The Post Office Lost $2 Billion In Just 3 Months

http://www.huffingtonpost.com/2014/08/11/post-office-losses-usps-losing-money_n_5669173.html

The U.S. Postal Service continued to bleed money during its second quarter, despite an increase in package revenues and an emergency price hike that took effect in January.

The agency said on Monday that it lost $2 billion from April to June, compared with a net loss of $740 million in the same period last year, and a $1.9 billion loss in its first quarter.

An increase in its shipping and package business helped the agency see a 2 percent rise from last year in its total operating revenues to $16.5 billion.

USPS has focused on its shipping and package business and expanded to Sunday package delivery as more people shop online and need a service to deliver their purchases. Shipping and package revenue jumped 6.6 percent, compared with the same period last year.

The volume of its most profitable product, first-class mail, fell 1.4 percent as more people communicate electronically, but the temporary rate increase helped offset the losses by bringing a 3.2 percent rise in revenues for that product. The rate increase is a temporary measure to mitigate the effects of the recession.

The jump in losses was largely due to a $1.5 billion increase in operating expenses as a result of workers compensation payments, the agency said.

USPS blames much of its financial troubles on a 2006 mandate to stow away billions of dollars for its future retirees' healthcare. The Postal Service already defaulted on three of its payments into the fund and does not expect to make the next $5.7 billion installment due September 30.

Because of continued losses, the agency also said, it has not been able to update its fleet.

"To continue to provide world-class service and remain competitive, we must invest up to $10 billion to replace our aging vehicle fleet, purchase additional package-sorting equipment, and make necessary upgrades to our infrastructure," said USPS Chief Financial Officer and Executive Vice President Joseph Corbett.

USPS and postal unions have so far failed to coax U.S. lawmakers to allow it to modify its business, including eliminating or modifying the future retirees' health fund.

The agency also wants Congress to authorize it to limit door-to-door delivery and to cut Saturday mail delivery, but those plans have been blocked by some unions and lawmakers who say it would hurt their communities.

Despite the red ink, the latest announcement showed an improvement from 2012 when USPS lost $15.9 billion that year.

Many in the industry point to these improvements as a sign that the agency does not need to make the drastic service cuts it has sought.

"Given the positive mail trends, it would be irresponsible to degrade services to Americans and their businesses, which would drive away mail - and revenue - and stop the postal turnaround in its tracks," Fredric Rolando, president of the National Association of Letter Carriers, said in a statement.

For FedEx and UPS, a Cheaper Route: the Post Office

http://online.wsj.com/articles/u-s-mail-does-the-trick-for-fedex-ups-1407182247

Agency Stretches to Handle Business From Express Couriers; Is the Price Right?
           

 

FedEx and United Parcel Service increasingly are moving their own packages through the U.S. Postal Service, putting pressure on the quasigovernmental agency and raising questions about whether the USPS is charging enough for the service.

 

For FedEx alone, the post office delivers an average of 2.2 million packages a day, or about 30% of the express-mail company's total U.S. ground segment.

 

UPS won't specify how much of its shipments go through the post office, but a regulatory filing indicates those types of lightweight shipments accounted for 40%—or about 37 million packages—of its total increase in ground shipments in 2012.

 

The post office is lapping up the extra package-delivery business from its private-sector rivals because it badly needs growth. In the past decade, it has lost more than 30% of its most profitable product—first-class mail—to the Internet.

 

"We've been focusing a lot of efforts on package growth, because that's the biggest opportunity for us," said Postmaster General Patrick R. Donahoe.

                                         

But the flood of these packages has begun to tax the system, and it has raised questions about whether the USPS is charging enough for its service. Even as UPS makes use of the USPS, a UPS executive on the company's earnings conference call last month questioned whether the Postal Service is unfairly cross-subsidizing certain products to offer lower prices.

 

Both UPS and FedEx rely on the postal office for the back-end of their cheaper two- to seven-day delivery options, Smartpost for FedEx and Surepost for UPS. Amazon also uses the USPS and enlisted it for Sunday packages to the Postal Service, analysts say. FedEx Smartpost volume dropped 8% in the quarter ended in May, FedEx reported.

