Why Is the Post Office in Trouble?

Screen Shot 2015-01-21 at 10.37.27 AMWith 31,509 retail locations across the United States and the nation’s second-largest workforce, the United States Postal Service is big business. But it’s a business that’s in trouble. The USPS hasn’t turned a profit since 2006, and it’s lost $45 billion since 2007. If major changes aren’t made soon, the USPS could be losing as much as $20 billion per year by 2016.

But why is the USPS in so much trouble? It’s true that Americans don’t rely on the mail the way they once did, since the rise of the Internet made it possible to communicate instantly with others around the globe and to pay bills electronically with ease. Though it was intended to be a self-sustaining entity, the USPS struggles under restrictions imposed by Congress, and to meet its financial obligations to current and future retirees.

1. Mail Volume Is Declining

Perhaps one of the biggest reasons for the Postal Service’s plight is the steep decline in mail volume that’s occurred over the past decade. Mail volume — the sheer number of letters, packages, bills, statements, payments, and other correspondence sent through the mail — peaked at 213 billion pieces in 2006. By 2012, mail volume had fallen off to 160 billion pieces.

The USPS has a government-protected monopoly on first-class mail, which includes letter-sized correspondence, bills, statements, and other items weighing less than 13 ounces. That monopoly is part of what sets the USPS apart from rival private firms like Fedex and UPS. But first-class mail volume is dropping precipitously. In the year 2000, the USPS handled 103 billion pieces of first-class mail. By 2012, first-class mail volume was down to 69 billion pieces.

The drop in mail volume is largely due to the growth in popularity of electronic communications, which has made personal letters, cards, and other forms of postal correspondence largely obsolete. In 1987, American households received an average of 1.6 pieces of personal correspondence a week, but by 2012, they received just 0.7 pieces a week. Now, the USPS relies on transactional correspondence — bills, payments, and financial statements — for a considerable portion of its total mail volume.  But while the USPS currently handles about 35 billion pieces of transactional mail per year, that number is falling as Americans become more accustomed to paying bills online.

2. Congress Won’t Allow Postal Restructuring

Though the Postal Service is meant to be a self-sustaining entity, it must operate under restrictions imposed by Congress. The USPS must obtain permission in order to close facilities, raise rates, expand its services, or perform other restructuring tasks to save its own financial skin.

The Postal Service is already looking to phase out to-the-door delivery, encouraging postal customers to take advantage of cluster mailboxes instead. Under the Postal Accountability and Enhancement Act of 2006, the USPS can’t close retail locations or other facilities, raise the price of postage, or suspend Saturday delivery without permission from Congress. And while the current price of U.S. postage stamp is 49 cents, that’s less than postage costs in other countries.

3. Are Financial Obligations Holding the USPS Back?

The 2006 law also requires the Postal Service to pay $5.5 billion a year to fund health care costs for current and future retirees, an obligation it has already defaulted on at least three times, in 2011, 2012, and 2013. The payments are meant to cover the USPS’s $94 billion liability for retiree health benefits earned, but not used. So far, the Postal Service has been able to pony up only $46 billion, and the rest of the burden may well fall on taxpayer shoulders if a postal bailout is necessary. Though not enough to save the Post Office on its own, eliminating the pre-funding requirement could make restructuring the Postal Service easier, some say.

So far, the Postal Service has made some efforts to cut costs over the past few years by raising the price of postage and other services, reducing its workforce by 24 percent since 2006, and slashing operating costs by about $50 billion. But it’s not enough. Further changes are necessary, and most of them require congressional permission. Even if the USPS raised postage costs significantly, dropped Saturday delivery, and closed 4,500 post offices that serve no more than five customers per day, it still wouldn’t change the fact that much of what the Postal Service was designed to do is no longer necessary. In order to survive, the USPS may need to begin offering additional services that still have value, like banking or Internet-based services.

The USPS is in trouble, largely because most people no longer need to send or receive a lot of mail. Thanks to restrictions imposed by Congress, the USPS has found it difficult to evolve in order to survive in a changing marketplace. While the USPS may yet find a way to persevere, one thing is certain — soon enough, physical mail, besides packages, are becoming a thing of the past.

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