Post Office vs. Amtrak: Which One Is More Wasteful?
byAug 20th 2012 6:00AM
For years now, the United States Postal Service has been the poster boy for government waste, but that organization may now be getting a run from another favorite target of government inefficiency: Amtrak.
In recent weeks, both entities have reported unprecedented levels of losses, with a $5.2 billion shortfall last quarter for the post office, and a $834 million loss on food and beverage services during the last decade for Amtrak.
So who wins the title for the most wasteful government agency? Let's take a closer look at our contestants.
USPS: We Deliver for You (at Less Than Cost)
Only a handful of American companies manage to make $5.2 billion in a quarter. But the post office found a way to lose that much as the agency has gotten squeezed by the transition to electronic communication and the need to fund health benefits for future retirees.
Even worse, the Postal Service defaulted on a $5.5 billion payment to the fund this month -- which had already been deferred from last year -- and is expected to default on another $5.6 billion payment due in September. By October, it could be completely out of cash.
It may be easy to blame the post office for these huge losses, but Congress seems to be the true culprit here. The USPS has repeatedly asked legislators to ease controls so it can implement necessary adjustments, such as cutting Saturday delivery, offering additional services, and reclaiming $11 billion it overpaid to a pension fund. In May, the Senate passed a bill to revamp the agency, but the House failed to act on it. Earlier in August, Congress left Washington for a five-week recess, leaving the matter still waiting on the table.
Amtrak: The Great Train Robbery
While the post office is a clear victim of a disruptive innovation, the food and beverage losses at Amtrak are a little more puzzling. Here's an agency that's been given a monopoly on passenger train travel with a captive audience for its gastronomic offerings. Yet it loses bags of cash each run -- an astounding $834 million over the last decade on its dining services -- its as if Butch Cassidy was still around robbing trains.
The railroad blames the deficit on waste, employee theft, and poor management -- shocking given that food services are generally the kind of high-margin add-on that help businesses thrive, especially when a captive audience is concerned -- as anyone who's been to movie or baseball game knows. Restaurants, for example, regularly take in margins as big as 600% on sodas.
Sadly, the dining service has never broken even since Congress first mandated Amtrak's solvency in 1981. At a recent hearing, Republicans pushed for food services to be privatized while Democrats demurred. One Amtrak employee said the losses were exaggerated because of accounting inconsistencies.
And the Winner Is...
The post office may be leaps and bounds ahead of Amtrak in terms of the size of its losses, but most of those factors are out of its control. Congress has prevented it from making moves that would boost its bottom line, such as opening within supermarkets or other retail establishments, or adding financial services. And unlike Federal Express (FDX) or United Parcel Service (UPS), the post office doesn't have the luxury of raising prices to match its actual expenses. Legislation mandates that its rate increases are pegged to inflation.
Amtrak's problems, on the other hand, seem almost totally self-made. Amazingly, per-unit costs are 70% above selling prices. A $2 soda costs taxpayers $3.40, with labor costs making up nearly 40% of expenses. At Chipotle (CMG), by contrast, labor costs were just 23.1% in its most recent quarter. And Amtrak's $85 million deficit last year came on just $121 million in revenue, giving it a profit margin of about negative 70%.
Add in the fact that the railroad has been experiencing these losses for a generation and that the agency has been promising improvements since 2005, and at least as I see it, Amtrak becomes the clear winner in this showdown for most wasteful government business.