What's wrong with the US Postal Service?
It spends more than it brings in, and it's on track to hit its debt limit. Why can't it pull itself out of this mess?
How is it that UPS (UPS) and FedEx (FDX) can run profitable, successful delivery services while the U.S. Postal Service blunders its way into insolvency? That's an easy question to answer after you read the BusinessWeek article.
The USPS brought in $67 billion in revenue last year, not nearly enough to cover its costs. It's nearly $15 billion in debt and will hit its debt limit this year. If this continues, the Postal Service will collapse.
Post continues after this video interview with BusinessWeek's editor about the article:
Here are the biggest nails in the Postal Service's coffin:
1. Its union is too strong. The USPS cannot lay off employees due to union contracts. And in the next four years, union members will get a 3.5% raise and seven (yes, seven) uncapped cost-of-living increases. That's a shocking commitment.
2. It spends too much on salaries and benefits. About 80% of its budget goes to salaries and benefits, writes BusinessWeek's Devin Leonard. Can you even imagine that? Compare that with the 43% spent at FedEx and the 61% spent by UPS.
3. It hasn't raised prices enough. It costs the same to mail a letter to your neighbor as it does to deliver it by snowmobile to the Alaska wilderness. (Yes, the USPS actually does that.) The Postal Service should charge higher prices for longer travel distances.
4. It relies too much on junk and first-class mail. Total mail volume fell 20% from 2006 to 2010. The USPS relies too much on first-class mail for money, and when mail volume falls, its revenue falls as well.
5. It has too many post offices. Most of the post offices around the country lose money. What if the USPS took a page from Starbucks (SBUX) playbook and opened mini post offices at supermarkets, gas stations and retailers like Target (TGT)? Still convenient but with lower overhead. Even better: Nonunion workers can staff those offices, Leonard writes.
6. It hasn't embraced the Internet. Email has been a killer. But maybe the USPS has taken the wrong approach to the Internet. In other countries, Leonard reports, postal services let people pay bills online and even scan mail and send it to customers online.
In Sweden, people can take pictures on their phones and turn them into postcards. People can use their phones to send letters without stamps.
The USPS is incapable of owning up to its problems. And the revenue picture is just getting worse. The service predicts total mail volume will fall from 171 billion pieces a year now to as little as 118 billion by 2020, Leonard reports.
So far, the postmaster general wants to stop delivery on two days a week instead of just one. And he thinks that attrition will shave 20% off of the USPS workforce over five years. That's not going to be enough to stop the bleeding. The USPS needs to change dramatically, and that doesn't look like it's going to happen anytime soon.
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