U.S. Postal System Hurtles Toward Financial Restructuring

http://247wallst.com/services/2016/05/10/us-postal-system-hurdles-toward-financial-restructuring/

The U.S. Postal Service (USPS) lost another $2 billion in its second quarter, as it continued careening toward insolvency. The management of the organization used the description “serious,” despite the belief of Postmaster General and Chief Executive Officer Megan J. Brennan that operations can be improved. Regardless of the optimism, a restructuring likely will be necessary, which means tens of thousands of layoffs, post office closings and delivery cuts to four days. These measures have been discussed before.

The USPS blames its problems on future retirement, which is fair. According to management:

Controllable income for the quarter was $576 million compared to $313 million for the same period last year. Calculation of controllable income takes into account the impact of operational expenses including compensation, benefits and work hours; but does not reflect factors such as the legally-mandated expense to prefund retiree health benefits (see Non-GAAP Financial Measures table on following page for full description).

Although non-GAAP measures are misleading, the sum of $1.454 million represents total workers’ compensation expense.
Otherwise:

The U.S. Postal Service reported operating revenue of $17.7 billion for the second quarter of fiscal year 2016 (January 1, 2016 – March 31, 2016), an increase of $788 million or 4.7 percent over the same period last year. The increase was primarily due to an 11.4 percent increase in Shipping and Package volume and pricing strategies.

Also:

Net loss for the quarter was $2.0 billion compared to $1.5 billion for the same period last year. The change in net loss was most significantly impacted by a $547 million unfavorable change in the workers’ compensation expense as a result of interest rate changes – a factor outside of management’s control.

Not nearly good enough to save the USPS in its current form.

Bernie Sanders's Highly Sensible Plan to Turn Post Offices Into Banks

http://www.theatlantic.com/business/archive/2015/10/bernie-sanders-lets-turn-post-offices-into-banks/411589/

In an interview with Fusion’s Felix Salmon the day after last week’s Democratic debate and published Tuesday, Senator Bernie Sanders discussed the marquee features of democratic socialism he’s been tirelessly calling for during his presidential campaign: higher taxes for the wealthiest Americans, an increased minimum wage, and breaking up the biggest Wall Street banks.

Salmon also raised a possibility that has not been as prominent in Sanders’s stump speeches, but animates him nonetheless: turning the U.S.’s post offices into banks. Sanders:

If you are a low-income person, it is, depending upon where you live, very difficult to find normal banking. Banks don’t want you. And what people are forced to do is go to payday lenders who charge outrageously high interest rates. You go to check-cashing places, which rip you off. And, yes, I think that the postal service, in fact, can play an important role in providing modest types of banking service to folks who need it.

It’s something Sanders alluded to in a 2014 Wall Street Journal op-ed, and it’s not even the craziest idea proposed to save the USPS—a report last year explored the implications of turning post offices into hubs for 3-D printing.

In fact, Sanders’s idea is quite sensible. “Postal banking”—which just means that post offices run savings accounts, cash checks, and perform other basic financial services—is common in most of Asia and Europe, and only about 7 percent of the world’s national postal systems don’t offer some bank-like services. Postal banking is a really good way to reach people who haven’t had access to standard savings accounts. One estimate figures that more than 1 billion people have used post offices for making deposits.

The reason why this would be so useful in the U.S. is that somewhere between 20 and 40 percent of the population has to rely on check-cashing or payday-lending services, which in some places charge usurious rates that send people into spirals of recurring debt. Mehrsa Baradaran, a professor at the University of Georgia School of Law and the author of How the Other Half Banks, touched on the promise of postal banking in a book excerpt published in The Atlantic last week:

The basic idea of modern postal banking is a public bank offering a wide range of transaction services, including financial transactions, remittance, savings accounts, and small lending. These institutions would remain affordable because of economies of scale and because of the existing postal infrastructure in the U.S. Plus, in the absence of shareholders, they would not be driven to seek profits and could sell services at cost.

