Time For The Postal Service To Open Their BooksMay 6, 2019
In case anyone didn’t notice, the United States Postal Service (USPS) is in dire fiscal straits, with $69 billion in net losses since 2007. On April 30, Postmaster General Megan Brennan told the House Oversight and Reform Committee, “Absent legislation and regulatory reform, in all probability, we’ll be out of cash in 2024.”
Postmaster General Brennan promised to provide the committee a business stabilization plan within the next 45 days or so, but it’s inexcusable that the USPS has waited this long to try to put one together. Ranging from inconsistent implementation of workplace productivity tools to the toleration of over-inflated invoices from contractors, there are plenty of problems that the USPS should’ve tackled a long time ago.
A recent Postal Regulatory Commission (PRC) financial report hints at another factor causing financial problems: the systematic underpricing of certain packages. Until irregularities in how the USPS estimates parcel costs are closely examined, consumers and, yes, taxpayers, will foot the bill for wacky postal pricing policies.
Unlike letter mail, package delivery volume – and resulting revenue – increase each year. Unfortunately, the $15 billion annual revenue gain from “competitive products” (i.e. packages) over the past decade hasn’t offset the $19 billion annual revenue loss from the decline of “market dominant products” such as good old letter mail over the same period.
To keep package volume increasing, the USPS has inked more than 1,000 agreements with private companies interested in buying parcel postage cheaply in bulk. The public is kept in the dark about these rates, though educated guesses put the average discount at around 60 percent per package.
Extending steep discounts to companies that buy in bulk makes sense, if packages are covering costs. The PRC claims that this is the case, and for FY 2018, “all but two Competitive domestic NSAs covered their attributable costs and complied with this statutory requirement [that ‘requires the revenue for each Competitive product to cover its attributable cost.’].”
But when calculating costs for different product categories, the devil is in the details. Trucks, scanners, and employee compensation each add costs to the delivery of packages and regular letters, and USPS’s financial team must attribute a certain percentage of these costs to each product category. How the agency goes about doing this is a mystery to the public, but there are clues that the USPS is missing the mark and underestimating package delivery costs.
For instance, according to the inspector general (IG), the USPS has been equipping its staff with handheld GPS-enabled Mobile Delivery Devices “to scan and transmit package tracking data.” Bizarrely, less than a tenth of the depreciation costs associated with these scanners is attributed by the USPS to competitive products. Overall, less than $5 million in USPS total property and equipment assets (out of about $15 billion total) is attributed to “competitive products enterprise.” Common sense says that these calculations are grossly skewed.
It gets weirder. The PRC reports that for competitive products, both revenue and cost per piece have declined since the start of the decade. Declining revenue per piece makes sense, especially if the USPS is giving increasing discounts to private companies in its secret deals. Costs per piece, though, should be reflecting the weight and size of packages, and should increase as a critical mass of packages forces the USPS to make investments into package-centric technology such as scanners and trucks. Packages are getting larger, even if the “change in mix is a closely guarded secret.”
For priority mail and first-class package services, average product costs have actually grown about 15 percent over the past five years (since FY 2014; according to successive years’ “product finances”). But average product costs for USPS’s ground delivery declined by more than 20 percent over that same period. Ground delivery includes special deals with large e-commerce companies, where companies drop off their packages to the USPS and postal workers take these products on their last-mile to consumers.
If anything, though, this category should’ve grown far more expensive than the others due to the “Sunday deal” that the USPS inked with Amazon in 2013. Over the past five years, the USPS has hired staff and kept their infrastructure up-and-running for an additional day of the week just to service e-commerce ground deliveries. There have already been concerns raised by the IG about the inflated overtime pay rates required to maintain such an arrangement, not to mention transportation costs that are not evenly spread across product categories. Whichever methodology the USPS is using to calculate average delivery costs seems to not be taking these obvious factors into account.
The USPS’s way of determining costs and corresponding prices is shrouded in mystery, a state secret on par with the redacted sections of the Mueller Report. If the USPS wants to ease public concerns that it is not underpricing its packages, the agency should “show their work” and allow analysts to pick apart the underlying data. The clock is ticking, and only a detailed discussion of the USPS’s failing business model can save the ailing organization.
Ross Marchand is the director of policy for the Taxpayers Protection Alliance.