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 InvestorPlace Sep 20, 2011 9:40AM
Image: Mailbox (© Tetra Images /Corbis)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.


EBay. Yes, there are private shipping companies like UPS (UPS) and FedEx (FDX), but it’s hard to imagine either company having anywhere near the convenience and reach of the USPS. Whether you live in a remote part of Wyoming or Alaska or Mississippi, there always is a post office nearby that can offer prompt mailing of your knickknacks to crazed collectors worldwide. If eBay (EBAY) users have to factor in the added time (and perhaps added expense) of finding a FedEx or UPS outlet, it could slow the flow of Beanie Babies and PayPal money around the auction scene.

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.


Netflix's Qwikster. Allow me to state the obvious about Netflix (NFLX): After the dustup caused by the recent dual-pricing model for DVDs and streaming video, and after a rather half-hearted apology to upset subscribers, Netflix isn’t very popular. The stock is off about 50% from highs above $300 in mid-July.


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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212Comments
Sep 20, 2011 2:01PM
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Although some of the comments made are realistic,some of you have no clue about what you are saying. First of all I carried mail for over 20 years,and never got anywhere close to making 50 dollars an hour like someone suggested. I earned every dollar that I made. How many of you carried mail in excess heat and humidity,or extreme cold,or been chased by or bitten by a dog that some irresponsible owner had.I would venture to say that the majority of people making comments don't have what it takes to carry mail. The biggest problem is the usps has too much management that get paid alot of money for doing nothing. The usps is supposed to provide customers service,which they stop providing years ago. Start cutting at the top get rid of managers that do nothing and quit giving them bonuses.
Oct 5, 2011 5:14AM
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The postal service,  does not receive any money from taxes, or government subsidy.  However.  They are run, and being ruined, by the government.

 

They are having to pay their retirement ahead, by 75 years.  They have to do that over a ten year time span.  Give them 50 years, to pay it ahead by 75 years.  And they would be making a profit.  No other government workers, have to pay that far ahead,  And many are under funded.  The government, is using the postal money, to fund those agencies'

 

The problem, is not with the post office.  It is with our congress.

Sep 21, 2011 12:05AM
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Ryan in Texass, USPS is not a corporation so why do you expect them to pay corporate taxes?
Geezuz! They pay payroll taxes just like everyone else. Where the hell did you get the notion they don't pay fuel taxes? Do you think their gas is free?  They buy gas at the corner station just like you do and pay fuel tax just like you do.

So you want to compare them to construction? Why don't YOU walk a route for 6+ hours a day in your Texass humidity, or in Las Vegas or Phoenix in the summer, or Michigan, Minnesota, or any other northern state in the dead of winter and do it day in and day out for 20-30 years? Let's not mention when they have to fend off your dogs that don't keep tied up in your yard and are out roaming the neighborhood. How many carriers have had their careers or even lives cut short because of irresponsible people like that?

Your going to have to do better than that to win your argument. Better drink some water, you seem a little dry to me.
Sep 20, 2011 1:40PM
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As a  retired postal employee here is my two-bits: Saturday deliveries being stopped wouldn't affect the moving of the mail in the system. Post office boxes would probably still receive mail in the box on Saturday, reason, the safety factor for one. There is no place to put the cased mail but on the floor in a tray for the box section, so the mail will need to be put in the boxes to make room for Monday's mail.  The only delivery that would be affected would be street delivery to the home and business.  As for low volume day, Saturday is the lowest volume day in the Post Office.  The so called junk mail, that most people don't want is commonly called Bulk Mail or Bread and Butter mail by the P.O. because it brings in revenue.  I agree that political mail should have to be paid for by the politicians and nonprofit groups, then maybe that would assist with revenue generation too. Bulk Mail is also one of the reasons we pay so little for a stamp, yes I know that the price has gone up several times in the past a penny at a time.  I agree that if an increase is required that it go up a nickel at a time as a minimum.  We americans are a funny bunch of people, you can raise our taxes by several dollars and we will say very little, but pop  us for a penny increase and we raise the roof in complaints.  As for the unions, I remember that until the 70's the post office was a low paying job.  When my father first started in the Post Office he had to work two other jobs to provide for our family until the unions went out on strike, then things changed.  UPS and FedEx make more an hour than the top paid craft postal employee this doesn't include management or Postmasters.  Yes the Post Office was good to me and my family but I felt I gave a good days work for a good days pay. Like most jobs the work is repetitious and production based and can be tedious at times. Most of the rural carriers drive their own personal car to deliver mail, yes they get paid according to the size of their route, All maintenance for their cars are their responsibility along with their fuel costs.  The smaller rural post offices should be closed and the carriers moved to a larger facility to work out of.  We don't need Postmasters in small offices nor do we need 6-7 supervisors for 100 people. Most of the people I worked with did their jobs and all the tasks that were required. Yes their were a few that milked the job to get more hours, but as a whole the folks I worked with did a great job in getting the mail to the carriers and to our customers. Every work place has that same few people that don't pull their wait and should be let go, but for some reason it never happens. The Post Office needs to be revamped to save money and be more profitable to be self-sustaining but it still gives a much needed service to the public.  Not everyone uses the internet and owns computers and still relies on the Post Office for their needs.