In her essay, Baradaran made the point that the Federal Reserve helps struggling banks through temporary credit crunches—so why doesn’t the government treat struggling individuals the same way? It’s not unheard of in the U.S.; in 1910, William Howard Taft introduced a postal-savings system for new immigrants and the poor that lasted until 1967. Today, it’d be a huge relief for people without access to banks, with an added bonus: It’d give the U.S. a leg up on Denmark, the nation that both Sanders and Hillary Clinton professed love for in the debate and which doesn’t currently have postal accounts.

Will Japan Post's Huge IPO Teach the U.S. Post Office to Privatize?

http://www.bloomberg.com/news/articles/2015-11-06/will-japan-post-s-huge-ipo-teach-the-u-s-post-office-to-privatize-

Japan Post went public this week and managed to raise $12 billion, making a national mail carrier responsible for this year's most successful initial public offering. That’s a lot of money at a time when mail is disappearing and the U.S. Postal Service, the world’s largest deliverer of letters and parcels, is awash in red ink.

Much of the American commentary about the Japan Post Holdings IPO has noted how differently the Japanese run their postal service. In 2014, for instance, mail delivery accounted for only 12 percent of Japan Post’s revenue—and 74 percent came from such nondelivery businesses as life insurance sold at 24,646 post offices. Another 14 percent flowed from banking operations. Japan Post sold shares in the three businesses and plans eventually to spin them off as separate companies.  

By contrast, 95 percent of USPS sales come from transporting mail. And unlike their Japanese counterparts, American letter carriers make their appointed rounds in aging white trucks rather than red scooters.   

But there is an important similarity between the Japanese and American postal services: Both organizations have endured sharp declines in their mail volume. In the fiscal year ended March, Japan Post delivered 18 billion pieces—or 3 billion fewer than in 2007—and that helps explains its ongoing transformation into a package delivery company. Earlier this year, Japan Post paid $4.6 billion for Toll Holdings, an Australian logistics company, which made the postal service more attractive to investors. 

That's a proven strategy. In the first major postal privatization, Deutsche Post conducted a successful IPO after purchasing 50 percent of DHL, the international parcel delivery company. Deutsche Post shares went on to attract considerable attention for investors during the 2000 IPO. At the time, USPS also talked about going private. But postal worker unions and their allies in President Bill Clinton's White House didn’t want to hear about it. And there’s been no talk of privatizing the American postal service.  

Perhaps the successful Japan Post IPO will get people in Washington thinking more adventurously again. Last year, the USPS delivered 155 billion mail pieces, or 27 percent fewer than the peak reached in 2006. The package segment was the only part of the business that increased by volume, up by a healthy 8 percent. 

Naturally, the USPS is trying to morph into more of a package delivery operation too. But its white trucks are 25 years old, and they were designed when the USPS transported more letters than anything else. The USPS hopes to replace its fleet of 190,000 vehicles—at a likely cost of $5 billion. The government agency, which had a $5.5 billion net loss last year, just doesn’t have that kind of money.

Congress has to come up with a plan to upgrade the postal fleet, but perhaps this is a moment to think bigger. Maybe it’s time for the USPS to pair up with an airfreight company and turn itself into a global package delivery business, just as Deutsche Post and Japan Post have done. This time around the American postal worker unions may not be a problem. Declining mail means fewer jobs. Since 2006, the USPS has eliminated 30 percent of its full-time employees.

Privatization is frightening—but just look what happened when the USPS didn’t do it.  

Bernie Sanders's Highly Sensible Plan to Turn Post Offices Into Banks

http://www.theatlantic.com/business/archive/2015/10/bernie-sanders-lets-turn-post-offices-into-banks/411589/

They're much less crazy than payday-lending services, and the rest of the world agrees.

In an interview with Fusion’s Felix Salmon the day after last week’s Democratic debate and published Tuesday, Senator Bernie Sanders discussed the marquee features of democratic socialism he’s been tirelessly calling for during his presidential campaign: higher taxes for the wealthiest Americans, an increased minimum wage, and breaking up the biggest Wall Street banks.

Salmon also raised a possibility that has not been as prominent in Sanders’s stump speeches, but animates him nonetheless: turning the U.S.’s post offices into banks. Sanders:

If you are a low-income person, it is, depending upon where you live, very difficult to find normal banking. Banks don’t want you. And what people are forced to do is go to payday lenders who charge outrageously high interest rates. You go to check-cashing places, which rip you off. And, yes, I think that the postal service, in fact, can play an important role in providing modest types of banking service to folks who need it.

