The Postal Service is an incredible achievement, delivering mail to every corner of the United States regardless of rain, sleet, or snow. It’s also on the verge of total systemic collapse.
First, some statistics. If the United States Postal Service (USPS) were a private corporation, it would rank in the top fifty on the Fortune 500. Employing over half a million Americans, it’s the second-largest civilian employer in the nation following Walmart. The agency handles roughly 40% of the world’s mail volume, processing almost 170 billion pieces of mail annually. And it was designed to be self-sufficient; the Postal Service takes no tax dollars and operates entirely on its nearly $70 billion revenue. If it sounds too good to be true, it is—USPS carries a debt load approaching $15 billion, though it turned a profit in the early 2000s. So what went wrong? Quite a bit.
Reorganized in the 1970s, the Postal Service today is a quasi-independent agency tasked with funding its own operations while submitting strategic decisions to congressional approval. Therein lies the problem, as Congress has meddled with its management significantly in recent years. President George W. Bush signed the “Postal Accountability and Enhancement Act” (PAEA) in 2006, mandating that the agency pre-fund employee retiree healthcare up to seventy-five years in advance. The Act bars the agency from using surplus profits to pay down any postal debt to instead fund future pensions at the cost of billions per year. Coming immediately before the largest economic slowdown in half a century—and thus a sharp decline in USPS revenue—it’s had a crippling effect.
Solutions are few and far between on Capitol Hill, though the most common involve raising the price of postage, ending Sunday delivery, or shuttering post office and sorting facilities. None include lifting the PAEA mandate, despite the Postal Service’s imminent default on its latest $5.6 billion pre-payment. Despite this, there are no plans to address postal reform before the legislature breaks for its five week summer recess this Friday. This session hasn’t ignored the USPS, however; 17% of the laws produced by the House of Representatives in the last eighteen months dealt with the renaming of various post offices nationwide.
In fairness, Washington isn’t entirely to blame. Postal unions have accumulated immense strength, forbidding layoffs and mandating regular raises above cost of living increases. USPS spends approximately 80% of its budget on salaries and pensions—before factoring in PAEA’s required healthcare pre-payments. It’s an inherently unsustainable model, and the bleeding will only swell as mail volume continues to fall. Don’t hold your breath on any congressional action here; Democrats are unlikely to target such a massive public union while Republicans rely on its largely rural demographic. Neither party is going to risk half a million votes with election day so close at hand.
Adding to the agency’s woes is stiff competition from the private sector. Outside the sectors on which it commands a monopoly, such as daily mailbox delivery, USPS commands a paltry 15% market share. FedEx and UPS carry 32% and 53% of the remaining volume, respectively, and they do so at a profit. Neither company is interested in letter-carrying, however, preferring lucrative urban routes to snowmobile deliveries in Alaska or pack mule runs down the Grand Canyon. The Postal Service’s greatest attribute is its unfailing ability to deliver mail anywhere in the United States at the same affordable rate. As evidenced by the response from FedEx and UPS, it’s also the principal barrier to solving its debt crisis through privatization.
USPS needs bold solutions to put its fiscal house in order, solutions that go beyond merely closing this year’s deficit. Other national mail services are thriving in spite of the recession, increased prominence of email, and file sharing. For example, the Swedish post office allows people to turn cell phone pictures into postcards. Smartphones and the Internet have become vital fixtures in our daily lives, it’s time the Postal Service embraced rather than fought them.
As always, the crucial component to stopping a catastrophe is direction from Washington. The situation is too dire for the Postmaster General alone, and uncertainty regarding the agency’s solvency is actively pushing businesses to private deliverers. No progress is expected until after the November elections, when legislators can be confident that any unpopular changes (rate hikes, end of Sunday delivery, branch closings, etc.) won’t result in their immediate unemployment. If congressional action on entitlement spending or the federal deficit is any indication, however, a quick fix isn’t likely. The postage USPS offers may be first class, but the government’s commitment to one of its oldest agencies is anything but.