Sep 20, 2011 11:38AM
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They should raise the price of junk mail postage to 44 cents like we have to pay for a letter..
It would curtail the amount of junk mail and reduce land fill

Sep 20, 2011 7:48PM
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Why doesn't the reporter mention that the Postal Service has overpaid it's obligations to CSRS by $75 billion?  Why doesn't he mention that it has overpaid it's obligations to FERS by $6.9 billion?  The $81.9 billion dollars could finish paying off the 50 years of future retiree health benefits, and leave the Postal Service with $60 billion dollars.  The money could be used to buy more machines to sort mail in delivery sequence, and do away with thousands of jobs.  It could be used to put up community box units on corners, and all the mail delivered there for a great savings.  It could be used to allow people who have enough years but not age to go ahead and retire at no penalty.  They won't get an incentive just not be penalized.

Also, all Postal Employees who have hired in since 1984 are on Social Security.  The bulk of their retirement is a 401K that Congress has repeatedly dipped into.    

Sep 20, 2011 6:16PM
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to  R in texas

    the  average salary for a ups employee is higher than a postal employee. so why  is the usps employee over paid ?

Sep 20, 2011 5:22PM
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Hey Mr. Jeff Reeves, get your story right. The postal service is NOT asking for a bailout. This is money that the postal service has earned over the years through stamps, package mailing etc. Congress in 2006 made a change which stated that the USPS had to pre-pay monies towards FUTURE health benefits. The FERS retirement was OVERCHARGED approximately 6.9 BILLION dollars. CSRS retirement was OVERCHARGED up to 75 BILLION dollars. All the USPS is asking for is that we be refunded that money that we were overcharged. Not a government bailout!!!

To all the naysayers who are against the postal service. Just because other people have lost their jobs, you think that the postal employees should suck it up and stand in line with the rest of you. Well, that logic is just idiotic! I know people who have lost their jobs and I certainly don't stand by and say suck it up or sorry about your luck. I let them know if there is a job opening and the rest is up to them. I am one income and I have family members who have lost their jobs and I have been going financially downhill trying to help them out during these hard times. Don't you realize that this is a domino effect? What happens to one WILL affect others.

You may or may not like your postal carrier, but I have hundreds of customers who depend on me. Not only for the mail but little things. Like someone to talk to when they have no family who cares. For someone to check on them and yes, sometimes we find customers who have died alone and had it not been for a inquisitive carrier, who seeing that mail hasn't been picked up for days, calling in the authorities to check only to find what we wish was not true.

I have found lost pets and either returned them to their families or have called them with their whereabouts. Tell those people that they are not grateful for their service. Tell that woman who was laying on her living room floor, and when she heard the postal carrier at her mailbox, she yelled for help and the carrier went in to find that she was laying there for hours. Tell her that she is not grateful for the service.

So many more stories of postal carriers being there to help when no one else was around but it would fill pages and pages. The postal service is more than just stamps and packages. Postal employees out on the street delivering mail are community watchdogs. The majority of postal carriers actually care about their customers.

If this country allows the downfall of a great institution, what will be next?

 

 

Sep 20, 2011 7:08PM
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No Federal funding but Congress manages USPS. What a losing combination! Congress can't even manage to come to work every day. Many of our small towns will suffer more from the loss of their Post Office than they suffered with the arrival of WalMart.

Sep 20, 2011 1:45PM
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Thomas Clinton - $40.00 per hour in Arkansas?  I guess I worked in the wrong state.  After 23 years I retired making about $24 per hour.  My golden parachute was $800 per month and no benefits except for life insurance which I pay for.  Closing the post office will add to the defecit since congress will no longer be able to rob the piggy bank.  The government does not support the post office.  It is supported by the revenue it generates.  If congress would let them operate on their own instead of pulling all the strings, things may not have gotten so out of hand.  Just my thoughts. 
Sep 20, 2011 1:22PM
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Ok, it's time to set the record straight. It's too bad that the mainstream media is failing to report THIS:

It was only a few years ago that the USPS was considered not only stable, but thriving. The biggest volume in pieces of mail handled by the Postal Service in its 236-year history was in 2006. The second and third busiest years were in 2005 and 2007, respectively. But it was two events: one crafted during the Bush years and another supervised by House Oversight Committee Chairman Darrell Issa, that would cripple this once great institution.