It’s something Sanders alluded to in a 2014 Wall Street Journal op-ed, and it’s not even the craziest idea proposed to save the USPS—a report last year explored the implications of turning post offices into hubs for 3-D printing.

In fact, Sanders’s idea is quite sensible. “Postal banking”—which just means that post offices run savings accounts, cash checks, and perform other basic financial services—is common in most of Asia and Europe, and only about 7 percent of the world’s national postal systems don’t offer some bank-like services. Postal banking is a really good way to reach people who haven’t had access to standard savings accounts. One estimate figures that more than 1 billion people have used post offices for making deposits.

The reason why this would be so useful in the U.S. is that somewhere between 20 and 40 percent of the population has to rely on check-cashing or payday-lending services, which in some places charge usurious rates that send people into spirals of recurring debt. Mehrsa Baradaran, a professor at the University of Georgia School of Law and the author of How the Other Half Banks, touched on the promise of postal banking in a book excerpt published in The Atlantic last week:

The basic idea of modern postal banking is a public bank offering a wide range of transaction services, including financial transactions, remittance, savings accounts, and small lending. These institutions would remain affordable because of economies of scale and because of the existing postal infrastructure in the U.S. Plus, in the absence of shareholders, they would not be driven to seek profits and could sell services at cost.

In her essay, Baradaran made the point that the Federal Reserve helps struggling banks through temporary credit crunches—so why doesn’t the government treat struggling individuals the same way? It’s not unheard of in the U.S.; in 1910, William Howard Taft introduced a postal-savings system for new immigrants and the poor that lasted until 1967. Today, it’d be a huge relief for people without access to banks, with an added bonus: It’d give the U.S. a leg up on Denmark, the nation that both Sanders and Hillary Clinton professed love for in the debate and which doesn’t currently have postal accounts.

U.S. Postal Service Tries Hand as Fishmonger, Grocer

http://www.wsj.com/articles/u-s-postal-service-tries-hand-as-fishmonger-grocer-1439855940

Agency ramps up same-day delivery in move to better compete with FedEx, UPS

The U.S. Postal Service uses its carriers and trucks to handle daily water delivery to businesses for Nestlé, whose brands includes Poland Spring, in Manhattan and Brooklyn. PHOTO: KEVIN HAGEN FOR THE WALL STREET JOURNAL

By 

LAURA STEVENS

Updated Aug. 17, 2015 8:08 p.m. ET

The U.S. Postal Service is ramping up same-day delivery of everything from bottled water to fresh fish as its new postmaster general tries to better compete with FedEx, UPS and even Amazon.com.

In New York City, letter carriers in the early morning hours load boxes of fresh and frozen seafood from Fulton Fish Market onto mail trucks and deliver them to local restaurants by 11 a.m. They collect packages from Internet electronics retailer Newegg Inc. for fast, local afternoon delivery. They’re also doing daily water delivery to businesses for Nestlé SA in Manhattan and Brooklyn.

Same-day delivery is part of a big push by Megan Brennan, the new postmaster general, to make the postal service more competitive.

“Clearly, the consumer demand is such that we all want the package today,” said Ms. Brennan in an interview. “So we’re being responsive to that.”

About six months after taking the top job at the quasigovernmental agency, Ms. Brennan said she’s pushing Congress to green light the shipping of alcoholic beverages. She also wants to expand grocery delivery and offer more Sunday delivery.

The postal service must grow. Volumes of first-class mail, its most profitable product, fell 2.2% through the first three quarters of the year. It has fallen about 20% over the past decade. While the agency’s package business is growing in double digits, it’s still only about a fifth of total revenue. For fiscal 2014, the agency’s revenue was $67.85 billion.

There’s “a lot of potential for the organization, particularly when you look at what I’ll call the hyper growth in e-commerce,” Ms. Brennan said.

The change in direction is causing the agency some growing pains, which were evident in its third-quarter results released last week. While shipping and package revenue rose 10.6% to $3.56 billion compared with a year ago, overall labor costs also rose.

