Reasons the US Postal Service Is Losing Money

Business - General
By: Wordsmith    
16-Feb-2013

Introduction:Benjamin Franklin coined the phrase, "Remember, time is money." That seems to be the case with the United States Postal Service and they are losing money hand over fist. In a desperate attempt to cut their losses, the USPS will stop all Saturday mail delivery beginning in August. Why? Because Saturday mail delivery cost the USPS $2 billion annually. Competing services like FedEx and UPS make profits on a regular bases, so why is the USPS losing money year in and year out?

  • 01

    The USPS Is a Legal Monopoly

    Holding a legal monopoly on the delivery of non-urgent mail delivery, it became complacent. The monopoly was a very lucrative asset in the beginning. Having a legal monopoly on the delivery of first-class letters was so profitable that the USPS priced the delivery of newspapers and magazines far below their costs for delivering them. In 2006 alone, the USPS subsidized periodicals to the tune of $273 million. Subsidizing the cost of delivering periodicals was mistake number one. Delivering first-class letters was so profitable that they stood idly by as private companies like FedEx and UPS dominated the parcel delivery services. That was mistake number two.

  • 02

    The Legal Monopoly Became a Curse

    Any monopoly is a two-edged sword because when the government grants a monopoly they also demand the right to regulate the business granted the monopoly. In the case of the USPS, it cannot make any substantial changes in its services without petitioning the Postal Regulatory Commission and, in some cases, petitioning the United States Congress itself. Private competitors do not face this handicap. Because it is a legal monopoly, the USPS also has the government scrutinizing their labor negotiations.

  • 03

    The Cost of Delivering a First-Class Letter

    The once profitable first-class letter service is no longer profitable. The invention of the information superhighway and the widespread adoption of email for personal communications has made writing personal letters a thing of the past. Today, more and more businesses are switching to email as much as possible too. Believe it or not, the USPS loses money on every letter they deliver. The constantly rising cost of gasoline, oil, fleet maintenance, health costs and retirement funds, has turned the first-class letter delivery service from being a cash cow to a burden. Believe it or not, the actual cost of delivering a letter is roughly twice what we currently pay in postage.

  • 04

    The European Union Postal Services

    Many experts feel that deregulation is the only way the USPS will survive and make a profit. The experts point to the European Union postal services as example. All of the EU postal services have been privatized or will soon be privatized. Germany privatized it postal mail service in 1995 and has since combined with DHL and has the distinct honor of being the world's largest logistics company. Deregulation might be a solution to the problems faced by the USPS, but private competitors like FedEx and UPS will not agree to it unless the USPS gives up their legal monopoly on First-class mail and their second monopoly on mail boxes. Deregulation might put the USPS back in the black, but it could create new problems for those who use the service.

  • 05

    The Problem of Deregulation

    With fewer regulations governing the way the USPS does business, we could find ourselves faced with postage surges during the holidays. Everyone mails packaged during the holidays and the USPS could charge as much as the traffic would bare. Right now with the regulations in place the USPS has to charge a substantially lower amount than what UPS charges for the same size package. A package that UPS charges $20.51 to deliver, the USPS only charges $12.07. With less regulation, the USPS could raise their rates to match UPS. Another problem we might face is that of mail pickup and delivery. A less regulated service could drop mail pickup services arbitrarily if they feel the volume does not justify making a pickup at any given time.




Final Thoughts

Perhaps the loss of Saturday mail delivery will not effect us personally all that much, but it will have a greater impact on businesses. There is talk that the USPS is considering reducing the number of days during the week and the number of hours during the day when post offices will be open for business. Those changes would have an even greater impact on businesses. Perhaps the potential dangers we would face with a deregulates postal service would be worth it after all.




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