Will Pandemic and Politics Put Postal Service in Peril? Here Are the Facts.
Depending upon which experts you heed, the U.S. Postal Service is either just a few months away from insolvency or it’s in no danger of running out of cash any time soon.
The purpose of accounting, one of my favorite professors used to say, is to give people the information they need to make decisions.
Postal accounting, however, is more like a Rorschach inkblot test: People looking at the same numbers reach widely, and wildly, different conclusions about its finances, depending upon their own perceptions of how the agency should be run.
Even its financial statements don’t mean what they seem to mean. Every expert’s explanation of them always includes a couple of but-you-should-ignore-this-number caveats.
Adding to the confusion are the recent politically charged battles over the supposedly apolitical Postal Service. The danger for us publishers is that we’ll get caught in the crossfire.
Let’s cut through the fog of war and political “heifer droppings” to get a clearer picture of actual facts about what’s going on with this agency that’s so central to American life – and the largest expense for most magazine publishers:
Fact: Even before the pandemic, the Postal Service’s business model was becoming increasingly unsustainable.
On paper, the Postal Service has been losing billions of dollars annually for more than a decade. But if you ignore the odd prefunding of future retiree health benefits – essentially interest-free loans to the federal treasury, which the USPS simply stopped making – the agency was basically at breakeven.
Until the past couple of years. However you slice it, the Postal Service was losing money even before COVID-19 entered the picture. And the trend of declining mail volumes not matched by equivalent cost savings made the outlook even bleaker.
Every significant study of the agency’s long-term health has concluded that long-term survival will require some sort of controversial legislation – whether that’s federal subsidies, reducing service requirements (such as fewer delivery days), raising prices, and/or stripping power from the labor unions.
Fact: The pandemic’s financial impact on the USPS hasn’t been as bad – yet – as initially indicated.
Initial reports in March suggested that closures and the recession were costing the agency about $2 billion per month, a trend that could drive it to insolvency within a few months.
Indeed, “Marketing Mail” (direct mail and catalogs, for example) was 45% lower in April, the first full month of the pandemic, than in April 2019. But revenue from highly profitable First Class Mail was down only 8%.
Package revenue was up 38%, as quarantined consumers switched to online ordering, which has seen some post offices handling more boxes than they do during the December holiday crush. Total revenue was down less than 4% and expenses rose only slightly, apparently because of increased employee leave.
“Our best estimate of the net effect on USPS finances from the Covid-19 pandemic is a hit of $470 million in April,” wrote Steve Kearney, executive director of the Alliance of Nonprofit Mailers. “We do not foresee USPS running out of cash for the foreseeable future as some have predicted,” added Kearney, a former USPS financial executive noted for his expert and seemingly nonpartisan commentary on the Postal Service.
Fact: We can’t be sure that the April results will be repeated in the months that follow.
Kearney’s analysis seems to be based on assuming that April’s results will largely be repeated in the coming months.
But as the economy opens up, will the online-buying surge continue or will consumers revert to shopping at brick-and-mortar stores? And when will direct mail bounce back? And will it ever completely bounce back, or is some of the lost mail volume gone forever?
If online buying fades before traditional mail recovers, the Postal Service’s bottom line could get ugly. But if the opposite happens, the agency could actually be better off than it was before the pandemic.
Fact: Contrary to what President Trump claims, the Postal Service can’t solve its financial problems by raising “the price of a package by approximately four times.”
That would work about as well as a publisher trying to fix its problems by quadrupling its advertising rates: Customers would just say no, and seek other options.
Jacking up freight rates might even benefit Amazon – the target of Trump’s ire because its CEO, Jeff Bezos, also owns The Washington Post. Amazon already has its own delivery force, so it would be in a better position than its ecommerce competitors to pivot if postal rates suddenly became uncompetitive.
The USPS also has multi-year contracts with major package clients like Amazon and UPS that apparently inhibit its ability to impose simultaneous, across-the-board rate hikes.
Fact: The Postal Service can’t declare bankruptcy.
Some on the Left have worried that Trump, who has a history of using bankruptcy proceedings to solve business problems, will try to push the USPS into insolvency in order to advance his agenda and boost his re-election chances.
The Postal Service isn’t subject to federal bankruptcy laws. If it were to become insolvent, most of its financial obligations – such as for pensions and loans from the federal treasury – would shift to the federal government.
But it’s still not entirely clear what would, or could, happen if the agency ran out of cash.
Fact: The most generous recent proposals to prop up the Postal Service were never entirely about the pandemic.
Some Democratic members of Congress, along with the postal unions and some mailers groups, have used the pandemic as an opportunity to push, so far unsuccessfully, for emergency aid that would have also addressed longer-term issues.
One multibillion-dollar proposal, for example, called for ending retiree-health prefunding and providing federal funds to replace more than 200,000 outdated delivery vehicles that have a tendency to burst into flames.
Fact: Trump’s agenda for postal changes also extends beyond the pandemic.
Trump’s Administration has resisted providing any aid to the USPS, and recent Trump tirades have focused on vote by mail as well as package rates.
The USPS’s Board of Governors is now controlled by Trump appointees, who recently hired a Trump donor as Postmaster General. That has critics warning that the agency could become an arm of Trump’s re-election campaign, undercutting states’ efforts to expand vote by mail this fall in response to COVID-19.
Some fear that the governors and Postmaster General will try to carry out Trump’s vendetta against Amazon, resulting in the loss of a major customer. Or that they may force, or at least welcome, a postal financial crisis as a means of pushing through emergency changes – such as privatization, large rate increases, or cancellation of union contracts.
A worry for publishers is that such a crisis could put at risk the long-standing practices of providing unprofitable preferential rates to the Periodicals class, especially for not-for-profit publishers.
Fact: The only postal legislation Congress has passed in the last decade was for the naming of post offices.
Almost all discussions of postal reform face the same hurdle: They require changes in the law. But making tough, controversial decisions is not exactly Congress’s forte.
The U.S. Postal Service seems to be headed for a crisis. The only question is whether that crisis will be brought to a political and/or pandemical head this year or whether it will be pushed out to some point in the future.