Four charts explain the Postal Service’s financial struggles

Woman putting envelope in mailbox

The U.S Postal Service reported a third-quarter loss of more than $500 million. If you are wondering whether this is news you’re already heard, it is. The USPS has been running deficits for years.

But this was not how the Postal Service was supposed to work. Congress abolished the tottering old Post Office Department in 1971 and replaced it with the USPS. An “independent establishment of the executive branch,” the Postal Service was designed to be self-sustaining. Toward this end, it has more operational freedom than a typical government agency. It can, for example, sell unneeded real estate with relative ease. The agency also has managed, to its credit, to downsize its workforce by 225,000 persons over the past decade.

So why is the agency losing money? Four charts explain the Postal Service’s financial struggles.

Figure 1: Mail volume is down 60 billion pieces since 2007 (Billions of pieces)

USPS1

Mail volume plunged not long after the Great Recession hit in late 2007. The reason is simple: more than 90 percent of mail is sent by businesses. In the years since, mail volume has not grown. It remains more than 25 percent below its peak and a high percentage of mail volume is advertising mail, which is not very profitable.

Figure 2: Fewer mail pieces means lower revenue ($1B)

USPS2

Figure 2 tells the tale; between 2007 and 2012, the USPS’ annual revenues fell from about $75 billion to $65 billion. Increased postage rates and carrying more parcels has bumped up the Postal Service’s revenues the past two years, but not by enough. As Figure 3 below shows, the rate increases, which came under a special legal provision, will expire in early 2016.

Figure 3: USPS has not cut expenses quickly enough ($1B)

USPS3

Postal unions will tell you the USPS is in financial trouble because Congress forced it to pre-fund its current employees’ future retirement health benefits. It’s true these costs are significant, at more than $5 billion per year. Yet even if one wished away these employee compensation costs, the USPS still has not been able to keep revenues above costs. USPS, by the way, has not made a payment to its Retiree Health Benefits Fund since 2010 due to insufficient cash on hand.

Figure 4: USPS debt has spiked ($1B)

UPSP4

The Postal Service had no debt in 2005. Come 2012, it had hit its $15 billion legal debt cap. With too little revenue coming in and expenses too high, debt piled up. Even without paying into its Retiree Health Benefits Fund, the service’s debt grew another $3 billion over the past three years.

With $6 billion in cash on hand, the Postal Service might make the $5.7 billion RHBF payment due Sept. 30. But it probably won’t, as operating with low cash on-hand is a perilous business practice. Moreover, the agency has put off capital upgrades and needs to replace its aging vehicle fleet, 140,000 of which are more than 20 years old.

Congress is struggling to find consensus on postal reform. Some reform proposals would have the USPS try to bolster its revenues by going into non-postal lines of business. Certainly, there is no harm in allowing the USPS to contract with a state to sell fishing licenses at its post offices. But it would be a big mistake to permit the USPS to enter fields such as banking, where the private sector is well-established. And it is highly unlikely that the USPS would earn the billions in revenues needed to right its fiscal ship.

Unfortunately, Congress to date has shown little appetite for reckoning with USPS’ fundamental business challenges: high debt, decreased demand for postal services, and excessive overhead costs. Until it does, it’s highly unlikely the situation will improve.

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  • Pingback: Four Charts Explain the Postal Service’s Financial Struggles | Kevin R. Kosar()

  • Trig Simon

    USPS is stupidly operated. Probably controlled by the unions, they deliver mail on Saturday…of which most people could do with out until Monday. If you want to buy postage online, you can only purchase Priority postage, which is about 50% more. That is dumb.

    • Stellar Steve, LSSA

      Your statement about the unions controlling the Post Office is laughable, showing you have NO clue about how the Post Office operates.

      • Trig Simon

        What’s so funny. Probably is the operative word here: I have no idea, but if it isn’t the union, then it falls totally on the ones running the post office. No, I don’t know how the post office operates, but know it doesn’t operate as efficiently as it could.

