Will the U.S. Postal Service Be Broke Again in 4 Years?

Rural Post Office
J. Scott Applewhite/AP
The Post Office grew revenues 2 percent in the third fiscal quarter of 2014, raking in $16.5 billion in operating revenue. (Hurray!) But it still managed to lose $2 billion on its business. (Boo!)

So what's the real story with the United States Postal Service? Is business booming, or is the Post Office going bust? That's the mystery we'll try to unravel for you.

The Good News ...

With revenues up 2 percent, the Post Office closed the gap between the money it brings in and its cost of doing business. If you don't count the Post Office's obligation to contribute $5.7 billion annually to the Workers' Compensation and Postal Service Retiree Health Benefit Fund, costs in the third fiscal quarter grew only 1 percent year over year.

Thanks to the Postal Regulatory Commission approving an "exigent price increase" on postal services, USPS has been able to boost its revenues somewhat. Also helping the Post Office eke out a living were:
  • A slowing in the rate of overall mail volume declines (down just 0.3 percent year over year), including...
  • only a modest decline in the volume of First-class mail (1.4 percent) delivered...
  • and an increase in standard mail (0.9 percent) and package deliveries (up a very strong 7.7 percent).
... The Bad ...

The problem, of course, is that the 7.7 percent increase in package deliveries comes with some serious implications for Post Office profitability. As The New York Times recently observed, "a large portion of the increased revenue in package delivery comes from contracts with FedEx and United Parcel Service." And unfortunately for the Post Office's fiscal health, delivering packages on behalf of FedEx (FDX) and UPS (UPS) may not be the best way for it to make money.

Last month, in an exposé on Post Office finances, The Wall Street Journal posed the question of "whether the USPS is charging enough" to deliver packages in FedEx's Smartpost program and UPS' Surepost program .The answer: Probably not. According to the Journal's research, packages aren't really the Post Office's most profitable product to ship. (The most profitable product is first-class mail -- volumes of which continue to slide.)

Meanwhile, the Journal notes that while FedEx and UPS both charge big package retailers such as Amazon.com (AMZN) $7 or $8 to deliver a package, they outsource the most labor-intensive leg of their deliveries, deliveries to customer mailboxes, to USPS -- for less than $2 a package on average.

Consider the situation from the perspective of FedEx and UPS. If USPS charges rates for package delivery similar to what it would cost these companies to do the work themselves, then there would be little incentive for the companies to pay USPS to do the work. Conversely, if FedEx and UPS are paying USPS to do their work for them, it stands to reason that USPS must be doing the work for less than the companies would ordinarily charge. Put plainly, USPS must be either leaving money on the table when working for FedEx and UPS or actually losing money on the service.

Result: In part because it may not be charging FedEx and UPS enough for its work on package delivery, USPS' Q3 loss ballooned more than 170 percent over Q3 2013 levels, to $2 billion.

... And the Ugly

Think $2 billion in losses sounds bad? It's about to get worse. A lot worse. Turns out, as the U.S. Postal Service has been working to close the gap between revenues and costs by plugging in low-margin package deliveries, all those packages have been straining the ability of USPS' fleet of delivery trucks to carry them.

According to the Journal, USPS CFO Joseph Corbett says accommodating the new flood of packages will necessitate USPS spending $10 billion over the next four years to "replace our aging vehicle fleet, purchase additional package sorting equipment and make necessary upgrades to our infrastructure."

Unfortunately, that's $10 billion that the Post Office doesn't have. In fact, Corbett says that money's so tight right now, USPS "will be unable to make the required $5.7 billion retiree health benefit prefunding payment to the U.S. Treasury, due by Sept. 30, 2014," according to the USPS news release. So the need to spend an additional $2.5 billion annually over each of the next four years is almost certain to bust the Post Office's budget.

Conclusion? The next four years are almost certain to be much like the last few for patrons of the U.S. Postal Service. A nonstop stream of complaints that the Post Office is going broke and pleas to Congress for permission to raise the cost of postage stamps, cut delivery days, lay off workers and close rural post offices.

Neither snow nor rain nor heat nor gloom of night ... can change the facts.

Motley Fool contributor Rich Smith has no position in any stocks mentioned. The Motley Fool recommends Amazon.com, FedEx and United Parcel Service. The Motley Fool owns shares of Amazon.com. Try any of our Foolish newsletter services free for 30 days.

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Why use the post office, EMAIL

September 02 2014 at 12:33 AM Report abuse rate up rate down Reply

The only thing Republicans have done for the post office -- make that TO the post office -- is approve that onerous legislation that Mr. Smith glosses over as if it's nothing.

