Postal Service loses money despite customer growth
What business gets more customers every year, yet keeps losing money?
The U.S. Postal Service delivers mail to 11 million more homes, offices and other addresses than it did a decade ago, even as the amount of mail that people in the United States receive has dropped sharply.
That combination may be financially dicey, some analysts say.
"The more delivery points they have to service, the higher their costs" in fuel, time spent, etc., says Rick Geddes, associate professor in Cornell University's department of policy analysis and management.
"But it doesn't mean their revenue goes up — it doesn't necessarily mean people are mailing more stuff," he says.
Indeed, the volume of mail has decreased steadily as people stay in touch with email, Facebook and other electronic services more. Total mail volume handled by the financially shaky postal agency dropped to 160 billion pieces last year from its all-time high, 213.1 billion in 2006. Revenue fell to $65.2 billion last budget year from a high of $74.9 billion in 2008.
The cost of delivery is the agency's largest fixed expense. It takes tens of billions of dollars a year and 300,000 people, or 60 percent of the agency's workforce, to handle deliveries, says Postal Service spokeswoman Sue Brennan.
The service isn't losing money on delivery, but adding addresses while losing volume is an issue, she says.
"In 2007, we could deliver 10 or 15 pieces of mail to a house and we were making a lot of money just because the volume was so high," Brennan says.
Those times have ended, but the mail carrier is still required to go to every address, six days a week, whether taking 15 pieces there or one.
The number of new addresses had been rising by roughly 2 million almost every year since 1989, but was cut in half to 1 million or less annually during the recession and housing crisis this decade.
With the economy improving, the constant march upward in the number of places the postman has to travel is expected to accelerate. The Commerce Department reported last week that spending on home construction rose in February to the highest level in more than four years and also was up for office construction and health care facilities.
Some analysts see more addresses as an opportunity for the Postal Service as long as the agency can adjust to changing times and demand.
Scott Van Derven, a letter carrier of 30 years, says he expects to see a couple thousand new delivery points on his downtown Milwaukee route in the next year. Projects that stalled when the housing bubble burst are starting to go forward now — new buildings will go up and old industrial ones will be turned into apartments or other housing he believes will draw young professionals.
Van Derven envisions bringing them mail sacks full of professional magazines and catalogues from home furnishing stores as they decorate their new homes. And he predicts more packages in his future — lots of packages, which are the Postal Service's fastest growing business because more people are buying things online.
Also, he says, "the people in this age category go crazy for electronic stuff and it comes through the Postal Service."
It's not just a matter of mail volume and the number of addresses, but also where the increase is and what type of delivery is used.
Urban renewal of the kind Van Derven is talking about means he'll be able to service hundreds of mailboxes with one stop, in an apartment building lobby, for example. That's faster and cheaper than repeated door-to-door stops required by thousands of single-family houses spread across suburban sprawl.
The agency has been able to hold down delivery costs by convincing more business parks and shopping malls over the years that customers should pick up their mail at a centralized spot on the site, rather than having it delivered to individual businesses.
Some housing subdivisions, likewise, now have "cluster boxes" that stand in a central spot to serve groups of homes.
A huge time savings also has come from investment in machines that sort piles of mail. Carriers once spent several hours daily manually arranging mail before they went out to their routes. Now they spend perhaps a half hour in the post office and the rest of the time on delivery, meaning routes have become longer and fewer carriers are needed even as addresses increase.
But all this is not the postal service's biggest financial headache.
The majority of the service's nearly $16 billion loss last year stemmed from a 2006 law Congress passed forcing it to pay into future retiree health benefits, something no other agency does. That was $11.1 billion of the year's total loss.
An independent agency, the service gets no tax dollars for its day-to-day operations but is subject to congressional control. Many analysts lament that it has to manage 500,000 employees, a fleet of 212,000 vehicles and thousands of pieces of automated equipment but is not allowed to make what they say are typical business decisions.
"Congress should give the agency authority it needs to act like a real business," says Geddes, the Cornell professor, meaning respond to customer demand by controlling prices and adjusting levels of service when needed.
Postmaster General Patrick Donahoe announced a plan for that in February, saying he'd save perhaps up to $2 billion annually by cutting Saturday delivery of first-class mail starting in August but continuing six-day delivery for its growing package service.
Some lawmakers agree Donahoe should put in place the Saturday plan; others say he doesn't have authority to do it unilaterally. Some want the agency to put off eliminating Saturday service for at least two years while it tries more aggressive cost cutting.
What to do next is the most pressing matter before the agency's board of governors.
"We tend to view the post office through these antiquated lenses and we don't realize that it's one of the biggest distribution mechanisms in the history of the planet, very technologically sophisticated," says Columbia University professor Richard John, who specializes in communications and has authored books on the postal agency.
John believes Donahoe should be given "some leeway to experiment."
"It's not a line item in the federal budget and the postmaster general and his staff are constrained by Congress in a variety of ways," he says.
"This explains why the post office is such a strange creature."