 

Neither the Postal Service nor these big customers will reveal contract terms. "There should be more transparency" to make sure the agency is properly compensated, says Mark Jamison, a retired Postmaster from North Carolina, a frequent critic.

 

Mr. Donahoe says the criticism is unwarranted. "We make money on it. We wouldn't do it if we didn't make money on it," Mr. Donahoe said.

 

Postal carriers are already delivering to every mailbox, so transporting the presorted packages doesn't add significantly to costs, he said.

 

Rates have increased 27% from an average of $1.35 in revenue per package in 2012, according to postal filings.

 

First-class mail still accounts for nearly half of the USPS's revenue, while standard mail, such as advertising and circulars, account for about 25%. Packages—including those from FedEx and UPS—account for about 20% of the post office's revenue but are the fastest-growing, averaging 7% annual revenue growth the past four years.

 

The Postal Service is aiming to more than double its package-delivery business within a few years, Mr. Donahoe said.

 

The post office, established in 1775 to enable secure communications during the Revolutionary War, was designed for letters, not packages, and it is aging. About 140,000 of its 200,000 mail vehicles are more than 20 years old. The service also isn't nearly as automated as FedEx and UPS.

 

At FedEx and UPS, packages typically are automatically scanned on belts that deposit them directly to designated delivery vans. At local post offices, by contrast, mail carriers often sort packages manually and carry them to their trucks. Shelves to stack packages have been squeezed into tiny delivery trucks. The number of career postal employees has declined nearly 30% over the past seven years, and some mail carriers tend their routes twice a day, once with letters and once with packages.

 

To accommodate the growth, Mr. Donahoe plans to invest $10 billion over the next four years for improvements, including buying new vehicles, retrofitting old ones and upgrading package-sorting equipment.

 

It is unclear how the post office will finance growth, as it is chronically short on funds. Because the Postal Service has enough cash on hand for only about two weeks of operations, Mr. Donahoe is counting on Congress to pass a proposed bill that would give the Postal Service more financial flexibility, with options like cutting Saturday letter delivery. The Postal Service reached its $15 billion credit limit with the Treasury Department in 2012.

 

Under law, the USPS must pay its own way. It generated $67.3 billion in revenue in 2013, $7.5 billion of which came from selling stamps. It doesn't receive an annual taxpayer subsidy, but is reimbursed by Congress for some services such as delivering mail to the blind and overseas voters.

 

The USPS has generated about $1 billion in operating profit so far this year, but that is before its approximate $5.5 billion required annual contribution for retiree benefits.

 

There is little margin for error. If it misjudges its capacity or financial strength, it could end up with too many packages to deliver, compromising mail service. "Without significant structural changes, we will…continue on a path that will lead to insolvency and a government bailout," the postal service warned this summer.

Put your money where your mail is

http://www.economist.com/news/finance-and-economics/21601026-americas-postal-service-ponders-foray-financial-services-put-your-money

America’s postal service ponders a foray into financial services

Apr 19th 2014            

WITH a workforce of just over 491,000 in 2013, the United States Postal Service (USPS) is second only to Walmart among civilian employers in America. But it still employed more than 200,000 fewer people last year than it did just nine years earlier—when it handled nearly 500m more pieces of mail and had almost 2,000 more retail offices. The rise of e-mail has left America’s massive postal service with far less to do, and it has been scrambling to find ways to raise revenue.

Earlier this year its inspector-general released a white paper suggesting that post offices should begin offering financial services, such as cheque-cashing, small loans, bill payments, international money transfers and prepaid cards to which salaries or benefits could be transferred. The reasoning is simple: a lot of Americans have scant access to banks and a lot of post offices have too little to do.

