ZeroHedge.com reports that the Congress has recently proposed a “Postal Jobs Protection Act of 2014”. According to ZeroHedge, the essential feature of that Act is seen in a single sentence:
“Notwithstanding any other provision of law, no mail processing facility operating as of September 1, 2014, may be closed or consolidated prior to December 31, 2015.”
In other words, Congress wants to pass a law to ensure that NO US postal center can be shut down before the beginning of A.D. 2016.
Why is this important?
Because, in its most recent quarter, the US Postal Service lost $1.9 billion. That’s almost three times as much as the $699 million they lost during the same quarter last year.
So far this fiscal year, USPS has lost over $4 billion.
What’s more– the post office has exhausted its $15 billion line of credit.
The USPS has almost no cash left to continue financing operations, they’re not profitable and therefore can’t earn enough new cash to continue financing operations, and they have no remaining line of credit to borrow more cash to continue financing operations.
Worse, the US Postal Service’s own financial statements indicates that its net worth (i.e. assets minus liabilities) is negative $44 billion.
That financial condition does not inspire optimism.
• We can see how the USPS arrived at a negative net worth by comparing 2-day shipping rates among major carriers in the US for a simple envelope package.
FedEx (which generates a $3.3 billion annual pretax income) charges $25.12
UPS (which generates a $6.7 billion annual pretax income) charges $24.16
The US Postal Service (which has a negative net worth of $44 billion) charges $5.05 for the same service if you order online.
In this particular comparison, the USPS is charging about 20% of what FedEx and UPS charge. This signals that the Postal Service has been operating at a significant loss for some time.
In a sense, the USPS’s low prices have provided a kind of “subsidy” for the American people. But the funds to support that subsidy are drying up and the USPS will therefore be forced to make dramatic changes or cease to exist.
There’s a lesson here for everyone else in this country who relies on some form of welfare or subsidy. The underlying funds are drying up. The welfare/subsidy must at least diminish and possibly end. Just as the USPS must be self-supporting or perish, so must individuals.
• The USPS is nearly insolvent. In order to survive, they’ll need to raise revenue and/or cut costs. Dramatically.
“Raising revenue” means that the USPS must dramatically increase the prices it charges for stamps and other mailing services.
Cutting costs” means the USPS must: 1) reduce services (no more Saturday mail delivery; maybe mail delivery only two or three days a week); 2) lay off employees; and/or, 3) close down unprofitable Post Offices.
(I use the USPS only rarely. So, I could be wrong, but if I remember correctly, it may be possible to purchase particular stamps for a price today that will always be able to pay for a particular service at some future date. In other words, you might be able to purchase a “First Class Envelope Stamp” (that’s my imaginary name for such stamps) for, say, 49 cents each today. Then, even if postage rates for that service rose from 49 cents to $1.49, those “First Class Envelope Stamps” that you bought for $0.49 each would still provide you with the service. If that recollection were true, and if the USPS is in as much financial trouble as is reported, we can expect the prices for stamps to rise significantly in the near future. This suggests that if you were prepared to invest $1,000 in some sort of “forever” stamps today, there’s a good chance that those stamps could be worth at least $2,000 within a year or two. That’s a pretty good return on investment.)
• I lived in a beautiful little town on Oregon during A.D. 2012. Population, 150. The town was picturesque, but was already in an economic depression and struggling to stay solvent. They had a beautiful little Post Office. No lines (even on Christmas). Fast service. That Post Office had only one (?) employee so far as I know. If that Post Office were closed, the people of that little town would have to drive at least 20 miles to the next closest Post Office (assuming that one also wasn’t closed).
I doubt that the local Post Office sold more than $20 worth of stamps each day. I’d be surprised if it averaged over $100/day business. I don’t know what they paid the Postal Employee. I don’t know what it cost to pay for the electricity and other costs associated with keeping the Post Office building operating and maintained.
But there’s no way that that Post Office was carrying its own weight. It had to be operating at a loss. If it were closed to stop that loss, would it create a hardship for the 150 people who lived in that little town? Absolutely. But what else can you do? If a particular Post Office can’t turn a profit, it must ultimately be closed.
But Congress doesn’t want to close any Post Offices until at least the end of A.D. 2015. So they’re drafting legislation to force the USPS to keep unprofitable Post Offices open and thereby keep operating at a loss.
Admittedly, even if the proposed legislation passes, the USPS can still lay off employees and cut its open hours from 48 hours a week, to 24 or even ten. And, of course, they can still raise the prices on stamps and services.
But, by forcing the USPS to keep all existing PO’s open for at least another year, Congress is essentially limiting the USPS’s ability to continue to operate and even survive.
The proposed legislation is another example of the dangerous stupidity that can be enforced under a government dedicated to central planning.
It’s also evidence that that the USPS will either change dramatically over the next 24 months or perhaps cease to exist.
The mere possibility that the Postal Service might be on the brink of insolvency is just another leaf in the breeze that suggests that our economy may be in serious peril.
Whether the nation experiences that peril remains to be seen. But, for now, it seems clear that the USPS is up to its neck in red ink. That implies that we will see dramatic changes in the Post Office in the near future. If we don’t, the USPS may cease to exist within the next 12 to 24 months.