AIER >> Daily Economy No items found

To avoid a bailout the US Postal Service needs unlikely higher revenues from parcel delivery (Thomas Hawk)

The US Postal Service (USPS) is on a collision course with the reality of 21st-century communications: it has $15 billion in debt and over $100 billion in unfunded employment benefits—and it will all fall on taxpayers if no measures are taken.

A study on USPS’s 2018 finances by the R Street Institute convincingly argues that the agency faces a “fundamental business challenge” that jeopardizes its viability as a self-funding entity.

The US Postal Service is an independent federal agency which receives minimal funding from Congress: $90 million, just 0.1 percent of the agency’s annual operation budget.

It offers two kinds of services: first-class mail and parcel delivery. Electronic communications are quickly replacing the first one, in which the USPS has a state-backed monopoly that will soon cease to be profitable.

Economic downturns have also critically hit USPS. Large companies reduced their mailing demand during the 2008 recession. Yet the R Street Institute shows that mail volume has continued to decline after the economic rebound, since “there were more than 30 percent fewer mail pieces [in 2017] than there [were] a decade ago.”

Such a decline has correspondingly decreased USPS’s revenues by approximately $5 billion per year since 2007, the first year that the USPS presented losses and missed payments.

While USPS’s income dropped, the 2006 reforms in the Postal Accountability and Enhancement Act have drained a considerable amount of cash. The new rules force the postal agency to pre-fund the retirement benefits of its employees, which are federal workers and covered by costly programs.

In the 2013 fiscal year, payment liabilities related to employment benefits amounted to 15.7 percent of USPS’s operating expenses. Even more alarming is that salaries and benefits ate up 79.3 percent—namely, $55.2 billion—of its 2017 budget.

The US Postal Service has lost more than $14 billion in the last decade, and its 2017 deficit totaled $2.6 billion. Its fleet of over 200,000 vehicles is in bad shape and needs replacement, an expensive and arduous task due to red tape and external pressures to steer the selection process.

Since USPS cannot rely on shrinking first-class mail revenues, it has turned to carrying more parcels to survive. This has garnered $19.6 billion in 2017, 28 percent of total revenues.

E-commerce is a growing trend, but focusing on parcels poses a huge challenge for the agency, since it has to compete with private-sector firms with better transportation and facilities.

It serves no purpose to keep USPS’s monopoly when traditional mail is disappearing, particularly if the agency is about to become insolvent. Officials should consider its privatization to cover unpaid liabilities, ensure USPS’s future as a private enterprise serving real market demands, and avoid yet another taxpayer-funded bailout.