The United States Postal Service plays a vital role in the country’s communications and commerce. It is also the world’s largest postal service, delivering approximately 49% of all mail sent globally. Despite this, USPS faces challenges that threaten its financial viability, which is why it is on our high risk list.
Today’s WatchBlog article and the video below explore these challenges and potential actions to address them.
The cost of universal service
USPS is required to provide universal service, serving the entire U.S. population, including remote areas that other delivery services exclude because serving them is not cost effective. To achieve this reach, USPS maintains the largest physical and logistical infrastructure of any non-military government institution.
USPS has taken some steps to reduce the costs of mail delivery activities, but it does not have the authority to make certain other changes that could reduce delivery costs. Specifically, USPS must deliver 6 days a week and operate postal facilities across the country.
USPS expenses and revenues
USPS should be financially self-sufficient, which means that it is supposed to cover its expenses from the income generated from the sale of its products and services. However, the USPS’s income does not cover its expenses. And its expenses are growing faster than its revenues, in part due to rising compensation and benefit costs combined with a continued decline in the volume of First-Class Mail, USPS ‘most profitable product.
USPS expenses and revenues, fiscal year 2000 to 2020
Employee compensation makes up the vast majority of USPS operating expenses (77% in FY2020), but USPS is limited in how it can manage those costs. Employee compensation includes items like labor costs, pension and health benefits, etc.
Employee-related costs are determined by a combination of USPS contracts and policies (including collective agreements negotiated with unions that represent approximately 90% of USPS employees) and legal requirements on compensation, benefits and benefits. employee retirement / pension programs.
Without legislative changes to give the USPS the flexibility to control certain costs, the USPS has indicated that it does not have the financial resources to carry out its primary mission. The Postal Service also said it was unable to make certain federal payments required to fund retiree health and retirement benefits. In fiscal 2020, the USPS did not earn $ 63.25 billion in these required retirement and retirement benefits. And USPS officials said the Postal Service has postponed some capital spending and infrastructure modernization efforts, such as replacing its aging delivery vehicles, because of those costs.
The main source of revenue for the postal service is mail and parcel delivery, but mail delivery revenue has declined in recent years. In addition, USPS is subject to regulatory price caps on some of its products such as First-Class Mail and Marketing Mail. These caps prevent the USPS from adjusting prices based on factors largely beyond its control, such as inflation.
USPS revenue for certain products for fiscal year 2007 to 2020
How is USPS still in business?
The USPS was able to continue operating by increasing its debt and unfunded liabilities, such as by not making certain federal payments required to fund retiree health and retirement benefits. But this approach is not sustainable in the future.
What can be done?
Although USPS has taken various measures to reduce costs, such as providing increased self-service options and reducing facility hours, legal requirements limit its ability to make changes to certain services. employee rates, compensation and benefits. Additionally, the USPS has not been able to make sweeping changes to resolve its financial issues because Congress, the USPS, and USPS stakeholders, including unions, shippers, and competitors, could not agree on how to do it. As a result, no postal reform law has been enacted since 2006.
In our new report, we highlight our previous recommendations that Congress should:
- consider reassessing the level of universal postal service the country needs;
- examine the extent to which the USPS should be financially self-sustaining and what legislative changes would be appropriate to enable the USPS to achieve this goal; and
- consider the most appropriate institutional structure for the USPS in the future.
Learn more about USPS financial challenges and our recommendations by reading our full report.