More than one-quarter of American households are unbanked or underbanked, meaning they either lack a current or savings account, or they have one but still use alternatives to banks such as cheque-cashers and payday lenders. That is an expensive habit: the average underbanked household has an annual income of only $25,500 or so, yet spends around 9.5% of that on fees and interest charged by these banking substitutes.

High-street banks find it hard to make money serving poor customers, since they tend to have little money on deposit that the banks can lend out. Penalties such as overdraft fees are not always enough to compensate. Since 2008, 93% of bank-branch closings have come in areas where median household income is below the national average.

These are the distressed customers to whose rescue the USPS hopes to ride. Some 59% of its post offices are in places with either a single bank or none at all. In rural hamlets they are often one of very few commercial establishments; even in the postal service’s diminished state, there are still more than seven post offices for every Walmart in America. Post offices already sell money orders and provide electronic remittances to nine Latin American countries; from 1911 to 1967 the USPS also held personal deposits. Providing small, brief loans at lower interest rates than payday lenders (not a hard thing to do, since annual rates on payday loans can exceed 800%) could save low-income consumers hundreds of millions or even billions of dollars in interest and fees. The post office would compete not with banks, but with their more expensive stand-ins.

Some, notably the head of the committee of the House of Representatives that oversees the USPS, are unconvinced. They see the postal services’ expansion into financial services as government overreach, and a delay of the necessary “right-sizing” of a massive agency that does far less than it used to. Jennifer Tescher, who heads a charity focused on the underbanked called the Centre for Financial Services Innovation, notes that the USPS “has zero capacity, understanding or capability in this arena”. “The only asset they bring to the table”, she believes, “is distribution.” Even that is of limited value outside rural areas: Ms Tescher notes that just because a spot lacks bank branches does not mean it has no cheque-cashers and corner shops selling prepaid cards—many with longer and more convenient opening hours than the post office.

Although turning the USPS into a part-time financial institution may seem outlandish in America, roughly 1 billion people in 50 countries rely on their postal systems for financial services, according to the Universal Postal Union, the United Nations agency that helps the post arrive on time. The business models vary widely. In some countries post offices act as a payment centre, allowing people to receive remittances, pay bills and top up or tap money stored on their mobile phones. Some operate full-service banks: Japan Post, for instance, is one of the world’s biggest. In other countries, such as Brazil, commercial banks form partnerships with post offices; in Malawi private banks can rent space from post offices.

A World Bank study found last year that postal banks are likelier than conventional ones to provide accounts to those outside the financial mainstream. The bigger the postal network, the greater the ability to reach such people. That may not convince those who would like to see the USPS shrink, but for those who want to preserve it, it could help to justify its scale.

Ben Franklin Would Love to Send Letters From Staples

http://www.businessweek.com/articles/2014-03-17/ben-franklin-would-love-to-send-letters-from-staples

Isn’t it ironic that the U.S. Postal Service selected a retail partner whose business is almost as troubled as its own? That was the key point in a clever piece by New Republic’s Alec MacGillis condemning the plan to open outlets in Staples (SPLS) stores. USPS lost $5 billion last year, which is why it is eager to boost its revenues by opening retail outlets in Staples. The retail chain isn’t doing much better. Earlier this month, following dismal sales, Staples announced that it was closing 225 stores.

Even if Staples weren’t in trouble, it’s unlikely MacGillis would support the USPS in this case. He argues that opening post offices in stores is likely to lead to long lines in existing postal facilities. ”The postal service management [has] decided they’d rather have you head off in search of a Staples, somewhere out there in the big-box jungle,” he writes. “That is, if there’s even a Staples left standing in your neck of the woods. Somehow, I doubt this is what Ben Franklin had in mind.”

Franklin, the nation’s first postmaster general, might not like the idea of poor service, but he would have no qualms about opening post offices in stores. In Franklin’s day, there were no free-standing post offices. Almost all of them were all located in taverns and coffee houses. In that sense, the latest USPS plan is more keeping with his original vision than its critics might care to admit.

