Your Packages Won’t Save the Postal Service

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Written By Pinang Driod

You might have read the recent news report that Amazon now delivers more packages than established companies including UPS and FedEx—the latest sign of the e-commerce company’s dominance. But if you read closely, you also saw that the U.S. Postal Service still handles more parcels (about 7 billion a year) than any of these companies, and in fact delivers hundreds of millions of packages for them.

Americans’ reliance on package deliveries presents a massive opportunity for the USPS at a time when people are sending less and less paper mail. Until the e-commerce boom, parcels represented a small side business for the Postal Service; over the past year, about 40 percent of its $78.2 billion revenue came from parcel delivery. The agency wants to increase that share and become the nation’s go-to option for shipping. “A first class letter used to be treated like gold,” a letter carrier in upstate New York recently wrote to me by email. “Parcels are the new gold for us.”

And yet the long-term outlook for the Postal Service is bleak. Last year, the agency lost $6.5 billion and owed $13 billion to the U.S. Treasury. The USPS also has nearly $135 billion in unfunded employee health-care and pension benefits. It warns that it could lose another $70 billion by 2030. With $18.8 billion in cash and liquid assets, it can keep functioning for at least a few years. But when the money runs out, perhaps a decade from now, the Postal Service will be forced to shut down unless taxpayers bail it out.

The USPS, a self-funding government corporation, has long had trouble controlling costs. Nearly all of its workforce is unionized and well compensated. The agency is required by law to provide universal mail delivery and postal services, and every year it has more Americans to serve as the population grows. All of the new parcels flooding into the Post Office are bringing much-needed revenue. But USPS letter-carrier bags, trucks, and sorting machines were built to carry envelopes, catalogs, and magazines—not boxes. If the agency wants to pivot to packages, it has to spend heavily on upgrades to its network, and it doesn’t have the cash to do so.

Congress needs to intervene to help the Postal Service make this shift and ensure its survival—perhaps even by rethinking its self-funding model. Free enterprise is a wonderful thing, but the private sector cannot be counted on to provide everything the Postal Service offers.

The Postal Service has existed for more than 230 years, but only since 1970 has it been self-funding. The Postal Reorganization Act, signed by President Richard Nixon, almost entirely cut off taxpayer support to the agency in the hopes of freeing it from congressional meddling and bureaucracy. That worked pretty well until the late 1990s, when the internet began to diminish the growth in the volume of first-class—that is, paper—mail, a perilous development for the agency’s finances. The Postal Service has been in the red for the better part of two decades.

In 2003, a presidentially appointed commission warned, accurately, that the agency’s revenue growth would slow while costs would increase. But legislators, unions, mailers, and others pushed back against efforts to downsize the USPS workforce, close facilities, and reduce the number of days of mail delivery. Three years later, Congress passed postal legislation that made only incremental changes. During the Great Recession, mail volume kept dropping—and then it never recovered. (In the fiscal year ending this fall, 116.1 billion pieces were delivered, down from 213.1 billion pieces in 2006.) The Government Accountability Office has had the USPS’s financial condition on its high-risk list since 2009 due to the agency’s “unsustainable business model.”

Congress intervened in 2021, during the coronavirus pandemic, giving the Postal Service $10 billion, followed by another $3 billion in 2022 to help pay for electric delivery trucks; last year, lawmakers also shifted about $100 billion in employee-retirement-benefit costs off the USPS books and onto taxpayers. With these aid packages, policy makers seemed to tacitly admit that the Postal Service’s run as a self-funded entity might be over. Yet they have shown no signs of making it official.

Postmaster General Louis DeJoy, a gruff former logistics executive and fundraiser for the Republican Party, has aggressively raised the rates on all paper mail in hopes of bringing in more cash. Like his predecessors, DeJoy has also skipped making payments into postal workers’ retiree health funds and greatly reduced payments into their pension funds. And he is trying to transform the Postal Service into a government-run parcel deliverer—a worthwhile, but expensive, proposition.