Perhaps it was its booming history that first drew Congress' attention to the Postal Service in 2006 when it passed the Postal Accountability Enhancement Act (PAEA), which mandated that the Postal Service would have to fully fund retiree health benefits for future retirees. That's right. Congress was demanding universal health care coverage.

But it even went beyond that. Congress was mandating coverage for future human beings. "It's almost hard to comprehend what they're talking about, but basically they said that the Postal Service would have to fully fund future retirees' health benefits for the next 75 years and they would have to do it within a ten-year window," says Chuck Zlatkin, political director of the New York Metro Area Postal Union.

It was an impossible order, and strangely, a task unshared by any other government service, agency, corporation or organization within the United States. The act meant that every September 30th, the USPS had to cough up $5.5 billion to the Treasury for the pre-funding of future retirees' health benefits, meaning the Postal Service pays for employees 75 years into the future. The USPS is funding the retirement packages of people who haven't even been born yet.


-Allison Kilkenny at Truthout


Sep 20, 2011 4:30PM
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lets make this clear people if the federal government did not make the post office make a 5.5 billion dollar payment a year we would not be having this conversation. no closing of post offices no 5 day delivery.and as for the people who think postal employees make to much. i would like to see you delivering mail in the pouring rain or snowing, when it is 25 degrees out side when it is 115 degrees. every one have a nice day
Sep 20, 2011 12:47PM
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There is NO excuse for cutting the United States Post Service, none.  If you all fall for the "we are broke and we need to cut anything American" or the "we all must sacrifice" b s then your pretty ignorant of what "our" government is actually doing with OUR money.

We are still sending OVER $2.5 Trillion a year to foreign nations; many of them who hate us, work against us, or/and we are fighting with now!  We also send Billions Plus of US dollars on top of that to those same foreign countries as military aid and economic aid (tracked another $2 Trillion there over 2 years). Then there is the extra money we send through agencies like the money (millions) Hillary Clinton sent to Pakistan to repair their flooded home while Denying American citizens assistance in rebuilding their lost homes the day before. (letter from Kay Granger to Hillary Clinton)

Then there is the $2 Trillion in corporate welfare to mega corporations who are based outside of the USA, employ very few American citizen employees, pay little or no taxes/tariffs yet use more of our infrastructure then most Americans do.

Then there is the $16 Trillion (that's right $16 trillion) the Federal Reserve (without the knowledge of congress or US citizens) sent out to foreign banks (few banks here), foreign nations and some foreign corporations. Notice that no one has frozen those assets and moved them to the US treasury; or done a Complete audit on them (It was found with a partial audit that was a major fight to get thru), or charged them and went after the heads, the owners, those in our government (traitors) who assisted them to do this over the last 4 years. $16 trillion US dollars stolen from us and given to foreign nations, banks and it is OK?

Nothing American should be cut until we discontinue those! As long as "we" can afford to literally send trillions of US dollars to foreign nations and foreign or mostly foreign corporations on a yearly basis Nothing that is American should be cut.
Sep 20, 2011 5:48PM
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My daughter works in a mail center and as she puts it, "works her butt off" while some of the old hands (union old timers) sit in the break room and do nothing. The political system sucks and the upper management gets two retirements. The rank and file workers put in long hours and work very hard at their job. Most of them take a lot of pride in their work and put in a day and a half's work for their pay. Most rural carriers are contract workers that bid for the job, not employees of the USPS. They drive on dirt roads through mud and rain and snow, etc... not a n easy task, and none that I know are rich! If we can bail out the big banks, line the politicians pockets with raises and benefits, why not bail out the USPS as everyone in the country benefits from this service. If anything look at cutting the top management's salary and the double dipping retirement system.

Sep 20, 2011 5:07PM
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It's amazing how people just want to get rid of the post office. Becareful, you might get what  you wish for.   I will quote Mhaw's comments because it's one of the few rational comments made.  "I find it funny that some of the comme nts made are to eliminate the Post Office.  So lets stick 570,000 people on unemployment.  That is a brilliant idea.  Yes the system is broken but, eliminating those jobs is a horrible idea. We just read an article that shows how 5 other businesses will be impacted,  How many jobs will we lose those in those places.  Postal worker are not over paid.  They have to prepay their pensions...this way they won't end up like social security.   Not to mention the cost of mailing something first class is $.47 via the post office, FedEx and UPS is what???  not $.47.  Not everyone can afford to used a private carrier or have access to the resources via the internet.  So before we just throw are hands up and say "Get rid of it"  lets consider the long term effects."