Work hours increased by about five million hours for the quarter, and compensation grew about 2.4% to $8.8 billion. USPS Chief Financial Officer Joe Corbett said last week that the extra time it takes to deliver packages contributed to the expense.

Also, the Postal Service will delay until 2016 some of the 82 mail sorting plant closings that had been planned for this year because of service disruptions, which were caused in part by changes to thousands of employee schedules related to plant consolidation, as well as harsh winter weather. The delay was so service levels could be restored, Ms. Brennan said.

Lately, the agency has been on a tear. After launching grocery delivery with Amazon.comInc. a year ago in San Francisco, the Postal Service has added six more delivery markets this year. It began testing same-day delivery in New York this past November. It’s also shopping for 180,000 new trucks that are better designed to hold packages.

The Postal Service cut certain Priority Mail package prices last year by as much as 58% for its largest customers to attract more business. In addition, for an average of about $1.70, according to its financial filings, it will take a parcel from post office to residence for big shippers like United Parcel Service Inc., FedEx Corp. and Amazon, who are willing to sort the packages themselves.

Keith Byrd, co-founder of shipping consultancy Transportation Impact LLC, says more of his customers have either considered or have shifted parts of their package volume to the Postal Service in recent months. “Absolutely [the postal service is] taking market share from the small parcel carriers, especially on the lighter-weight e-commerce,” he added.

Both FedEx and UPS have filed complaints in the past to the postal regulator, arguing that the Postal Service doesn’t charge enough for some of its parcels. “UPS supports a healthy and viable Postal Service, but we believe that the USPS, like any other business, needs to understand the true costs for offering and expanding competitive services,” a UPS spokeswoman said. FedEx said it can’t speculate on specific pricing decisions of other carriers.

By law, the Postal Service is mandated to charge the cost of delivering a package, plus at least 5.5%. Ms. Brennan says that Postal Service packages are priced properly, but she’s considering raising rates—simply because the demand is there. She said that it’s important to ensure the Postal Service is generating more robust profit on top of revenue.

Ms. Brennan would also like to expand what the Postal Service is allowed to deliver. One of her first legislative pushes will be to gain congressional approval for shipping alcohol, she said. “Clearly, there are some who would like to see us stay in our lane if you will, but we obviously think there is opportunity for us to expand,” she said.

Last month, three bills were introduced in Congress, two in the House and one in the Senate, all with the aim of lifting the Prohibition-era ban on the Postal Service shipping alcohol. One of the legislators said the move could provide the Postal Service with an additional $50 million annually.

Ms. Brennan said she also hopes to make progress on introducing a bill to remove a congressional requirement that the agency must pay its retiree health-care benefits ahead of schedule, to the tune of more than $5 billion annually. The payment continually pushes the agency into the red.

Without that payment and workers’ compensation items, the Postal Service said it would have recorded a profit of $1.4 billion last year. It doesn’t receive direct taxpayer subsidies, but it reached its $15 billion credit limit with the Treasury Department in 2012 and also receives compensation for some services including mail for the blind.

The Postal Service Is a Civic Institution, Not a Business

http://www.theatlantic.com/national/archive/2012/04/the-postal-service-is-a-civic-institution-not-a-business/256306/?utm_source=SFFB

This week the U.S. Senate is debating the 21st Century Postal Act of 2011, a proposal to reform the U.S. Postal Service and change the way the USPS does business in order to make it more profitable. In December, the Postal Service proposed to cut Saturday delivery, close half of its 500 processing centers around the country and dozens of local post offices, and lay off thousands of workers. The bill under consideration this week would delay closures and require studies to determine how best to proceed with any reductions in delivery.

Although those are laudable goals, they will not solve the fundamental problem: Congress assumes that this vital government service will somehow become profitable. In the midst of a long decline in the volume of mail, the demise of the Postal Service -- at least as a public institution with universal service throughout the United States -- often seems inevitable. Yet the critiques and suggestions offered as solutions for what ails the Postal Service see the problem only in terms of commercial and financial concerns.

The circumstances of the Post Office's founding suggest a far broader and more important mission: guaranteeing the sanctity of civic participation and political debate.

