A Bailout for the U.S. Postal Service?

December 27, 2010

Imagine a company that reported losses in 14 of the past 16 quarters, has too many retail outlets by its own admission, and relies heavily on work done for its two biggest competitors for revenue.  Any management consultant would recommend the obvious: Close unnecessary offices, lay off workers, expand into new lines of business and raise prices.  But this is the U.S. Postal Service (USPS), says Angela Greiling Keane.

Postmaster General Patrick R. Donahoe is charged with fixing the mess.

  • Donahoe told bulk mail customers on Nov. 18 that the service's costs will exceed revenue by $2.7 billion, even after borrowing $3 billion from the U.S. Treasury, the annual legal limit.
  • Total debt, now $12 billion, by law can't exceed $15 billion.
  • Revenues in fiscal 2010 were $67 billion.

The USPS's problems are well known:  

  • More customers are paying bills online and choosing FedEx and United Parcel Service (UPS) to send overnight packages.
  • Labor and retiree health care costs are exploding -- the service has a $50 billion obligation to its retiree health fund and is in a dispute with Congress about who should pay that balance.

The service spends 78 percent of its budget on salaries and benefits, higher than either FedEx's 43 percent or UPS's 61 percent.  The American Postal Workers Union, the larger of the postal unions, is resisting further cutbacks and instead wants to "restore work that has been outsourced or given to supervisory personnel," union President Cliff Guffey said in a Dec. 1 statement.  The best hope may be that volume climbs for the USPS's two biggest customers, FedEx and UPS, which use the service for last-mile delivery, since mail carriers go to all 151 million U.S. addresses six days a week -- at least for now, says Keane.

Source: Angela Greiling Keane, "A Bailout for the U.S. Postal Service?" BusinessWeek, December 9, 2010.

For text:

http://www.businessweek.com/magazine/content/10_51/b4208033645172.htm

 

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