This month, the U.S. Postal Service, a government enterprise, released new data that provides further evidence of the agency’s financial woes. Net losses for the second quarter of 2018 totaled $1.3 billion, compared to a net loss of $562 million for the same period last year.
The new data highlight the need for policymakers to take decisive steps to address this problem. In the last decade, the USPS has reported more than $65 billion in losses; in 2017 alone, its deficits totaled $2.7 billion.
Alarmingly, postal officials reported a controllable loss for the quarter of $656 million, compared to controllable income of $12 million for the same quarter last year. (“Controllable” refers to matters over which USPS leadership has direct influence.) More than half this loss was attributable to an increase in compensation expenses related to package services, as well as contractual wage adjustments.
These recent disclosures lend additional support to what the American Consumer Institute has consistently pointed out — that the USPS has jeopardized its financial stability by using its profitable services to prop up nonessential and speculative business enterprises.
Specifically, Standard Mail and First-Class letter services generate more than $2 in revenue for every dollar in attributable costs. In light of the strong performance of these product categories, and considering the guaranteed customer base created by the USPS’s government-enforced monopoly, the agency should be on much firmer financial footing.
But the agency has chosen to divert its resources to market competitive products — such as package services and same-day delivery — that appear to be far less profitable or unprofitable. These competitive services account for 30 percent of the USPS’s revenue, but federal law only requires them to cover 5.5 percent of the agency’s institutional costs (expenses which cannot be attributed to a particular product or service). As a result, market-dominant services shoulder a far greater share of these overhead costs.
The inequity in cost recovery is so extreme that market dominant services pay 58 cents per dollar of revenue toward fixed and institutional costs, while services that compete with existing private-sector companies pay only 8 cents per dollar of revenue. This suggests a high degree of cost shifting.
It is difficult to know exactly the extent to which the USPS’s core letter delivery functions are being undermined by its unprofitable services, because the agency’s lack of financial transparency prevents policymakers, regulators, and the public from getting the detailed information it needs to make informed decisions about how the agency can shift its business structure and save itself. Adopting a full cost accounting approach that reveals the cost of services by product is a vital first step if policymakers are to effectively remedy the issues that have brought the USPS to the brink of bankruptcy.
In an effort to mitigate its financial spiral, the USPS is trying to achieve nearly unchecked pricing authority over regulated services as part of the ten-year review of the overall rate system being undertaken by the Postal Regulatory Commission.
Granting the USPS the authority to raise regulated prices much faster than inflation would distract from the urgent need to improve letter mail service standards. In recent years, the USPS has consistently failed to meet on-time standards for nearly every First-Class Mail product. Until the agency’s core challenges are addressed and unprofitable competitive products are discontinued, a price hike on postal customers would be merely throwing more money at a broken system.
Liam Sigaud writes for the American Consumer Institute, a nonprofit educational and research organization. For more information about the Institute, visit www.TheAmericanConsumer.Org.
