Can the US Postal Service Continue to Operate at a Loss?

File:USPS-Mail-Truck.jpgThe US Postal Service is projected to lose $5.5 billion during 2014, despite increasing operating revenues by more $569 million thanks to a January rate hike and the continued strong performance of its package handling group.

But can the world’s oldest and most reliable postal service continue to operate at a loss, especially when fewer people use “snail mail” for to send letters and pay their bills and while competitors in the package delivery area — such as FedEx and UPS — aggressively seek to increase their market share?

Eight Years in the Red

This year was the eighth consecutive year that the postal service operated in the red. And the coming year doesn’t look much better, with the system facing a $5.7 billion pre-funding requirement for its Postal Service Retiree Health Benefit Fund and an estimated $1.2 billion in non-cash workmen’s compensation.

Another challenge will be a leadership change. The current postmaster general, Patrick R. Donahoe, announced last month that he was stepping down. He will be replaced by the USPS’s current second in command, Chief Operating Officer Megan Brennan.

The coming year could be a make-or-break year for the postal service, which has scrambled to adjust to a new, rapidly-changing environment. In just the past decade, we have seen near-universal Internet access and the widespread affordability of access devices like smart phones and tablets.

Online bill pay and e-Commerce have permanently altered the way business is conducted in the US and around the world. Will the postal service be able to adapt quickly enough to preserve market share and stem the bleeding?

Unlike Other Service Providers

While no company can afford to lose more than $5 billion in a single year and not feel the heat, the postal service benefits by being a federal agency. As a result, there are no angry stockholders screaming for the heads of its top management. It’s also a treasured part of US history and tradition, so most taxpayers — who ultimately end up holding the bag when the agency loses money – are reluctant to approve of any drastic action, such as dismantlement or even major reductions in service.

And, in fact, despite this year’s $5.5 billion loss, there were some bright spots on the postal service’s report card in 2014:

  • Operating revenue rose from$67.2 billion to $67.8 billion. And if a one-time adjustment in 2013 is taken into account, actual operating revenues rose by $1.9 billion this year.
  • The USPS’s shipping and package services volume grew by nearly 300 million pieces in 2014, and is expected to grow even larger next y year due to the announcement that the postal service will actually lower prices for many consumer packages. The agency also has stated that it won’t be using the new, higher “dimensional weight” pricing that its competitors in the private sector will use beginning next year.
  • ¬†While operating expenses increased from $72.1 billion in 2013 to $73.2 billion this year, this included a non-cash adjustment for interest rate changes associated with workers’ compensation that caused $2.2 billion of the increase year over year.

New Leadership, New Challenges

Brennan, a 28-year-veteran of the postal service, faces enormous challenges in her new role as the nation’s first female postmaster general, including the service cuts, a reduction in service standards such as the targeted number of days it takes to haul mail to a given destination, and the closing and consolidation of 82 mail processing and distribution centers in January. The proposals are expected to save the agency $20 billion over the next several years.

But will it be enough to safe the US Postal Service? Only time will tell.