Today, packages account for about 6% of the mail the United States Postal Service moves but 40% of its revenues and nearly all the growth.
The Postal Service is spending billions on trucks designed to accommodate packages as well as regular mail delivery, eliminating billions of dollars of mail-handling equipment to make way for more package processing and changing its delivery methods and schedules to grow its package delivery business.
The package delivery and regular mail delivery expenses are supposed to be kept separate. Delivery of first-class mail is considered essential and given monopoly protection, but commercial enterprises are expected to pay their way or be phased out. The Postal Service avoids doing this, so we don’t know whether the package business has been profitable.
What we do know is revenues on packages climbed $3.9 billion this year over last thanks to the pandemic-induced online shopping. But the Postal Service still lost $6.9 billion and expects to lose $160 billion over the next decade. It faces still more spending, for new trucks, mail-handling centers and equipment, and new employees, to accommodate its emphasis on packages.
Volume on first-class mail, the Postal Service’s most profitable product, has declined by about half since 2006. But rather than downsize to reflect this, the Postal Service has decided to go all-in on competing with some of the most efficient companies in the world — which would be fine if the people weren’t on the hook for its business decisions.
But we are.
The Postal Service blames its woes on the requirement that it pre-fund retirement benefits. The Postal Service has one-fifth of all federal employees and one-fourth of all federal annuitants, and although it counts the payments to fund future retiree benefits on its balance sheet, it hasn’t actually made such a payment since 2010.
The plan, part of postal reform legislation now before Congress, would move Postal Service retirees into the Medicare system, which itself is $50 trillion or more behind in what it is supposed to have for the next 75 years. Postal workers who paid premiums for retiree healthcare and pensions throughout their careers would be required to enroll in Medicare Part B and take on premiums of up to $1,500 per year for insurance for which they assumed they’d already paid.
Worse, Part B premiums are lowest for those who join at age 65 and go up 10% per year afterward. So a postal retiree who is age 70 would have premiums 50% higher for not choosing insurance he or she did not need five years ago.
Under this plan, taxpayers would shell out $46 billion to move postal retirees into the Medicare system — this just weeks after lawmakers enacted a convoluted process to raise the debt ceiling because the alternative included cuts to Medicare, whose hospital trust fund itself is now on track to go broke in 2026 unless Congress steps in.
Such cuts would lead to dramatic cuts in services and the closure of some hospitals. Forcing more than a million postal workers and retirees into the system will make it even harder for Medicare to remain solvent and provide the services its customers rely upon, especially given this is all being done to accommodate the Postal Service’s desire — there certainly is no need — to be a big-time player in the package delivery business.
And it’s not just about wrecking Medicare. Package delivery is inherently less efficient given the assets the Postal Service already possesses — far more mail can be handled and delivered in a given day than packages.
The Postal Service understands these factors but keeps them quiet so it can keep package delivery prices low to compete with the giants and pay for it with multiple rate increases per year on the first-class mail on which we all depend.
A provision in the Maloney-Comer Postal Reform Act now tabled until next year would require it to maintain “an integrated network” for mail and package delivery — meaning one network with shared costs, which would give the Postal Service nearly unlimited ability to get its first-class mail customers to pay for its entree into the package business.
There is a place for package delivery within the Postal Service, and it is indeed required by law to deliver packages. Its delivery network, the most thorough in the world, is itself a national asset and is well-suited for last-mile delivery for other carriers. Indeed, this accounts for half the Postal Service’s package business.
But when you are twisting your business practices to accommodate an unproven product line and you’re wanting to go to the point of requiring retirees who have paid for health coverage to buy still more, then the plan to reform the Postal Service may need a little more work.
Brian McNicoll, a freelance writer based in Alexandria, Virginia, is a former senior writer for the Heritage Foundation and former director of communications for the House Committee on Oversight and Government Reform.
