The U.S. Postal Service’s financial health may be too fragile to fight the coronavirus.
The volume of first-class mail, the agency’s main source of revenue, has been declining for years, and the coronavirus has accelerated the downward trend. At a time when people are increasingly ordering online, one might think that the surge in package deliveries would offset these losses. Unfortunately, debt obligations tied to pre-funding retiree benefits 75 years into the future have made it impossible for the USPS to remain solvent. Should it get bailed out like so many other organizations?
Video Spotlight: COVID-19 and the USPS
This post is based on the NBCNews article, Could Coronavirus Deal a Fatal Blow to the U.S. Postal Service?, by A. García-Hodges and H. Talbot, April 15, 2020, and the YouTube video, The Impact COVID-19 Is Having on the US Postal Service, by WGN News, April 16, 2020. Image source: BassittART/E+/Getty Images.
1. Besides the 2006 Postal Accountability and Enhancement Act, what are the reasons why the USPS experiences chronic, financial problems?
Guidance: The reasons include: decreasing volumes of first-class mail due to the rise of email; universal service to all urban and rural areas even on Saturdays and Sundays; flat domestic postage rates irrespective of the distance between senders’ and recipients’ locations; and strong competition for shipping and package services from FedEx, UPS, Amazon, and other delivery companies and crowdsourced carriers.
2. How do the package delivery services of the USPS differ from those of FedEx and UPS?
Guidance: The USPS offers shipping services similar to those of FedEx and UPS, i.e. directly from drop-off locations to recipients’ addresses. It also functions as the “last-mile” carrier, especially to more remote, rural areas. In that case, packages are shipped via FedEx or UPS to a transportation hub, and USPS trucks transport those packages to their final destinations. Note that this final stage of delivery involves smaller volume and higher variety, making it less efficient.
3. What are the steps that could be taken for the USPS to regain some financial strength?
Guidance: As mentioned in the article, the repeal of the 2006 Postal Accountability and Enhancement Act or amendments to alleviate the USPS’s debt burden might be a logical step toward solvency and even excess revenues. Another solution is fewer deliveries to remote, sparsely populated areas. Both proposals would face fierce political opposition and are therefore unlikely to be adopted. Charging higher rates to customers such as Amazon is risky because the company may decide to bypass the USPS and rely on competitors’ or its own delivery services. Even if Amazon continued to use the USPS exclusively for delivery to remote or rural areas, the USPS would be left with a more inefficient and therefore less lucrative share of the delivery business. A combination of modest, structural changes in terms of pricing, funding retirement benefits, and consolidating deliveries to remote areas might generate bipartisan support. Stimulus aid as mentioned at the end of the article is only a temporary fix, but it might be preferable to a loss of services that most people consider essential.