    • One thing that vexes me is the lack of full service USPS counters in places like grocery stores, cafes, and other retail outlets. If one wants to mail an oversized envelope or box, one must schlep to the post office, stand n line, etc. The unions have been hostile to liberalizing full-service counters. They blocked the Staples postal counter option, and insist that only unionized postal workers can do such work. So, we the people are stuck with less access to postal services than we might otherwise get.

      • historyman

        The staples ‘option’ was replacing Union postal employees with low wage workers. the union had every right to protest

        • D. Pinthot

          Maybe selling products behind a counter is low wage work.

          • historyman

            We aren’t talking about selling candy bars–a ‘real’ postal clerk has to know what they are doing and talking about. The integrity of one’s mail would be in serious jeopardy if left to an employee with no skin in the game. the postal employees I know are some of the most hard working, dedicated individuals I’ve ever met

          • You write: “a ‘real’ postal clerk has to know what they are doing and talking about. The integrity of one’s mail would be in serious jeopardy if left to an employee with no skin in the game.” That’s an interesting point. What sort of things could go wring if someone other than a trained postal clerk is receiving mail/charging postage for it? I ask because as you know, USPS has long used contractor to haul mail, and sometimes deliver it.

          • historyman

            The duties of a trained clerk run from pre-dawn sorting of mail , all day customer service–at the same time processing of mail in-house for box mail and carrier routes. All the mail that coming into an office is handed by the clerks /carriers and if not handed correctly will result in serious delays and failures. Work is packed into every minute of the day. Clerks/carriers handle everything from a bill payment to the processing and delivery of a person’s remains from a funeral parlor. The items handled are someone’s personal property, it just happens to be in transit at the time. Your point about using contractors to haul the mail is correct–they are trailer trucks that drop the days mail/packages to a string of offices, yes they are private non-postal employees. However every person who delivers the mail must be trained by the postal dept and therefore becomes a postal employee. Just because a truck driver can use a forklift and drop pallets of mail and packages on a loading dock doesn’t mean a similar agent can process and deliver the mail to every household in the country. the training involved is very diffcult and demanding. I’m running on here–the facts are you don’t want anyone other than a professional, accountable person handling your personal property

          • Very helpful—thank you.

        • Replacing or supplementing?

          • historyman

            replacing It takes a long time to reach full union benefits By replacing union workers w low wage workers you will eventually kill the craft and a middle class way of life

  • Joe Mama

    This an extremely biased article. Read the truth explaining Good ole’ Kevin and his misguided charts. http://postalnews.com/blog/2015/08/18/what-do-those-four-charts-really-explain/

    • Does this look like a healthy enterprise to you? Have a look at this chart. Even if you exclude RHBF charges, USPS has lost $13+ billion since 2007: https://pbs.twimg.com/media/CMu0QHxWsAAxVzs.png

      • noname

        How much of those loses could be attributed to getting automation up and running- the scanners, the cell phone and data attributed to that and the introduction of the FSS Machinery and the putting that in place along with retrofitting the buildings and/or new facilities if any to house these machines?

        • Fair question, but USPS’s reports continue to show low capital spending and most spending goes to compensation costs. See p. 31 of this annual report: https://about.usps.com/who-we-are/financials/10k-reports/fy2014.pdf

          • noname

            Where should most cost go when you don’t manufacture anything?

          • Of course, but I was simply responding to your claim that big capital costs were an issue. They are not. In fact, USPS has starved its capital outlays in recent years. A fleet of 140,000 vehicles with an average age north of 20 years is just one example.

  • Thomas M Long Jr

    Why not question how much money is already in the RHB account for future
    employees? How many employees were career in 2006 and how many are
    expected 70 years from now? How much is really needed for this account?
    This especially true if the money is not taken out for 70 years. The plan was expected to have only 400.000 employees by 2017. 2016 is the next year for the last ‘payment” of the PAEA.

    • Thanks for reading. True. Come 2017, USPS may begin drawing cash from the RHBF. There also will be an OPM recalculation of the USPS outstanding obligation for retiree health benefits, which will be mortgaged over about 40 years. Last I checked, there was more than $45 billion in the RHBF, which covered about half the estimated obligation. But that estimate needs updated.

