The U.S. Postal Service’s future is bleak. With mail volumes having dropped more than 20% over just the past five years, radical change is coming to the USPS.
Like many other giant companies that confront a rapidly shrinking market, the USPS is “discussing restructuring options with potential advisers,” according to Bloomberg News. Among those advisers are Moelis & Co., Rothschild and Perella Weinberg Partners. But USPS, which could run out of money on Sept. 30, 2012, is already in the midst of a major overhaul: It has announced plans to slash 220,000 jobs by 2015 and shutter as many as 3,700 post offices. Clearly, there’s more to come.
For the year ended Sept. 30, the USPS reported a $5.1 billion net loss. The only reason the loss wasn’t even more massive was that the Postal Service delayed a $5.5 billion retiree health care payment until 2012.
With its projected loss of $14.1 billion for the current fiscal year, there’s no way that the USPS would have avoided bankruptcy if it were a private company. Out the window would go the expensive labor contracts and the unsustainable obligations the agency has to prefund retiree health care benefits. That law, which applies to no other federal entity, is unfair and should be repealed.
But even if this onerous bit of legislation didn’t exist, the Postal Service, the second-largest private employer behind Wal-Mart (NYSE:WMT), should be sold off to the highest bidder. The federal government no longer has any business telling the USPS how to run its business.
The history of government–run mail service dates to the early days of the republic. In 1775, the Second Continental Congress named Ben Franklin as the first Postmaster General. In 1792, the Cabinet-level Post Office department was created.
The current USPS came into being in 1971 under the Postal Reorganization Act.. That law was designed to have the Postal Service operate like a business free of taxpayer subsidies. Congress, though, often prevented it from acting like a private company that’s able to cut costs wherever it sees fit. The USPS is required to deliver first-class and standard mail to all Americans, regardless of the cost to serve them.
“The USPS is in deep financial trouble as a result of declining mail volume, bloated operating expenses, a costly and inflexible unionized workforce, and constant congressional meddling.,” Ted DeHaven of the libertarian Cato Institute wrote last year. “At the same time, electronic communications and other technological advances are making physical mail delivery less relevant.’’
Other countries have in recent years ended their postal monopoly laws, including Germany, Sweden, the U.K. and the Netherlands. In 2007, members of the European Parliament voted to liberalize the postal systems of 27 member countries by 2011. There’s also talk of ending the postal monopoly in Canada. New Zealand privatized its service in the 1980s Israel Post’s monopoly over bulk mail ended in 2007.
At least Postmaster General Patrick Donohue isn’t wearing any blinders. “As we look to the future, the volume of First-Class Mail will continue to decline significantly while Advertising/Standard mail volume should remain flat, Donohue said in recent testimony before Congress. “Even with growth in our package business, we cannot replace the profit contribution of First-Class Mail that has been lost over the past few years and will continue to decline in the future.”
The Postal Service is like the U.S. auto industry before the bailout. General Motors (NYSE:GM) and Chrysler have emerged from bankruptcy stronger than ever. And Ford (NYSE:F) is in the best financial shape of the Big 3 because it didn’t need a bailout.
The auto industry survived the short-tem pain and now is seeing long-term gain. The same future could await the USPS if the politicians in Washington and the postal unions can muster the will to do it.
Jonathan Berr doesn’t own shares of the aforementioned stocks. Follow him on Twitter @jdberr.