In the last 15 years, the United States Postal Service has lost around $90 billion. It has often failed to meet delivery expectations. And yet, the USPS is vital for many ecommerce companies.
By law, the USPS must deliver to every address in the United States six days per week. This makes the USPS a common and often good choice for last-mile delivery specifically and ecommerce generally.
Thus many ecommerce operations use USPS services.
In fact, in 2020 the USPS delivered 7.3 billion packages in the United States. By comparison, United Parcel Service (UPS) delivered 6.3 billion packages and documents worldwide — to 120 nations — in 2020, according to the company’s reports.
Given its six-day delivery schedule, the USPS delivers roughly 3.2 million more daily packages than UPS. Hence the USPS is important for package delivery.
Don’t forget those losses. The USPS has experienced billion-dollar losses for 15 years in a row. Fiscal 2021, which ended September 30, saw a $4.9 billion net loss.
In an odd way, that $4.9 billion loss is good considering that USPS had a $9.2 billion net loss in fiscal 2020.
Some opponents have argued that these losses indicate that the USPS should either be shuttered or privatized.
A private USPS would likely shift to profitability rather quickly. This could happen by shedding some of its most onerous problems. Let’s consider a few of those.
Prepaid health benefits. For 10 of the years that the USPS experienced billion-dollar losses, it was prepaying approximately $5 billion annually in retiree health benefits because of a legislative requirement. Before that, the agency had earned a modest profit of roughly $9 billion from fiscal 2003 to 2006. Private companies would not likely produce losses to pre-fund health care.
Employee pay. The median annual wage for postal workers was $51,080 in May 2020, according to the U.S. Bureau of Labor Statistics. The median annual wage for UPS workers in 2020 was $44,254, according to the company’s 2020 annual report. If the USPS were private, it could lower its wages to match the industry and save billions.
Price caps. The USPS cannot raise rates without permission. The organization essentially needs an act of Congress to boost postage and package rates. Plus, it must adhere to unrealistic first-class-mail standards without the ability to raise prices in step with costs. A private USPS would almost certainly increase postage rates for first-class mail or eliminate the service altogether to focus on more profitable offerings.
Comprehensive delivery. The USPS delivers to every address in the United States. A private USPS would presumably not serve many rural addresses, requiring those folks to come to a central hub to pick up packages and mail.
Modernization. Lastly, the USPS has borrowing limits. It cannot seek out loans for investment in new equipment, nor can it seek outside equity.
So yes, a private USPS — or a shuttered USPS replaced by an army of private companies — could become profitable. But is that better?
An Undecided Future
In its 10-year “Delivering for America” plan, unveiled earlier this year, the USPS proposed changes that, if successful, would lead to small annual profits.
The plan addresses all of the problems described above, plus other issues around employee retention, logistics, and infrastructure.
For example, the plan changes service standards for some mail classes so the USPS can move those items with trucks (which the USPS owns) rather than via contracted air services.
The plan also includes processing improvements that could boost package handling capacity by 4.5 million boxes daily by the end of 2022. Moving billions of additional packages would take some pressure off of shipping during peak holiday periods.
Capacity would continue to grow over the next decade.
A financially viable and increasingly capable USPS might be very good for ecommerce businesses, especially small and mid-sized companies not able to build last-mile fleets.
There is, however, no guarantee that Congress will accept the plan. Both the U.S. House and Senate had postal reform bills in committee at the time of writing. But there were certainly disagreements.
Some legislators did not want a change in mail standards. And President Biden’s November 19 nominees to the USPS Board of Governors have led some to think that Postmaster General Louis DeJoy could soon be out of a job.
Take a Side
Ecommerce owners and managers may want to take a side. The USPS’s future is being debated. This mainstay of ecommerce delivery could soon be on its way to improved capabilities or not.
It seems too important for ecommerce businesses, particularly SMBs, to sit and watch.