      • historyman

        Correct there is about half of the required amount already paid in and yes about 200,00 employees are retired, dropped out, gone from the post office

    • noname

      2006 saw 696,138 employees and end of 2014 saw 488,300

  • Mark Jamison

    Mr. Kosar did some solid work on postal issues while at CRS but this piece is as intellectually dishonest as it gets. This wanders into Stephen Moore territory for torturing dat for partisan purpose.
    http://postalnews.com/blog/2015/08/18/what-do-those-four-charts-really-explain/

    • Have a look at this chart. Even if you exclude RHBF charges, USPS has lost $13+ billion since 2007: https://pbs.twimg.com/media/CMu0QHxWsAAxVzs.png Does this look like a healthy enterprise to you? USPS, by the way, has not paid into the RHBF since 2010.

      • Joe

        Getting rid of Saturday and walk ups seem to be the most simple solutions and yet they still have done nothing.

        • Yes, Congress continues to insist USPS deliver on Saturday. Every year Congress puts this requirement in an appropriations bill. Senators and House members from rural areas are particularly in favor of continuing Saturday delivery.

  • vitameatavegamin

    This article is dishonest, fraudulent “yellow” journalism at its worst……

    • Perhaps you’d care to supply some facts to support your contentions?

      • Postal truth

        Plenty of problems in the post office. Unaccountable management violating very easy contract issues. Starters? Pecking order for overtime is well known. Keeping people who want to work overtime home and forcing non overtime people to cover vacant routes. Plainly stated in the contract and grievance filed carrier at home gets paid and the forced no carriers get overtime premium above the regular rate. You have employees who were on the verge of being let go becoming supervisors with very little time on the job and no supervisory experience. 300K in violations in one station paid out. You have stations that have had more than 25 craft positions eliminated with no reduction in supervision in that station and you now have GPS on the carriers monitoring their every move. The carrier craft is nearly down 250,000 career employees since the mid 90’s. probably 35 to 40% Without seeing the figures I doubt the salaried employees are near that number. The postal service provides free delivery of materials to blind and deaf and offers substantial discounted materials to religious organizations and non profits which would disappear if the service was privatized. Is anybody going to carry the bulky church tithing envelopes for .08? How about the ADVO ad for .03? Forwarding mail for free for a year?

        • noname

          The largest operating cost is wages. Any savings is realized through the control of wages. The job is more physical than people realize and as more automation comes on line the physical part of the job takes up more hours in your day. One question I have . If the box monopoly is lifted, how do you determine who you contact to have mail forwarded? Are you going to remember to contact all of your family and friends and whatever enterprise you deal with who forwards your mail? If you go on vacation do you need to contact all possible delivery services with the time you will be going on vacation? Given that cost is the number one factor in what would determine a profit margin…do you trust the employee vetting process for what could be low benefit low wage workers who have access to the date you leave and return from vacation?

          • And taking mail to Hawaii, Alaska, and various remote rural areas is quite expensive! I am not sure there is much benefit in de-monopolizing access to mail receipt receptacles. Not least, doing so is logistically tricky—would I have to pull the lock out of my home mail box (I live in an apartment)? I think that one area where consumers would be better served is by having more full service postal counters in stores, cafes, etc. In the days of Ben Franklin one could get one’s mail from a tavern. (There was no home delivery back then.) Drop off a parcel, have a beer!

        • To be clear, nowhere have I advocating abolishing USPS. This report has data on the number of folks in each position type: https://www.fas.org/sgp/crs/misc/RS22864.pdf Have a look at Table 1, which reports supervisory positions have gone down. So, there are fewer managers and fewer craft employees.

  • pool sand

    Sorry, Mr. Kosar, but posting a portion of one chart to support your point about money losses is not sufficient. There is no context with that information, just two columns side by side with no reference to any report. You are parsing information to prove a non-existent point.

    Let’s talk REAL money, shall we? When all this discussion about prepayments first started, the USPS acknowledged previous overpayments into FERS accounts of around $12-13 BILLION. CSRS overpayments were far worse, estimated at between $50-75 BILLION by the CBO. But a funny thing happened to all this surplus money. As the conversation dragged on and on, these monies were conveniently left out of the conversation until it seemed as though it was forgotten altogether.