During the American Revolution, the post was a crucial point of contention between colonists and the Crown because it was the means for circulating not only correspondence but also newspapers, the lifeblood of intercolonial political cooperation. When British officials threatened the free circulation of news, newspaper publishers led the charge in 1774 to replace the British imperial system with a "Constitutional Post." Without a government structure, the post would be privately funded, but newspaper publishers and allies like the Boston Committee of Correspondence made sure that reliable, safe, and secure circulation of political intelligence was a primary function.

Shortly after Lexington and Concord in April 1775, the Continental Congress took up a post office as one of the earliest institutions of national reach -- making the U.S. Post Office older than the Navy, the Marines, and the Declaration of Independence. Congressional delegates therefore believed that ensuring safe communication throughout the colonies was vital to the colonies' efforts for military, political, and commercial unity.

The delegates to the Constitutional Convention of 1787 saw the operation of information channels as a core function of government: the power "to establish post offices and post roads" is one of the explicitly named grants included among the enumerated powers of Congress. At the same time, new political cleavages within the United States caused tension about the Post Office's role as an impartial circulation mechanism. During the debates over ratification in 1787 and 1788, some antifederalist printers accused the Post Office of suppressing their publications and arguments against the Constitution.

William Goddard, the mastermind of the 1774 "Constitutional Post," ominously suggested he would once again start his own postal system. The complaints of Goddard and other printers forced Congress to re-assert that the Post Office would circulate all news and information equally. In 1792, the new Federal Congress confirmed that promise in the first Post Office Act, setting the stage for a massive explosion in the newspaper industry and providing for the circulation of information to the far reaches of the country.

Understanding the core mission of the Post Office -- as part of a communications infrastructure for political debate and civic participation -- should lead us to reframe the questions we ask about the future of the USPS. Making changes to the USPS's structure are clearly necessary in order to ensure its ability to meet its obligations. But the historical context should lead us to ask much larger questions about government's role in protecting the free circulation of information. In the 18th century, the government committed itself to guaranteeing the free flow of information throughout the nation as part of a project to ensure mass participation in civic life, linking the Post Office with the protection of a free press.

The decline in mail volume points to a certain inevitability about the commercial success of the USPS. But more broadly we must carefully consider the value of publicly owned, freely available channels of communication. Should the Post Office cease to exist, we will lose the last public guarantor of free communication in the United States.

A B O U T THE A U THO R JOSEPH M. ADELMAN is a historian of the politics and media of the American Revolution. He is a National Endowment for the Humanities fellow at the American Antiquarian Society.

It’s Amazon’s World. The USPS Just Delivers in It

http://www.msn.com/en-us/money/companies/it%e2%80%99s-amazon%e2%80%99s-world-the-usps-just-delivers-in-it/ar-AAdHEQ1

In cities such as San Francisco and New York, letter carriers have been showing up on people’s doorsteps as early as 3 a.m. bearing unusual cargo: milk, eggs, and other perishable items. The U.S. Postal Service has been delivering groceries to customers of Amazon.com in selected areas since October 2014. “It’s just leveraging our infrastructure,” says Megan Brennan, who was sworn in as America’s 74th postmaster general in March, becoming the first woman to hold the job in the institution’s 240-year history. “We’re on people’s doorstep six days a week, seven days a week in some cases. It’s just a logical progression.”

A former letter carrier from Pottsville, Pa., Brennan is trying to transform the USPS into a delivery service for the e- commerce era. That means hauling fewer letters and more packages. It means showing up with them at once-unheard-of hours and even on Sundays. “Amazon is the first,” Brennan says. “But we’re obviously looking to get additional customers who are interested in that type of customized delivery.”
 

Brennan’s predecessor, Patrick Donahoe, announced in November 2013 that the Postal Service would do deliveries for Amazon seven days a week. Since then, the Seattle giant has assembled a network of more than 15 facilities where it sorts packages it then trucks to nearby post offices, so letter carriers can take them the rest of the way. Amazon said in a recent regulatory filing that it plans to build more of these sorting centers this year.

