This is after years of President Trump bashing the government organization to charge more for its deliveries; four times more, to be exact.
Normally, any sane person would see this as Trump doing Trump-like things. Except, this isn’t one of those crazy off-the-wall Trump offensives. When we dig deeper, we can clearly see the Postal Service has been bleeding since 2007.
It’s not too hard to see a divergence between costs and income in the last 13 years.
Some of those years, particularly in 2012, the USPS lost $15.74 billion.
Among the talk about profits and losses, it’s important to note that the United States Postal Service was never intended nor designed with the proposition of profit. It is, in its essence, a public good. Most people understand that, among the tenets of sending and receiving mail, the Postal Service is integral to democracy.
President Trump is under the impression that the Postal Service’s pricing is to blame.
He has gone as far as to threaten to block emergency loans if they refuse to raise rates on their products and services. He is specifically targeting one company as the enemy of America: Amazon.
The targeting seems, on the surface, justified. Amazon, a big corporation: abusing and exploiting something for the ends of capitalistic profit when the ongoing operations of a government entity are trailing at a net deficiency of $71.5 billion as of fiscal 2019’s end.
That’s the picture Trump wants everyone to believe. But when we follow the numbers, we get a story compounded by several things. Since 1973, the volume in mail has decreased. By a lot. Furthermore, the amount of post offices has also decreased, albeit at a far slower and smaller pace.
The interesting thing about the data above is that, while mail volume has significantly decreased, the total revenue hasn’t. This is because all of that mail volume loss is attributed to First-Class, where it costs a stamp ($.55) to send a letter. Over the years, the internet absorbed that responsibility to notify with instant communication.
Even with the decreased mail volume, revenue remained flat. This is all while the USPS has chopped down on their employee numbers, too.
Even before Trump’s non-sequiturs and misplaced rants, the Postal Service has been doing exactly as he shouts: Cutting down and cleaning up.
Yet, the Postal Service still experiences losses.
In the world of package services and delivery, we have FedEx, UPS, and USPS.
If we compare their products and services across the board, we can make better sense of the Postal Service’s financial picture.
USPS Priority Small Flat Rate vs. FedEx Express Saver One Small Box:
USPS Priority vs. FedEx Home Delivery vs. UPS Ground:
USPS First-Class Package vs. FedEx Home Delivery vs. UPS Ground:
(Heavy Objects) USPS Priority vs. FedEx Home Delivery vs. UPS Ground:
USPS Priority vs. FedEx Express Saver vs. UPS 3 Day Select:
(Next Day Delivery) USPS Priority Mail Express vs. FedEx 2 Day A.M. vs. UPS Next day:
In every single category, the USPS’s rates are better. The only category that both FedEx and UPS make more economic sense is in heavy packages, and they’re hardly more economical in that category.
In the most used services, the Small Flat Rate Priority, First-Class package, and generic USPS Priority, the USPS’s rates are a half to a third of what the competition charges.
And yet, the competition still finds profitability. Here are FedEx’s Earnings per Share for the last fifteen years:
This is a clean way to look at a company’s profitability. Anything above $0 indicates that the company can churn positive cash-flow. FedEx and UPS do exactly that even in an ecosystem where the Postal Service outprices them in almost every single shipping category.
Trump is only a little bit right. As we reported above, and as is stated in The Hill:
“Refusing to replace employees who retire or depart has been the Postal Service’s go-to tool for cost-cutting. The agency has 300,000 fewer employees than it did a few decades ago. Still, [the] USPS has 500,000 employees and 600,000 retirees who receive health and pension benefits. Thus, the agency’s compensation costs rose $2 billion since 2015.”
If we look at the Postal Service’s 2001 annual report, you will find that their deferred retirement benefits amounted to almost $30 billion.
Each year, going through 2008–2010, we see that the retiree health benefits figure remains at 10–20% of the total operating revenue of the Postal Service. All while the Postal Service remained stagnant, revenue-wise, for the last decade.
In recent years, the retirement benefits and retirement health benefits have been supported by a Postal Service workforce of under 500,000. This workforce had over 750,000 for over a decade. The retirement benefits and retiree health benefits expense amounted to $10.76 billion in fiscal 2019, a year where the USPS only brought in $71.154 billion in total revenue. That’s about 15% going the way of benefits.
But it’s easy to blame Baby Boomers as the sole reason our Postal Service can’t turn a profit. The reality is that our problem is a little more complicated. If I, or any business for that matter, wanted to ship products regularly, we wouldn’t use UPS or FedEx. The Postal Service offers
- far more economical prices.
- far faster service.
In fact, the USPS is required to provide service to people and businesses literally everywhere, remote or otherwise, regardless of the likelihood of profit. The UPS and FedEx even hand the Postal Service packages to deliver in areas that they deem to be highly unprofitable.
This gives us a unique problem.
In 2001, the Postal Service was delivering approximately 1 billion packages.
In 2019, they’re delivering almost 6.2 billion packages.
But these were two different periods of time. The amount of revenue then was $2 billion from package deliveries. Today, that’s almost $23 billion. It’s not only 10 billion pounds of more weight every year they have to move around, but it’s considerably more volume than a first-class letter notifying you about an upcoming payment.
The structure and organization and logistics of the business have changed entirely. They’ve gone from delivering simple mail to becoming a part of Amazon’s complex company network. Except, now, the USPS accepts potentially anything a customer purchases and offers to deliver it to wherever they wish. The USPS delivers approximately 30–50% of Amazon’s packages today. The majority of the remaining packages are delivered by Amazon themselves. The USPS is Amazon’s largest delivery courier, if you don’t include Amazon themselves. In that sense, it’s not an accident that Bezos is choosing the USPS as the next courier in line when they can’t deliver their own packages. It’s exactly because the Postal Service is extremely cheap and very fast.
And, the funny thing is, the Postal Service desperately needs the business. Approximately $23 billion in revenue comes from packages alone.
It wouldn’t take much to correct for this subsidy. As of now, it’s idiotic to choose a courier other than the Postal Service to deliver packages. They will deliver it wherever it needs to go. This needs to come at a price. The Postal Service was not designed with the intention of profitability. It was never designed to subsidize a trillion-dollar e-commerce venue, either. It wasn’t designed to be yelled at by our President, and it wasn’t planned to support a growing retirement base.
With all that said, the Postal Service’s prices far undercut the competitors. They don’t need to. If they pushed prices up even a few dollars on their most-used package services, this deficit would be closed. They would still beat FedEx’s and UPS’s pricepoints in almost every category, too.
Simple arithmetic tells us that a four dollar across-the-board increase on six billion packages would already amount to an increase in revenue by $24 billion. This would do many things:
- Help to stabilize retiree health and benefits.
- Bring costs to actual market value instead of subsidy pricepoints (FedEx and UPS are profitable at much higher prices, like the above comparisons).
- Relieves pressure from the taxpayer (Assuming companies like Amazon are forbidden from passing on those shipping costs to the consumer, i.e. they should be footing that cost themselves).
Otherwise, the only other option the math suggests is that we should eliminate the retiree health and benefits altogether. Trump has suggested the USPS cut retirement and health benefits. This seems suicidal for everyone, most of all the very workforce who needs those benefits the most today.
While Trump’s 4-fold multiplier for services is, as usual, far off base with reality, his anger points to a reality that the Postal Service hasn’t re-calibrated with. CitiGroup confirms that the USPS’s pricing model is unsustainable, keeping the Postal Service unprofitable.
After 13 years of consistent bleeding and a total loss of $71.5 billion, the Postal Service’s pricing structure needs to conform with the real world.
It’s time to move out of the bureaucratic box.