The US government demands that the post office lose a lot of money

Parcels are key.
Parcels are key.
Image: Reuters/Brian Snyder
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For the first three months of 2018, the US Postal Service reported a $1.3 billion loss, up from $562 million a year ago.

The basic issue is that revenue is growing more slowly than expenses. Total revenue grew by 1.4% while total expenses grew by 5.7%. Clearly, that makes for a less profitable business. This is a government-mandated financial squeeze and there are two main causes.

First, regular mail—that is, the ordinary letters sent by individuals and businesses on a daily basis—is a declining business; volume-per-end-point (the mailbox) declined by 3.4% this year. Overall, regular mail is down 35% over the past 10 years. The problem is that the cost to deliver doesn’t decline with lower volume: the USPS still has to send a delivery person to each mailbox no matter how many pieces are delivered. And the number of delivery points increases by about 1 million each year. And the USPS can’t increase costs to fix its problem because the government has limited how it can increase price to the rate of inflation, currently 0.9%. This all means that USPS non-package revenue declined by 2% since last year while costs increased.

Second, retirement expenses are growing significantly. Retiree health benefits increased 60% since last year and unfunded retirement benefits increased a whopping 142%. These costs are government-mandated and have nothing to do with what’s going on in the current business. These two categories represented 60% of the total expense growth even though they represented only 12% of total expenses.

Is there any good news?

Yes. For the first three months of 2018, revenue from shipping and packages (the competitive side of the market that delivers packages for companies like Amazon) was up 9.5%. That growth rate is above that of related current expenses like current employees and transportation. So even though Trump says that Amazon is the enemy of the post office, it seems that Amazon may be the only bright spot in the USPS’s financial squeeze—which is induced by the government of which Trump is now the chief executive.