USPS could default on life raft loans in October
I ran across an interesting piece in Bloomberg this week that talked about the mounting concerns surrounding the United States Postal Service.
The piece begins in a rather sarcastic fashion, naming three “remarkable facts” about the USPS, including:
1.) Its workers have no-layoff contracts
2.) No post office can be closed solely because it loses money
3.) As revealed by Bloomberg Businessweek, the postal service is so dependent on low-profit junk mail for revenue that it has its marketing officer lobby to banks to not switch to electronic statements
Those are pretty substantial facts that are more than likely contributing to the postal services’ downfall. Last year, the USPS lost $8 billion, and was kept alive by a $15 billion loan from the Treasury. With problems continuing to arise in 2011, the USPS is in danger of defaulting on those loans in October.
There are many inherent problems with the USPS, beginning with total mail volume. Thanks to homegrown delivery stars UPS and FedEx and the movement to paperless, online services, total mail volume has fallen 20 percent between 2006 and 2010.
According to Bloomberg, the biggest drop has been in first-class mail, the USPS’ most profitable type.
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Postmaster General Patrick Donahoe has floated the idea of closing nearly 4,000 of the nearly 32,000 USPS branches around the country, but that plan would only save an estimated $200 million.
As Bloomberg notes, however, closing branches “doesn’t get to the root of the fiscal problem.” Thanks to increasing salaries and a cushy benefits program, 80 percent of the USPS budget is spent on employee compensation. Compare that cost to workers for UPS (61 percent) and FedEx (43 percent) and its clear-cut why the USPS is in so much trouble.
Bills have been sponsored by politicians calling for measures such as branch closures, an end to Saturday service and an increase in employees pay toward health care and life insurance.
Something has got to be done regarding the USPS, as the government-run entity is clearly outdated and needs an overhaul. What the changes will be at this point are anybody’s guess, but Postal Services budget cuts appear to be on the horizon.