Indeed, opponents of the USPS reform efforts often evoke Franklin’s name. They suggest that the USPS shouldn’t alter or reduce its operations because it was founded by one of the signers of the Declaration of Independence, and the current system is somehow what he had in mind from the start.

That’s not true. It was cheap to send newspapers through the mail in the early days of the American post office, yet letters were so expensive that most Americans rarely bothered. That didn’t change until 1845, when Congress threw out Franklin’s old pricing system and introduced cheap uniform letter pages. There was no home delivery back then—unless you paid extra for it.

There’s a larger point to be made here. Throughout its 238-year history, the American postal service has changed a lot. Now it needs to transform itself yet again, so it can survive in the digital age. The Staples plan may have drawbacks, but it’s similar to what forward-thinking postal services in such countries as Sweden and Germany have done to reduce costs as mail volume falls because of the Internet.

In fairness, MacGillis acknowledges that the USPS needs to change with the times. He applauds it for striking a deal last October with Amazon (AMZN) to delivery the Web retailer’s packages on Sunday. He might want to reconsider the Staples plan, especially since he’s so eager to drop Ben Franklin’s name.

Why Republicans Love Obama's Post Office Plan

http://www.businessweek.com/articles/2014-04-09/why-republicans-love-obamas-post-office-plan

Representatives from the Obama administration can usually expect a chilly reception, at best, when they testify before U.S. Representative Darrell Issa (R-Calif.) and his fellow Republicans on the House oversight committee. But Brian Deese, deputy director of the White House Office of Management and Budget, got just the opposite on Tuesday.

Deese appeared before the committee to discuss the president’s postal reform proposals in his 2015 budget. Rather than attack, Issa and company emphasized how the White House plan harmonizes with their own effort to fix the troubled USPS, which reported a $5 billion loss last year.

The House Republicans are especially agreeable when it comes to ending Saturday letter delivery. “The administration’s proposal includes giving [the Postal Service] the authority to move to five-day delivery,” Deese testified. “It’s our belief that this needs to be part of a comprehensive and balanced plan.”

“Right,” replied Issa. “We concur with that. Would you say the president’s proposal in the budget would be considered comprehensive?”

“Yes, sir,” Deese said. “We believe that the proposal we put forward is comprehensive and balanced.”

The friendly banter continued when the topic turned to whether the USPS should continue to prefund its future retiree health-care benefits. Since 2011 the agency has defaulted on its annual $5 billion prepayment, which is one of the reasons why its overall numbers have been so terrible.

Some Democrats and their allies in postal union circles have made the dubious argument that the prefunding requirement is the primary cause of USPS’s fiscal troubles. If eliminated, they contend, the agency’s fiscal woes would largely be over. That’s not how the White House or the Republican oversight committee members see it. They fear that the USPS, which has lost more than 25 percent of its volume since 2008, might eventually need a taxpayer-funded bailout to make good on its long-term obligations.

Essentially the White House and the Republicans would both like to stretch the prefunding payments out over a much longer period so the payments are more affordable. “I like to tell postal workers who complain about this, ‘Don’t you want to be sure there’s money there for your health coverage?’” said Republican Representative Blake Farenthold of Texas. Deese agreed: “To the degree that prefunding is financially viable, it is a wise financial decision.”

This left Democrats on the committee in the awkward position of attacking a plan put forward by the leader of their own party. “I believe the mail should be delivered on time every day, including Saturday,” said Representative Carolyn Maloney, a Democrat from New York. Representative Gerry Connolly (D-Va.) pointed out that he has introduced a bill that has 210 co-sponsors, including some Republicans, to preserve Saturday delivery. “Good luck in trying to persuade Democrats into five-day,” he said.

Perhaps. But the White House and House Republican leaders such as Issa are much closer on postal reform than they were last year when Connolly introduced his bill. The Virginia Democrat might want to check with his allies and make sure they’re still on board.