The USPS doesn’t disclose much about its relationship with Amazon, citing confidentiality agreements. Amazon didn’t respond to several requests for comment. David Vernon, an analyst at Bernstein Research who tracks the shipping industry, estimates the USPS handled 40 percent of Amazon’s volume last year—or almost 150 million items—more than either United Parcel Service or FedEx. He figures that Amazon pays the USPS $2 per package, which is about half what it would pay UPS and FedEx. Vernon says Amazon receives a deep discount from the USPS because the e- tailer does so much of its own processing—including providing computerized address lists to make it easier for carriers to tailor their delivery routes for faster drop-offs. “I think [Amazon’s] idea was, why give this volume to FedEx when we can just sort it ourselves?” Vernon says. “Because it’s not that hard.”
 

Brennan needs all the new business she can get. In 2014 first-class mail volume fell 3 percent compared with the previous year, to 64 billion pieces. Advertising mail, which some people refer to as junk mail, remained essentially unchanged. But the USPS’s package volume climbed 8 percent from the year before, to 4 billion items, and accounted for 20 percent of the agency’s $68 billion operating revenue.

Yet as its package volume rises, the USPS has had to invest in new equipment. Last year it spent $200 million to furnish its carriers with 270,000 Internet-connected handheld scanners made by Honeywell that enable them to provide real-time package tracking. “The Postal Service is far more technology-centric than most people would understand or believe,” Brennan says. The agency is also hoping to replace its fleet of 189,750 delivery trucks, most of which are 25 years old and not configured to hold packages. The USPS Office of the Inspector General estimates this will cost more than $5 billion.

These expensive upgrades come at a time when the USPS is essentially broke. It expects to lose $6.1 billion this year and as of late March had only $6 billion in cash, enough to keep running for 22 days. Brennan has been quietly calling on various political leaders and special-interest lobbyists in Washington whose support she needs to fix her troubled agency. A top priority: getting Congress to pass legislation that would require USPS retirees to use Medicare as their primary health insurance. This would eliminate the need to pay $5 billion a year to fund future retiree health benefits, as the agency is now required to do by law. It hasn’t been able to make the payments since 2011.

The USPS’s package growth gives Brennan something more pleasant to discuss with lawmakers and lobbyists than the inexorable decline of first-class mail. Even conservative Republicans, who object to proposals championed by U.S. Senator Elizabeth Warren(D-Mass.) and others for the USPS to get into new businesses such as banking, want to see the agency deliver more e-commerce-generated boxes. “Nobody ever said they shouldn’t be delivering packages,” says Jason Chaffetz(R-Utah), chairman of the House Committee on Oversight and Government Reform, which oversees the USPS.

Postal union leaders, who don’t always see eye to eye with management, are similarly enthusiastic.

“We’ve been trying to get the Postal Service to do this kind of thing for years,” says Brian Renfroe, director of city delivery for the National Association of Letter Carriers.

The USPS says it’s making Sunday deliveries for other companies, which it refuses to name. But it may be a while before Brennan lands another client as big as Amazon, which, besides the sorting centers, has 50 enormous distribution warehouses across the U.S. “The only company in America right now that has so many distribution centers purely for e-commerce is Amazon,” says Marc Wulfraat, founder of MWPVL International, a logistics consulting firm in Montreal. “Wal-Mart’s probably the next-biggest player with, say, six or seven, and it drops off real fast after that.”

In the meantime, the USPS is tethered to Amazon, a company that isn’t just a customer—it’s also a competitor. In cities such as New York and Washington, where the USPS is testing same- day delivery, Amazon offers a similar service. The e-tailer has its own AmazonFresh grocery delivery trucks. And it’s seeking permission from the Federal Aviation Administration to make deliveries using aerial drones. Given its gargantuan ambitions, Amazon could even recruit its own army of delivery people. But Brennan isn’t concerned about that. The last thing Amazon Chief Executive Officer Jeff Bezos probably wants to do now after building all those sorting centers is hire more than 300,000 men and women to carry packages like the USPS. Even in the age of Amazon, that’s the Postal Service’s undeniable edge.

The bottom line: The U.S. Postal Service handled an estimated 40 percent of Amazon’s deliveries in 2014.