Canada’s postal service announced this past week that it would cease home delivery over the next five years. In place of home delivery, Canadians who live in cities would have to pick up their mail and parcels at community mailboxes which would be established across the nation. Naturally, there are Canadians that are not in favor of this move, but what is more shocking is that the Canada Postal Service actually turned a profit last year. The Canada Post made the move as it was facing a $6.5 billion dollar pension shortfall in this coming year.
Contrast this to the United States Postal Service which stands on the brink of financial collapse.
The United States Postal Service is losing $25,000,000 dollars a day!
Even the Postmaster General Patrick Donahoe was quoted as saying that “we are operating with a broken business model.” The Postal Service lost $1.3 billion dollars in the last three months of 2012. Complicating matters is the fact that our “do nothing” Congress has done nothing to aid the failing agency. In 1992, the United States General Accounting Office raised concerns about new electronic communications that have formed a steady flow from paper to electronic format. From 2006 to 2010, overall USPS mail volume dropped by 20 percent from 213 billion pieces of mail to 170 billion. During this same period, the USPS incurred $20 billion dollars in losses. According to a 2010 study by the Boston Consulting Group, mail volume will decline an additional 15% by 2020. This means that the average postal customer will receive only one first class letter per day. At that level of mail, the USPS will lose a staggering $15 billion dollars per year.
The USPS has proposed a wide ranging set of restructuring steps to solve its problems from reducing the postal workforce to closing post offices and other facilities while discontinuing Saturday delivery. Again our “do nothing” Congress is studying the issues while the losses continue to mount. So what has the United States Postal Service done in the interim? They have become the largest deliverer of “junk mail” in the world.
It is estimated that over $84 million pieces of junk mail are delivered by the postal system each year. The USPS is trying to make deals with direct marketers to increase the number of sales pitches that we receive in the mail. The average American receives 41 pounds of junk mail per year. It is also wreaking havoc with the environment. Nearly 44% of the junk mail received each year ends up in a landfill.
The USPS is failing and needs to change. As currently structured, it cannot survive unless supported by tens of billions of dollars in subsidy. The average age of a postal employee is 52 years of age and nearly 155,000 of the 574,000 employees are near retirement. Studies have shown that to operate profitably the number of employees should be in the area of 400,000. The postal service delivers some 177 billion pieces of mail annually. To be profitable there is no doubt that technology has to play an important part of the restructuring of the postal service.
If Congress is going to continuously hammer the postal service to quit losing money, it must give it the freedom to do whatever is necessary to make it profitable. Higher stamp prices are one option but with every increase in the price of stamps, mail volume declines accordingly. Maybe the issue of cutting mail delivery back to five days per week should be readdressed? Maybe the Canada Post has an idea that should be considered here in the United States. Is the delivery of mail to 142 million delivery points each year something to be studied? The USPS operates the largest fleet in the country with over 218,000 vehicles costing approximately $444 million dollars in fuel cost annually. Every time the cost of fuel goes up one penny per gallon, it costs the postal service an extra $8 million dollars. Something has to be done as the postal service cannot continue to lose close to $16 billion dollars every year and be around much longer.
DONALD WITTMER is a retired business executive who held key roles in the automotive and banking sectors. For a time, he also served as a Fiscal Agency Manager for the Detroit branch of the Federal Reserve Bank of Chicago. He received his undergraduate degree from Cincinnati’s Xavier University, an M.A. in business management from Central Michigan University, and earned certification in bank operations from the School of Banking at the University of Wisconsin-Madison. A husband, father, and grandfather, he teaches part-time at the Kent Place School for Girls in Summit, New Jersey.