.
The axe being taken to the Post Office needs to start from the top down.

December 03 2012 at 6:53 PM Report abuse rate up rate down Reply
9101112HeyThere

In 2006 the US Congress passed HR6407 the Postal Accountability and Enhancement Act by voice vote which mandated that the USPS fund 75 years of retiree health benefits in 10 years,
The USP was solvent before HR6407 was passed.
Workers don't need to be laid off, wages and benefits don't need to be cut. post offices don't need to be closed,and neither do distribution centers,
What needs to be done is to rescind HR6407

May 08 2012 at 11:28 PM Report abuse rate up rate down Reply
svfortuna

The theory hat Fed Ex and UPS would take up the slack by eliminating Saturday delivery simply doesn't hold water-- as they don't deliver on Saturday. The POSt Office employs thousands of employees who make good money and have bloated benefits-- benefits that those of us who use the service don't have. It is a hard sell to try to convine people who pick up most of their own health care and have no defined retirement program to pay for unnecessary government employees who are part of a bloated, union controlled monopoly

April 24 2012 at 1:00 PM Report abuse rate up rate down Reply
scipiochris

USPS is a monopolistic federal utility that is no longer necessary in its current form. Congress should sell the Postal Service to the Carlyle Group for $25 Billion and thereby release taxpayers from this monster of a liability they created. Let the market determine what the best use of these aging Postal Assets should be. Let business and residential customers choose whether they want to receive postal products and services at profitable prices and at intervals of their choosing.

April 24 2012 at 11:02 AM Report abuse rate up rate down Reply
marine1942

Why can't the post office follow Obama and just spend your --- off. Keep on spending. What could go wrong .

April 24 2012 at 9:15 AM Report abuse rate up rate down Reply
1 reply to marine1942's comment
Scott

You mean like the $800 Billion we waste a year in defense.

April 24 2012 at 12:49 PM Report abuse rate up rate down Reply
jrp1947

the gas companies wanted us paying European gasoline rates and we are closer. Now someone wants us paying European postal rates and I wonder who is behind that? Look at europe adn the economy over there. Why should be be paying their rates if they are in such bad shape? Why isn't congress correcting the problem by cutting teh budget and dropping the pork barreling?

April 24 2012 at 2:39 AM Report abuse +1 rate up rate down Reply
1 reply to jrp1947's comment
Scott

The world has changed since you were born. Europe is not Greece, Portugal Spain; it's made of a range of nations and a $15 Trillion dollar economy.

More importantly, their post offices in Europe are extremely profitable.

April 24 2012 at 12:51 PM Report abuse rate up rate down Reply
ardvark8040

All of this (above) is because, ..... Congress refuses to address the problem that they created back in 2006...

So, thoughtful of you to omit the cause of the problem ... Rich Smith.

Treating the symptoms and selectively ignoring the $5 Billion cause...priceless

April 23 2012 at 6:52 PM Report abuse rate up rate down Reply
vpqueen

TITLE CHANGE:

Change: Post Office's Harsh Cuts Will Make Its Deficits Worse

To: Post Office's Failure to Adress Outlandish Pay, Benefits and Pension fund Obligations Will Make Deficits

Always happy to help liberals.

April 23 2012 at 4:36 PM Report abuse rate up rate down Reply
sean0077

I have a solution to save the Post Office. Cancell the pensions and health care benefits of all postal retirees. Let them take social security like the rest of us.

April 23 2012 at 4:16 PM Report abuse rate up rate down Reply
2 replies to sean0077's comment
9101112HeyThere

The USPS is required by law to fund retiree health benefits for seventy-five(75) years in ten(10) years because Congress passed the Postal Accountability and Enhancement Act in 2006.
The solution to the Post Offices financial problems would be to rescind HR6407 as the USPS 's revenue equaled expenses BEFORE 2996
Umm the postal retirees have either CONTRIBUTED to the Civil Service Retirement System or after 1987 to FERS (Federal Employee Retirement System) In order to collect from Social Security a worker MUST have Contributed enough quarters to collect from Social Security.
The EMPLOYEES CONTRIBUTE to these programs but it IS TRUE that the USPS has over-funded it Pension Plans by at least 13 Billion which has nothing to do with the benefits Post Office and other federal retirees receive from retirement programs they have PAID into.



T

May 09 2012 at 12:31 AM Report abuse rate up rate down Reply
joebuck47

Postal retirees PAY FOR THEIR PENSIONS AND HEALTH CARE BENEFITS. Get all the fact before you make rediculous statements

December 04 2012 at 6:49 PM Report abuse rate up rate down Reply
maciasa201

Yep, only in america can you cut costs but increase your deficit.

April 23 2012 at 4:02 PM Report abuse +1 rate up rate down Reply