    The surplus funds came about due to overestimations of actuarial payments going back to the Postal Reorganization Act of 1970. Along with one of your charts showing no debt load in 2005, that year also saw historically record volumes processed by the USPS. With no debt, and record volumes, the next years’ PAEA of 2006 was a legal way for Congress to get their hands on that surplus money to lower the federal deficit and make the sting of war expenses lessened.

    With the subsequent tanking of the economy, due to Wall Street thievery and the housing bubble bursting, record volumes started sliding from over 215 billion pieces annually to around 170 billion pieces last year; well off the record, but still a healthy amount.

    But the slide had achieved the desired result. USPS management parlayed this fake crisis into givebacks from union negotiations. They also revamped the entire distribution network unnecessarily, and began closing plants nationwide. They made NO PLAN whatsoever for any economic rebound, in cutting over 200,000 jobs. This created another layer of crisis, in that with rising volumes and an insufficient number of employees to effectively process the increased volume in a timely fashion, this now allowed the privatizers to claim that the USPS was outdated and couldn’t do the job anymore.

    In short, the plan was to place an untenable debt load on the USPS, and when it eventually bogged down operations, they would have the cover needed to scrap the operation piecemeal, until there was nothing left to save. The economic upturn has thrown a monkey wrench into the plans, so now the plan is to spend as much capital as possible to keep the debt load high.

    Here’s another problem with your story. It fails to address the hypocrisy of the folks who wrap themselves in the flag and praise all things connected to veterans EXCEPT THIS…..the USPS is the LARGEST employer of veterans,(myself included), and all of these personnel cuts are costing veterans employment at a time when wars are winding down and more veterans are returning home.

    In summation, your 4 charts theory doesn’t pass the smell test. You try to paint a complete picture with incomplete data. The USPS is constitutionally protected, but to those that would see us harmed, the constitution is untouchable when it comes to guns, but not when it comes to postal services,(or immigrants for that matter). No Stars !

    • Those data came from USPS’s annual 10-K reports. Look them up yourself. And the CSRS overpayment myth was knocked down years ago by GAO.

      • pool sand

        Do you mean the same USPS management team that willingly ignores the impact an annual $5 billion payment has on budget matters whenever quarterly figures come in? Newsflash Kevin, there are elements inside the USPS that are on the wrong side of this.

        And yes, sure, who hasn’t made a $5 billion accounting error? Your mention of an “overpayment myth” shows just how far off the track you are on this story. Congress has been stealing funds from the postal coffers for years.

        One more thing; NONE of the old BMC’s actually closed. They just renamed them NDC’s and rerouted the entire flow of mail at great(and unnecessary)expense. This is the cost I am describing to you. Your report has so many missing elements, and relies on postal “truths” that are anything but.

        And as noted above, parcel volume is exploding. I work with priority mail daily, and know this firsthand. All you’ve done here, is regurgitate the company line that unions are why the USPS is losing money. And still no mention of the impact on veterans. Try again, and do some actual digging this time.

        • (1) USPS financial statements, which you apparently do not read, clearly categorize “controllable” vs “non-controllable” costs, and the RHBF expense is always placed in the latter. USPS also regularly complains about the RHBF in its financial statements. (2) My article is about USPS’s finances. My article is not an article about USPS serving as jobs program. That USPS employs many veterans is good, but nothing in USPS’s statute (39 USC 101) directs it to serve as a jobs program for anyone, nor does the law require USPS to employ people regardless of mail volume.

          • pool sand

            What is apparent, is that you have never worked for the postal service. Because if you did, you would quickly come to understand that postal management has ALWAYS made the numbers say what they need them to say, much like the way your charts are serving your argument. You are completely off base, but you point to your charts, which you are not qualified to interpret.

            You are like Ted Wells, reporting on things you really have no working concept of. It is clear you started with an agenda, and worked your story to support your nonsense. And how dare you equate veteran employment with a jobs program. Again, you miss the point.

            You have a swiss cheese article, full of holes. You can’t hear what active postal workers have been telling you. I’ve got 40 years experience between the military and postal services. I understand what postal finance statements SAY, and what they actually MEAN. You have NO IDEA what you are talking about.

