How the U.S. Postal Service Could Save Itself

Postage stamp prices are set to rise, but the USPS really needs to do this to remain viable

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As for the impending price increase for first-class stamps, let’s give it a pass. Sorry, but if a consumer can afford 46 cents, he or she can afford 49 cents. Mass mailers are allegedly going to be on the hook for a little more of a price increase, but again, advertisers and magazine publishers aren’t going to close shop just because delivery expenses grew more than a tad.

Higher postage prices aren’t going to make a big dent in the problem, though. Where the USPS could really work its way back to viability is (ironically) the one area where it thinks it’s not particularly well-positioned … package delivery.

As it stands right now, only about 17% of the Post Office’s revenue is driven by package delivery. The USPS handled 3.5 billion packages in 2012, generating $11.6 in revenue for its effort. FedEx generated $44.3 billion in revenue last fiscal year doing the same thing, and UPS hauled in $54.1 billion.

It’s tough imagining the Postal Service catching up to those two private companies in terms of package delivery, but it can — it’s just going to take work, and an adoption of the service mentality that UPS and FedEx currently encourage. But the framework for a high-caliber parcel delivery service is in place.

For those intimately familiar with the Post Office’s operation, a concern immediately arises with that idea — first-class letters are immensely more profitable than package delivery. For every dollar of first-class letter revenue the Post Office loses, it would need to add $3 in package delivery revenue to generate the same profit. That’s a tall order. Then again, the USPS is fighting for its life in a world that has a lot of other delivery options. This isn’t the time for the organization or its employees to get picky about how the Postal Service works its way back to relevancy.

The U.S. Post Office also needs to consider raising prices on some of its parcel shipping services.

That seems counterintuitive if it wants to be more competitive with UPS or FedEx. But think about this — both of the privately run shippers will sometimes use the Post Office to handle some or part of some of its deliveries. Why? Because it’s cheaper than doing it themselves!

To the United States Postal Service: If your competition is hiring you to do their work and (presumably) still turning a profit, you can charge a little more.

A lot of other things need to fall into place for the United States Postal Service to get back on its feet, beginning with a little less contempt for customers. But given how package revenues are projected to grow 28% by 2017 while letter delivery revenue is expected to fall nearly 18% for the same time frame, it’s time for the postal system to make changes bigger than the routine stamp increase.

As of this writing, James Brumley did not hold a position in any of the aforementioned securities.


Article printed from InvestorPlace Media, http://investorplace.com/2013/09/how-the-us-postal-service-could-save-itself/.

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