By Oliver McPherson-Smith and Steve Pociask, American Consumer Institute
As the Beltway grapples with reviving the American economy amidst Coronavirus, the U.S. Postal Service (USPS) is asking for $85 billion in government bailout money to weather this crisis. But the costs inflicted by the virus are just a drop in the bucket when compared to USPS’s decades-long financial troubles. Rather than pouring billions of additional taxpayer dollars into a failing system, USPS needs to show significant progress in reforming its business operations to reduce debt and increase financial transparency.
Like most industries nationwide, the pandemic has certainly impacted revenue at the Postal Office. But there’s a discrepancy in their reported losses these last few months and the amount of relief they are requesting.
According to Postmaster General Megan Brennan, USPS stands to lose $13 billion due to the pandemic. However, despite receiving a new $10 billion line of credit, the USPS Board of Governors is now asking for an additional $75 billion.
The ask doesn’t make sense if COVID-19 is the only factor at play. According to the Government Accountability Office (GAO), USPS has haemorrhaged $69 billion over an 11-year period with more than $143 billion in unfunded liabilities.
Many have speculated how the humble Postal Service accrued such enormous debts. Decades long ago the USPS was self-sustaining, however, much of the Postal Service’s woes are attributed to fundamental changes in demand preferences and the antiquated fiscal protocols that have not adapted to current circumstances.
Since the Great Recession, significant shifts towards online correspondence and eCommerce have prompted highly consequential questions about where the USPS’ costs originate within its array of products, and also how that information is used to assign pricing for each service.
Grasping these matters are especially important considering the Postal Service had planned for a $4 billion operating loss long before the novel pandemic came about. Speaking strictly of the costs of doing business like employee salaries, transportation, infrastructure, etc., there has been precipitous growth in expenses to $74.7 billion in 2019 – up from $66.3 billion five years ago.
As the business model goes the way of steamboats on the Mississippi and letter mail erodes slightly each year, why then is this Postal machine becoming more expensive by such wide margins?
Part of the calculus indeed requires examination of competitive services like packages and related items. Truth be told, the volume of these segments have grown in nine of the past 10 years and now the PMG reportedly says that parcel volume is up 20 percent compared to last year.
While the cost impact of these products individually remains under wrap, the Postal Service is transparent however about the immense weight of packages. Despite accounting for less than 5 percent of total USPS delivery volume, shipping packages represent more than 50 percent of its delivery mass – and ultimately the stress on USPS’ transportation networks, its employees, and infrastructure all translate to tremendous costs.
USPS however neglects to deliver the clear-cut analysis and transparent calculation out of fear that it might reveal an inconvenient truth: that parcel shipments are actually losing money for the Postal Service.
All signs in competitive arenas point to wider controllable losses for the USPS system while its parcel volumes grow. Further, the USPS has disguised this impact as there is strong evidence of allowing the steady revenues of market dominant products to financially prop up services in competitive spaces. A re-evaluation of the USPS competitive revenue formulas has also been ordered by the US Court of Appeals.
Preserving the USPS is certainly important considering the huge benefits the service offers countless Americans. From delivering prescriptions across the country to connecting rural communities, USPS employs hundreds of thousands of Americans—many of whom face great occupational risks.
While doomsayers liken the most profound reform—privatization—to the end of a regular postal service, this has not been the case in Germany, Britain, or the Netherlands, which have all witnessed savings and economic benefits.
Like many firms across the United States, the Postal Service will need support to survive the pandemic. But the crisis cannot become another opportunity to pour taxpayer dollars into a failing business, while overlooking more than a dismal decade of failure that shows no signs of abating.
Oliver McPherson-Smith and Steve Pociask write for the American Consumer Institute, a non-profit educational and research organization. For more information about the Institute, visit www.TheAmericanConsumer.Org or follow us on Twitter @ConsumerPal.
