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The cover story of this week’s issue of Bloomberg Businessweek examines the United States Postal Service as it hurtles toward insolvency at an alarming rate.Facing a projected $6.4 billion loss this year, the Postal Service is expected to hit its own debt ceiling by the end of this fiscal year on Sept. 30.
The federal government will then have to choose between letting the agency default on its massive pension obligations or bailing it out to the tune of more than $50 billion.
The Businessweek article, written by Devin Leonard, looks at the drivers behind the agency’s financial woes, including its cushy relationship with postal workers unions and its flailing efforts to stem its customers’ migration to the Internet.
At the end, the article asks whether the U.S. will be able to follow in Europe’s footsteps and reinvent its postal monopoly to regain relevance and profitability.
If it cannot, Leonard concludes, the postal service is at serious risk of collapse.
The USPS will reach its statutory debt limit this year. After that, bankruptcy looms.
The agency has lost $20 billion since 2007.
The amount of mail sent through the Post Office dropped from 213 billion in 2006 to 170 billion in 2010. In a best-case scenario, mail volume is expected to drop to 150 billion by 2020. The worst-case projection is 118 billion.
The USPS relies on first-class mail to fund most of its operations, but volume has been steadily declining, falling below junk mail for the first time in 2005. Three pieces of junk mail must be sent to replace the profit of a first-class letter.
The Postmaster General has proposed cutting weekly Saturday deliveries to save an estimated $3 billion annually.
The Postal Service employs 571,566 full-time postal workers.
The U.S. Postmaster General has proposed reducing the payroll by 20% over five years through attrition, as union contracts prohibit layoffs.
That's more domestic retail outlets than Wal-Mart, Starbucks and McDonald's combined.
80 per cent of U.S. Post Offices lose money.
To cut costs, the agency has proposed a plan to close 2,000 post offices and moving some operations to convenience stores and supermarkets. Federal law forbids closing post offices for solely economic reasons.
By contrast, 61% of the United Parcel Service's budget goes to employee-related expenses. FedEx spends 43% of its annual budget on personnel costs.
Bureau of labour Statistics data indicate the average hourly compensation for postal union members is $41 versus $28 for the private sector.
'Perhaps it's not surprising that the postal service's two primary rivals are more nimble,' Leonard writes. 'According to SJ Consulting Group, the USPS has more than a 15 per cent share of the American express and ground-shipping market. FedEx has 32 per cent, UPS 53 per cent.'
The four-and-a-half-year agreement extends the no-layoff provision and provides a 3.5% raise over the period of the contract, as well as seven uncapped cost-of-living increases. A USPS spokeswoman told Businessweek the agency agreed to the terms because it feared an arbitrator might be even more deferential to the union.
In general, postal service employees enjoy more expensive benefits than most public-sector workers. USPS covers 79% of its employees' health benefits, compared to the 72% typical for most federal workers.
The USPS and its unions want Congress to relieve the agency of its requirement to build a healthcare trust fund for future retirees.
Junk mailers, greeting card manufacturers and magazine publishers are on their side. Democrats are also sympathetic: President Obama inserted a proposal in his 2012 budget to absolve the USPS of $4 billion of its retiree health-care liabilities in 2011, which would help the agency pull through another year.
Even more alarming is a bill co-sponsored by Senators Tom Carper of Delaware and Susan Collins of Maine, would give the agency a $50 billion to $75 billion life raft by having the federal government underwrite pension obligations for retired postal workers.
House Republicans oppose anything that looks like a bailout. They are pushing for the USPS to make deeper budget cuts, including closing post offices.
The 40-page report was written by Phillip Herr, the GAO's director of physical infrastructure issues, in February. Herr studied postal services in other developed countries and found that they had saved their ailing systems by giving up their postal monopolies, shutting down brick-and-mortar offices (despite intense opposition), and developing products for wired customers.
Herr acknowledges some foreign digital services are in early stages, but they are in demand, and in some cases the digital technology reduces delivery costs.
Deutsche Post, which owns DHL, now competes with FedEx and UPS. More than half of its workforce - and about half of its profits - come from outside of Germany.
Posten also has an app that lets customers turn digital photos into postcards.
The company can afford to develop new products. In 2009 Posten merged with Post Danmark, the Danish postal service, creating PostNord, a company with $6.2 billion in net sales and $320 million in EBITDA. In 2010 EBITDA rose by 43 per cent, to $490 million.
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