"If you don't count the Post Office's obligation to contribute $5.7 billion annually to the Workers' Compensation and Postal Service Retiree Health Benefit Fund, "

That fund -- thanks to right-wing dumbasses who want to force the USPS out of business so the industry can be privatized -- has enough money for the next 75 years. There are future postal employees who have yet to be born, who already have money in that fund. No other company in the United States has to deal with such a resource-sapping requirement, yet right-wing FOOLS ignore that very basic fact when discussing the post office. Of course they're losing money, they are FORCED by the Republican-led, do-nothing Congress to put resources into a fund that will continue to cripple them. How can a business do this and be expected to run a profit? Why doesn't Mr. Smith address that very obvious fact?

The USPS actually operates profitably. But right-wing nitwits are always moaning about how the USPS is in the red. It's in the red because of onerous legislation, nothing else. You want to "fix" the USPS? Remove the dumb legislation passed by dumb Republicans who are only looking to line their own piockets at the expense of taxpayers. Again.

September 01 2014 at 9:23 PM Report abuse +2 rate up rate down Reply
1 reply to imoverherenoww's comment

ALL companies must fund their obligations. However, they must do it while paying taxes, which the USPS does not.

Jist chill out. The ten years is almost up...and the retirees health care will be funded.

September 01 2014 at 11:03 PM Report abuse -2 rate up rate down Reply

The post office is waiting for our republican congress to put some sort of legislation up for President Obmam's signature. Of course they are a bunch of do nothing congressmen and women of the republican party. Shameful when they get control of any branch of government.

September 01 2014 at 6:52 PM Report abuse +1 rate up rate down Reply
1 reply to toosmart4u's comment

How many house passed bills has reid even allowed a senate vote on?

September 01 2014 at 11:04 PM Report abuse rate up rate down Reply

Crap like this contributes to the USPS woes Post Office Paid $287K for Trucks It Can’t Find

September 01 2014 at 6:19 PM Report abuse -1 rate up rate down Reply

Cut the crap. We all know a lot of Post Office moneys are diverted just like the USCIS. I have always been satisfied with the Post Office and thier workers.

September 01 2014 at 5:10 PM Report abuse rate up rate down Reply

This is an entirely bogus issue in the fact that the Post Office is PROHIBITED BY LAW FROM MAKING A PROFIT. !!!

Unless and until Congress changes the mandate that the Postal Service must remain a non profit, they are unable to charge what would be a fiar price for their valuable servicce.

Bware of attempts to 'privatize" this resource. If done , thousands upon thousands would lose job, service would further deteriorate and prices would becoome astronomical cmpared to wht the public is used to.

The real problem is the cut rate 4th class mail prices. If advertisers think it works, they should be willing to pay more. Discontinue 4th class mail and prices would immediately stabalize.

September 01 2014 at 12:12 PM Report abuse +1 rate up rate down Reply

If the postal department could manage their own finances they wouldn't have a cash problem. The main reason the Republicans want to privatize the postal service is so they can get their hands on the the retirement funds which is very over funded because of to much money going into it, just like what happened to Social Security the goverment wants to dip into this cash cow.

September 01 2014 at 10:31 AM Report abuse rate up rate down Reply

Seems to me that all these comments are without any knowledge of what a carrier goes thru before going on the street to deliver the mail. Every carrier has to case all the mail in the morning plus turn letters to mark the parcels and case the chunkies which normally are 30 or more, get the accountable mail and sign for it (certifieds, registers, etc.) and write all of them in the pink slip. Evey bundle of circulars has to be put up in trays in the route order (Penny Saver, ADVO), sometimes there is 3 or 4 circulars to be delivered the same day. People complaint about getting the mail late, let me tell you, if you get it service has been provided, this is no 8 to 5 job, delivery time is different everyday. Carriers on overtime list sometimes get 2 hours from other routes and that will make a difference in the mail delivery time. of their own routes. Post Office do not get any money from governtment and tax payers. Believe me when I say, any of you will not last a day working for the Post Office, tough job. I did for 30 years.

September 01 2014 at 10:22 AM Report abuse +1 rate up rate down Reply

fakeconomics, employees hired after 1983 get 1% a year in retirement. You think that's outrageous?

H, you are corrrect about the land and building holdings. There's much wealth but that doesn't help the cash crunch unless the assets are sold.

September 01 2014 at 9:40 AM Report abuse +1 rate up rate down Reply

65 years of advanced retiree benefits cost them 5.7 billion a year..............Why the ridiculous obligation ? Makes one wonder where the money will end up. Post office then cancels parcel post so you have to pay for priority mail for anything over 4 lbs. That's a boost in revenue there. International shipping of the medium flat rate box use to be $40, then went to $48 and now currently it's $60 with a 20 lbs limit.
The post office does not have to be broke and the problem could be fixed real easy. Cut the retiree benefit obligation as they should have plenty pooled up by now. Then do not promise a paradise package to a retiree. Spend the money more wisely ...........LOL wait........on second thought............Over spending must now be the norm and that example is best set by the government.............. Forget I said anything, it's unfixable and we are all totally screwed !!!

September 01 2014 at 7:40 AM Report abuse rate up rate down Reply