US Postal Service: Hey, Want to Create a Company? Let's Lose Money Just so That we Can Overpay Employees!

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Today, CNN reported:

“Your little post office might be on a proposed list of closings coming out Tuesday as the U.S. Postal Service tries to find ways to cut red ink. Some would be replaced by a ‘Village Post Office’ located within a commercial retail store.

Postmaster General Patrick Donohoe planned a news conference Tuesday to release a long-awaited ‘post office study list’ of potential closings nationwide, typically targeting rural post offices where only a few hundred customers are served. The facilities targeted, potentially numbering in the thousands, will be subject to a review and appeals process before any final decision is made.

The list was developed based on low workload among post office employees, a small number of customers, and whether that location could be combined with other postal facilities nearby.”

The Postmaster General is trying to “find ways to cut red ink”?

Seriously?  He wants to cut costs by closing locations?

If he wants to cut costs, shouldn’t he start with the area that actually has the greatest cost?That would be the salaries of the employees!

Look at the US Postal Service’s (USPS) latest quarterly report (March 31, 2011):

($ in millions)

“Operating revenue              $16,234

Operating expenses

Compensation and benefits   11,896
Retiree health benefits            1,996
Workers’ compensation              630
Transportation                         1,552
Other                                       2,352
Total operating expenses      18,426

Loss from operations             (2,192)

Interest and investment income     7
Interest expense                         (43)

Net loss $                              (2,228)”

Now look at that.  65% of the total operating expenses are related to compensation and benefits for current employees.  65%!

Why on earth doesn’t the Postmaster General look to reduce the salaries or benefits of the employees?

 

The Irrationality Of The U.S. Postal Service

The finances of the US postal system are a disgrace.

And guess what?  I’m not calling them a disgrace simply because they are losing large amounts of money.

The situation is a disgrace because they shouldn’t be losing large amounts of money!

Here’s why:

The USPS has more revenue than any other carrier in the USA, and maybe the world!  (I assume they have the most revenue, considering that their $65B annual run rate is more than FedEx’s $39B and UPS’s $50B!)

Keep this in mind:  Most businesses want to increase market share, right?  Grow their revenue?

The U.S. Postal Service already has the largest market share in the USA!  What more do they need to be profitable?

If a company has the most market share, then all they need to do to be profitable is to have costs that are lower than your revenue.  That’s it.  How hard is that?

It shouldn’t be difficult, considering that, with much smaller revenues, FedEx has an operating profit of $2.4B, while UPS has an operating profit of $5.9B!

In comparison, USPS has an operating loss of $2.2B!  That’s a disgrace!

The USPS has the greatest market share in the US, and they have the most revenue in the US.

They are part of an industry that achieves profits easily, not an industry that has trouble reaching profitability, like the airlines.

In addition, having the greatest market share means they have a greater ability to maximize their profits (meaning they can undercut their competitors’ rates and not suffer as much as their competitors would suffer from a rate cut, because USPS has such large volume that a small per package profit will result in a large profit overall since their package volume is very high.  In addition, undercutting their competitors would then increase their own market share!)

USPS is similar to how General Motors used to be.  They had the largest market share, the most revenue in the business, for decades, but were still losing money heavily!

There is only one explanation for how this could come about.  USPS’s costs are way too high.  Their salaries are way too high.

Too high, as in unfairly high.  Why does USPS pay their employees far more than FedEx and UPS do?  Would you create a business where the costs are greater than the revenue?

It’s OK To Lose Money, As Long As It’s Not Ours

Why isn’t there public outrage over this situation?

Because USPS losses are primarily a result of employees being overpaid, and because the USPS is funded by taxpayer money, then in effect, taxpayers are 1) paying salaries in an amount equal to the revenue the USPS receives and then, on top of that, 2) paying workers a salary above that in an amount that causes the USPS to lose money!

Visualize the USPS for a second (just a second, you might get queasy if you think of it for too long):

A new community of people get together and decide that they want to have a mail delivery service.

As a result, they create the USPS.  They choose a price for the stamps, and choose a wage for workers.

Do you think they would choose to pay USPS workers so much that it would cause the community’s taxpayers to pay more than they receive in stamp revenue?  I don’t think so.

Do you think they would sit around and say: “Yeah, I don’t mind the USPS operating at a loss, since it means a USPS employee will get my money”?

Conclusion

USPS’s projected net loss over the next year, based on the March 31 quarter alone, is $8,912,000,000.  That’s comes to about $28.56 per American.

I think that each citizen should be allowed to mail a few hundred letters for free…basically, a lifetime’s worth of free postage.

And to pay for that postage, I think that the money should be coming out of the pocket of the USPS workers.

Unfortunately for them, there aren’t 312 million USPS workers to share the cost, so they’ll be shelling out quite a bit more than $28.56 annually in order to make the community whole!

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