          • Please read the GAO report on CSRS. The overpayment is a myth, unless, of course, you also think GAO is lying. Say, maybe GAO is in cahoots with USPS management, which is publishing fake numbers in its annual reports! It’s a plot! They all are lying! #deadpan

          • pool sand

            You are the perfect foil for this narrative; naive and willfully ignorant. There are two polar opposites reporting on government matters nowadays; truth tellers and spinners. You are squarely in the latter. I’d wager you even subscribe to trickle down economics. You are only fooling the fools who eat this crap up. Again, you have NO IDEA what you are talking about. Now run along and misinterpret your next government chart ! #waterboy

          • Will do. And you keep selling the fantasy that USPS is a robust government service that would be just fine were it not for an evil cabal of politicians and privatizers.

    • realizing that mail volume has no recovered since its plunge in 2008 I cannot understand why we’d want USPS to keep open mail plants that are grossly under-utilized. Mail volume has not come back, as my charts show. If it does, well, USPS can staff up.

      • IIlIIl111

        Mail doesn’t include parcels anymore?? (the volume of which is shooting through the roof……………….)

        • Parcels are a very SMALL percentage of USPS’s volume. So, the fact they have increased a good bit does not mean total volume is growing. Please take time to READ the 10-K and 10-Q statements at http://about.usps.com/who-we-are/financials/welcome.htm If you had the facts we could have a more productive conversation.

          • noname

            But but but..1 parcel creates much more revenue than a single mail piece and generally won’t cost extra handling that won’t be recouped because most parcels don’t ever need to ve forwarded

          • Sure—USPS is benefiting from more stuff being ordered online, and carrying small packages the final mile for private shippers. Nonetheless, the revenue this is bringing is small (unless you call Priority Mail a parcel): http://about.usps.com/who-we-are/financials/revenue-pieces-weight-reports/fy2014.pdf

          • uncommonsense

            Most “parcels” that the USPS handles are classified as priority mail or parcel select. Parcels currently make up close to 25% of USPS revenue. The RPW reports don’t put them all in a nice category for you though.

          • uncommonsense

            The physical volume of a parcel is significantly larger than the volume of a letter. It occupies much more physical space. Parcels now make up more than 50% of the physical volume of mail being moved.

          • Interesting fact. 50%? Huh. Where’d you see that figure?

          • wright1bby

            I don’t have documentation of this “fact”. It is more of an observation. Take a look at your neighborhood mail carrier’s truck. You will see that more than 50% of the space is taken up by packages despite the low amount of piece “volume”.

        • Yes, mail pieces includes parcels. But, the increase in parcels has not moved total mail volume much. The chart I posted on mail volumes includes parcels.

      • uncommonsense

        Since 2006 USPS has shuttered about 50% of its mail processing facilities. Going from 671 then to under 350 now. Volume has not declined anywhere close to that amount. The most recent closings are getting rid of more efficient medium sized processing plants and consolidating them into less efficient large processing plants. USPS medium sized plants have always been the most efficient. Labor is the USPS’s big cost. Capital is not. Creating greater capital utilization rates tends to slightly decrease labor productivity rates. Consequently “under utilized” plants can provide an overall cost savings over “efficiently” utilized plants.

        • No, volume has not declines close to that amount, but I think it was generally recognized that USPS processing capacity was way in excess of volume even in 2006. The new IG report shows USPS may have cut too quickly or cut the wrong way, as USPS has failed to meet service standards. It will be interesting to see if USPS can improve its performance in the next quarter or two. If not, then we will have pretty good evidence that the consolidation effort was botched.

  • IIlIIl111

    Go ahead and say it, Kevin. You know you want to

    Privatization. The answer to every Postal problem, right????

    “Lets put Postal counters in every grocery store”

    Next it will be,

    “Why not let paper boys deliver the mail, I mean, if they are going down the street anyway….?” Right?? Simple math. Problem solved!!!!

    • Um, no. In more than a decade of writing about USPS I’ve not said that. and what exactly do you mean by privatization? Abolishing USPS and having dozens of private firms do mail?

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