U.S. Postal Service Finances at Critical Juncture

The U.S. Postal Service recently announced its Fiscal Year 2017 finances and once again it showed significant financial problems, including a $2.7 billion net loss. While down from a $5.6 billion net loss in Fiscal Year 2016, this marked the 11th consecutive year that the Postal Service lost money. Losses from Fiscal Years 2007-17 come to $65.1 billion.

Perhaps even more disturbing, there is not a clear solution from the Postal Service for how it will turn this around. Instead, the Postal Service is calling for significantly higher prices on large product lines for which it not only has a clear monopoly, but is unlikely to face any meaningful near-term competition. There are also growing calls from the Postal Service for taxpayers to assume tens of billions of dollars in unfunded retiree health care costs.

In fiscal year 2017, the Postal Service did not make any of the $6.9 billion in payments that were due to the federal government for pension and health benefits for retirees. The Postal Service has also defaulted on annual retiree health benefit payments of approximately $5.6 billion annually since Fiscal Year 2012.

The Postal Service’s Strengths

With 2017 revenues of $69.6 billion, the Postal Service would be the 38th biggest company on the Fortune 500 list of U.S. public businesses.

Most of its business is in monopoly or near-monopoly products. As the Postal Service says in its Form 10-K report, “Market-Dominant products account for approximately 70% of our annual operating revenues.” This is approximately $48.7 billion annually.

The Postal Service also says in its 10-K that monopoly first-class mail is, “…our most profitable service category”. Another market dominant product, marketing mail, is similarly discussed positively in the 10-K, “Marketing mail has generally proven to be a relatively resilient marketing channel, and its value to U.S. businesses remains strong due to better data and technology integration.”

The Postal Service’s Turnaround Plan

Clearly, the Postal Service needs a business turnaround plan. First, though, it needs to institute basic governance.

The law requires an eleven-member board of governors, including nine independent governors, the Postmaster General and the Deputy Postmaster General. Currently, the only board members are the Postmaster General and Deputy Postmaster General. President Trump made three nominations of governors on October 30 and they are being considered by the Senate.

In the absence of a turnaround plan that is properly executed, Congress will face increasing pressure to bailout the Postal Service with taxpayer dollars, without any fundamental operational improvements likely to be made. There may also be pressure on Congress to allow the Postal Service to raise prices for monopoly products above the maximum amount in the Consumer Price Index. Both measures would harm consumers.

To protect consumers and to strengthen the Postal System, it is essential that new governors be appointed as soon as possible and that all avenues be explored to promptly implement an effective business turnaround plan.

Paul Steidler