Sep 20, 2011 11:36AM
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Speaking as a voice of observation from the inside out, the United States Postal Service (USPS) is tragically guilty of mismanagement and has a dreadful history of mismanagement.  Many points could be made on this point, but their first great mistake was truthfully placing people into positions that did not need to be in mid to high level management.  Secondly, paying people, who were barely educated enough to read and write, an hourly rate well beyond their capabilities, plus making sure they did not move fast or handle more than a pound or two each time they touched something should never have happened.  Thirdly, more than 50 people handling one piece of mail is not good business, but was a constant feature of the USPS.  So called postal police lurking in walls and overhead sneaking around to catch theives within the system was a purely bad sign of wrong management tactics. Again many things could be said, but the most important mistake was terrible mismanagement and over paid workers, who never held a right attitude about work and salary, but always thought they should be paid far more than they ever deserved or earned; and yet, they could never really appreciate what they had and always wanted more money with less work.          
Sep 20, 2011 1:43PM
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lets get one thing straight....a lot of you people listen to the media who amps everything up and is not even close to reporting the true stories.. hmd455..i have no idea where you get your FALSE information at but post office workers do NOT make 50 dollars an hour. As someone who lives in a usps household and is so scared that we will lose everything because you heartless bastards don't know your information correctly and continue to want to shoot everyone down. Do you really think in an economical downfall there should be more jobs lost because president bush screwed the usps over?! It was his administration that made the post office start paying retirements years in advance so they could reap the rewards of interest. Those mail carriers not only walk, sweat, injury themselves on a daily basis and also put up with stupid crap from countless managers. If we don't have enough mail volume then please explain to me why my husband works on average 10-12 hours a day when he is supposed to work 8? The mail carriers are told to do their routes, plus help on other routes but still be back in 8 hours. Please explain to me how you are supposed to cram 12 hours of work into 8? i bet a lot of you fat lazy people who wait by your door every month for your social security check are the same ones complaining...or its the old republicans who don't have anything better to do than bring the world down. There's no one on here who could get off their butts and walk 20-45 miles in a day in the hot 100+ degree weather and have to hold up to 50lbs in their arms/bags and still survive....know your information before you open your ignorant mouth people...so many stupid people with their stupid opinions...

Sep 20, 2011 11:22AM
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If the post office is so hard up for money I have to ask, why do they pay for advertising and why do they support a bicycle racing team and why do they try to compete against Fed Ex and UPS with quick delivery when they have NEVER made money trying to compete?  If whoever is running this thing is that stupid then they should be thrown out and replaced by somebody with at least an IQ of 100.
Oct 5, 2011 8:48AM
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"without a congressional bailout to meet pension requirements" is a missleading statement.  The USPS cannot PRE FUND 100% of its requirements which is a congressional mandate that needs to be repealed.  Essentially congress has told the USPS they have to put into the bank 100% of all the money they will ever have to pay future retirees today.  Unlike every other company and government entity who only have to have about 20%.  

 

If they repeal the law or make it so that its only 50% the USPS is not out of money. 

 

The postal service should be either 100% private or 100% government run not a mix of both with all the disadvantages and none of the advantages. 

Oct 5, 2011 9:24AM
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Your very first statement on this story is incorrect!!!!  The post office has NOT lost billions of dollars.  In fact, it is the postal service section of the government that has been profiting over the last several years.  However, because the government does not know how to control spending or BALANCE A BUDGET, they can make the numbers look how they want them to look. 

I have a parent who works for the postal service and the government has been nickel and dimming the postal service portion of the government for years.  The government uses the postal service funds VERY MUCH like they have used social security and other funds to their own desire rather than how those funds are meant to be spent.  The postal service is just as much an example of this as the social security funds.

It is media outlets like this, with a liberalized agenda, that try to shove falsehoods down the American people's throats and make them out to be fact, when what they are actually doing is KILLING journalism....KILLING TRUTH!!!! 

You and every other liberal, mainstream media source disgust me!!!!  Also, THIS article is the the VERY reason I can no longer stand to read or watch any type of mainstream news!   I crave the day you learn people want the truth rather than some liberal-minded agendas. 
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