5 businesses doomed in a Postal Service overhaul
With the size and scope of the USPS, more than just delivery-dependent providers would feel the pain.
By Jeff Reeves, InvestorPlace.com
The United States Postal Service is in dire straits. It is projecting a $6.4 billion loss and could run out of money by the end of the month without a congressional bailout to meet pension requirements.
The driving forces behind the agency's financial woes are many, including a precipitous drop in mail volume because of the digital age, skyrocketing labor costs and an inefficient network populated with infrequently used rural post offices and routes that just don't make sense financially.
But more than just mail routes and government payrolls would be affected. For-profit businesses have a lot of skin in the game, too. Here are five businesses that could suffer from a USPS overhaul.
Think this is just a conspiracy theory? Wall Street doesn’t think so. EBay stock dropped more than 6% in a single day earlier this month on fears that massive USPS closures would hurt its business. The big merchants and big-city folks will be fine, but small- and medium-sized online sellers are a major trouble spot amid the post office woes.
The newly branded Qwikster arm of Netflix will focus purely on DVDs by mail to eager subscribers looking for a deeper catalog and access to new releases. But one of the biggest complaints about NFLX has been the wait for good titles. If just one more day is tacked onto shipping, it could create a logistical nightmare for the movie rental company as it struggles to meet growing demand and growing impatience.
Perhaps Netflix should rethink that Qwikster name while it has the chance, because if Saturday delivery is killed or if DVDs don’t move around as quickly as they used to, it’s going to remind customers of how long they’ve been waiting for "The Blind Side."
FedEx. It seems counterintuitive that a USPS competitor could take a hit. But FedEx transports Express (overnight), Priority (two to three days) and First-Class Mail for the United States, and it earns a pretty penny for its services. In fact, in fiscal 2010 FedEx tallied a cool $1.37 billion in fiscal 2010. Yes, that’s billion with a B.
FedEx’s postal revenues at one time topped $1.6 billion but have been on the decline recently as the U.S. has seen its mail volume decline. If the USPS eliminates delivery on Saturdays, as President Barack Obama is advocating, or cuts back in other ways, FedEx could see an even deeper decline in its revenue.
Northrop Grumman. Ever wonder where you can buy one of those distinctive USPS trucks? No, they are not Jeeps but a transport truck known as the Grumman Long Life Vehicle (or LLV). These machines are made by industrial giant Northrop Grumman (NOC).
Northrop Grumman is the No. 2 contractor behind FedEx on the list of USPS suppliers for fiscal 2010, with almost $500 million in revenue from Uncle Sam’s letter operations. While there haven’t been any new purchases of LLVs, the upkeep is pretty pricey, since many of these trucks are approaching the end of their service life.
It would cost about $4.2 billion to replace the entire fleet, but you can bet that a simpler solution is to slash the number of Grummans as the USPS slashes the number of post offices and mail carriers in its ranks.
Northrop Grumman does almost $35 billion in annual revenue, so it’s not like the company lives and dies on the USPS contract. But considering the big defense spending cuts that will hit the rest of NOC operations, the loss of postal business couldn’t come at a worse time.
Every consumer business nationwide. Did you know the USPS is the second-largest civilian employer in the U.S. after Wal-Mart (WMT)? It’s true. There are some 570,000 full-timers on the payroll.
Let’s lay aside for a moment the value of those jobs, the efficiency of the Postal Service and the rate of pay those workers receive. Because any way you slice it, a significant reduction in that work force will have a significant impact on the American economy.
The U.S. postmaster general has proposed reducing the payroll by 20% over five years -- mostly through attrition, since union contracts prohibit layoffs -- and that would result in about 114,000 jobs lost.
Consumer stocks are already hurting these days, thanks to a downtrodden economy and weak spending nationwide. It would be silly to propose that the USPS keep workers on its payroll just to prop up retailers, but it would be equally silly to act as if these massive reductions in the work force won’t have an impact.
Jeff Reeves is the editor of InvestorPlace.com. As of this writing, he did not own a position in any of the stocks named here. Follow him on Twitter via @JeffReevesIP and become a fan of InvestorPlace on Facebook.
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