Four Reasons the Government Isn’t Going to Sell Off the Post Office

http://origin-www.businessweek.com/articles/2014-03-25/the-u-dot-s-dot-postal-service-will-not-go-private-anytime-soon

If you believe Democratic politicians and their allies in the labor movement, Postmaster General Patrick Donahoe has a barely concealed agenda to privatize the U.S. Postal Service. Donahoe “can say whatever he wants,” Montana Senator Jon Tester told the Washington Post, “but I think he wants to privatize.” Why else would Donahoe be so eager to cut costs at the USPS? He’s trying to push the post office to the brink of collapse so there will be no choice but to sell the 238-year-old government mail service. Or so goes the theory.

But this line of thinking doesn’t make sense. There’s no chance the USPS will be privatized anytime soon, and here’s why:

1. The postmaster general thinks it’s a bad idea. Really. “The privatization discussion is a ruse,” he told CBS News. “We have no interest in privatizing the Postal Service.” Donahoe has also called privatization “a crazy idea.” Cynics dismiss these statements. But they should take him at his word.

This is a guy who’s been working at the USPS since 1975. He’s a loyalist who believes the Postal Service is a noble and critical public institution. Donahoe could have departed years ago and made more money in the private sector, but instead he’s stuck around trying—naively, you might say—to revive it. “You have a sense of service to the American public,” he told me last year. “They’re our customers. You get on an airplane; everybody on that airplane is my customer. I have a lot of responsibility to the employees.”

2. Its biggest users aren’t pushing for it. Chet Dalzell of the trade magazine Target Marketing asked catalog companies and other businesses that depend on the mail to consider what it would take to privatize the Postal Service, and they were dismissive of the idea as a solution to the USPS’s financial woes. Hamilton Davison, president of the American Catalog Mailers Association, told the publication: “I doubt America will ever decide on full privatization. There are too many complications.” Davison said he could envision the USPS eventually farming out some of its duties if Congress continues to obstruct Donahoe’s efforts to get the agency’s finances in order: “Greater outsourcing, or even licensing, of its functions to third parties is a realistic alternative.”

“I believe it will be very difficult to privatize USPS at the moment,” Peggy Hudson, executive vice president in charge of government affairs for the Direct Marketing Association, said in the Target Marketing article. “It is a 60-plus-billion-dollar annual operation, but it is facing declining demand. That declining demand forecast makes it difficult to see USPS privatized.” In other words, who would want to buy a government agency that reported a $5 billion loss in 2013?

3. Not FedEx or UPS. Some who believe Donahoe has a secret agenda have suggested either FedEx (FDX) or United Parcel Service (UPS) would eagerly step up to buy the USPS if only the postmaster could concoct a means of putting it up for sale. That’s laughable. The two companies are joined at the hip to the agency. FedEx has a contract to fly the Postal Service’s express mail; UPS relies on the USPS to deliver some of its packages. And neither of these profitable, publicly traded companies has expressed on the record any inkling of interest in taking on the daunting, money-losing burden of visiting every doorstep in the country six days a week.

“I know I’ve met a lot of people over the years who say, ‘We wanted you guys to do this thing. We wanted you to do the mail,’” UPS Chief Executive Officer Scott Davis told me in August. “And the answer is universal service. You have to match price with cost to serve. You cannot charge 46¢ to deliver a letter by snowmobile in Alaska and make it work.”

4. Postal worker unions are dead set against it. Don’t discount the political power of the four postal worker unions. They’re among the largest donors to the Democratic Party, they’ve been able to keep Donahoe from ending Saturday mail delivery, and they’ve done a masterful job of building opposition (PDF) to his plan of opening post offices inside Staples (SPLS) stores. Part of that campaign has been to label Donahoe a “privatizer.”

The U.S. Postal Service Tests Same-Day Delivery

http://www.businessweek.com/articles/2014-02-13/the-u-dot-s-dot-postal-service-tests-same-day-delivery

Shante Sapp lingers outside an office building on 14th Street in Manhattan. She’s scheduled to pick up some packages from a photography company inside. She rings the doorbell, but there’s no response. “I don’t know why no one’s answering,” she says, her anxiety rising.