The USPS has spent $6.6 billion on infrastructure updates in recent years to allow for more parcel deliveries. It expects that fully upgrading its sprawling network—a few hundred mail-sorting facilities, 31,000 post offices, and 236,000 vehicles—will cost $40 billion. Already, the shift has come with glitches. On-time delivery of mail is flagging even though the agency made the metric for “on-time” more lenient. Most spectacularly, three years ago, a tsunami of parcels swamped USPS, and holiday cards and presents were delayed for days and even weeks.

DeJoy’s parcels strategy is also risky, requiring the Postal Service to shift from being a paper-mail monopolist to outhustling experienced box carriers such as UPS and FedEx and mega-retailers such as Amazon and Walmart. The agency’s financial statements regularly warn that these big retailers could at any point reduce the number of boxes they contract with the USPS to deliver and instead move those parcels via their own networks, which they rapidly are expanding.

None of which means the Postal Service shouldn’t try to make this shift—but it needs government support. The USPS is embedded in the American economy and way of life, and its financial collapse would be a disaster for the country. Pharmaceutical companies send some 170 million prescriptions by mail each year. Publishing companies annually send about 900 million copies of magazines and journals through the mail. Small businesses and community newspapers rely on the USPS to deliver advertising flyers, particularly in rural areas.

Government agencies also would be left scrambling. In 2020, at least 135 million ballots were delivered to or from voters, including military personnel stationed overseas, via the USPS. State governments use the Postal Service to send residents new license-plate tags and jury-duty summonses. The U.S. State Department relies on the Post Office to make passport application services accessible to most Americans. The USPS also has a homeland-security role. In the event of a biohazard attack, the agency is tasked with delivering medicines to those who are affected. During the first two years of the pandemic, the USPS delivered 380 million test kits.

Which is to say nothing of the 640,000 USPS employees who would find themselves without a paycheck were the agency to collapse, and who would have to apply for unemployment and other benefits. Employees and 497,000 retirees would lose their health-care insurance and have their retirement benefits slashed.

Private companies could move in to replace some USPS services, such as personal-identity verification and Post Office boxes. But no company currently has a network that reaches the 167 million delivery points served by the USPS, nor is any box-moving company equipped to receive, sort, or deliver the 109 billion pieces of paper mail that flow through the country and the world. (The USPS is required to deliver mail coming from abroad to people in the United States per the 1874 Treaty of Bern.) Already, a large (undisclosed) number of the parcels the USPS delivers come from UPS, Amazon, and other big companies precisely because those companies don’t want to go to hard-to-reach places.

The U.S. Postal Service is, as the saying goes, too big and too important to fail. Americans and our legislators in Congress need to think hard about what we want from the Post Office in the 21st century, and then enact policies to pay for it.

On the cost side of the ledger, Congress could start by adjusting the USPS collective-bargaining process to curb the long-term growth in employee-compensation costs. It also could permit the agency to invest a portion of its retiree health benefits and pension costs in index funds rather than U.S. Treasury bonds, which earn a paltry return. The agency’s inspector general has shown that this change would do a lot to shrink unfunded employee-benefit costs.

As for revenues, Congress should give the agency an annual appropriation. Hauling mail to and from Alaska, for example, is not cheap, nor is staffing post offices in remote communities. But the Postal Service can’t opt out of its universal mail program, and that bleeds the agency of perhaps a few billion dollars a year. Congress should annually reimburse the agency for this expense. A few billion dollars is a rounding error for the federal government, which spends more than $6 trillion a year. (And it is less than the $7.5 billion NASA spent on space exploration last year.) With this kind of support, the Postal Service has a real chance at not only covering its operating costs but clearing a modest profit, which in turn could be put toward further investments in modernization.

If we as Americans want post offices to continue to exist, shouldn’t our tax dollars cover some of their cost? Shouldn’t the USPS be compensated for maintaining the infrastructure to deliver medicines during a national emergency, bring mail to rural areas, help us apply for our passports, and carry our ballots? Packages could well be the future of the Postal Service, but they won’t be enough to save it.

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