A 27-year-old U.S. Postal Service letter carrier, Sapp works for Metro Post, the agency’s attempt to launch same-day package delivery. Local businesses that sign up can pay the Postal Service a fee to pick up a package in the afternoon and have it delivered to a customer in the city by evening. Sapp has to rush two framed photographs to people in different parts of town and is itching to get a move on. Finally, someone buzzes her in. Soon she’s weaving through traffic again in her white postal van.

“Everybody likes getting packages,” Sapp says. “But these are packages that people really want.”

Launched in December, New York Metro Post is still a test-tube-size experiment. There are just five letter carriers making same-day deliveries in the city. The USPS is cagey about details—it won’t say how many businesses have signed up or how much it charges customers for each package. It may be wary of calling too much attention to the service. New York is its second try at same-day delivery.

The first pilot program, in San Francisco in 2013, was a flop, and postal officials said it will be suspended in March. According to a report by the USPS Inspector General, San Francisco Metro Post signed up six customers and delivered 95 packages in five months. The agency is deliberately keeping the experiment small, in part to keep its many detractors on Capitol Hill from piling on if it’s not a success. “You could spend millions of dollars,” says Gary Reblin, USPS vice president for new products and innovation. “If it doesn’t work, that’s a big loss. Our exposure is a lot less this way.”

Despite Metro Post’s rocky start, the Postal Service considers it an important test of its ability to adapt and survive. The agency lost $5 billion in 2013 as overall mail volume—and first-class letters in particular—continued to drop. The number of packages it handles nationwide is rising, however, largely because of online shopping. On Feb. 7, the agency boasted that in the last three months of 2013 it delivered 1 billion packages, up 10 percent from the same period the year before. Revenue rose by 14 percent, to $3.4 billion.

Metro Post is all about shifting the agency’s focus from dying first-class mail to package delivery of all kinds. Last November, USPS announced an agreement to deliver packages for Amazon.com (AMZN) on Sundays in New York, Philadelphia, and Los Angeles, among other cities. The Sunday service has taken hold much more quickly than daily deliveries. The USPS says it’s transported more than 2.5 million packages for Amazon so far.

In the past few years, big-name retailers have launched their own same-day delivery services. Amazon, EBay (EBAY), Wal-Mart Stores (WMT), and Google (GOOG) all offer some form of near-instant gratification for customers in various cities. The USPS envisions ultimately providing businesses with the ability to compete with their larger online rivals. To do so, it has to free itself of decades-old union rules that discourage letter carriers from working odd hours.

Metro Post employees, and those who deliver packages on Sunday for Amazon, are part of a new class of postal workers called City Carrier Assistants. They’re members of the National Association of Letter Carriers, but they make an average hourly wage of $16, compared with a veteran letter carrier’s average pay of $27 an hour. The USPS can require Metro Post employees to work evenings and Sundays, when traditional carriers would be reluctant to step in. Union leaders encouraged the move as a way to make the Postal Service more agile. “They are new, they are young, and they are excited to be doing this,” says Jesse Garrett, a USPS customer-service supervisor who oversees Metro Post and Sunday delivery in Manhattan.

It’s too early to tell whether Metro Post will take off in New York. Garrett says on its biggest day yet, his staff delivered 68 packages. That’s a far better showing than the failed San Francisco version. “It was a rushed pilot—they announced it, but it wasn’t really ready to go,” says Jim Sauber, chief of staff of the letter carriers’ union. “Sometimes you learn more from the failures than the successful ones.” (The USPS says it intends to eventually revive that city’s delivery service but doesn’t say when.) Garrett says he’s told all his friends in New York about Metro Post: “This is the first time I could tell them that there’s something about my job that was cool.”

Story: The Senate Can't Part With Saturday Mail Delivery

Video: Can Bitcoin Save the Post Office?

Story: Australia Post Asks If Customers Would Pay A$30 a Year for Mail Delivery

The bottom line: The Postal Service’s pilot Metro Post program lets New York businesses offer customers same-day delivery.