Posting Losses

What do we do with the Post Office?

The US Postal Service was founded in1775 with Benjamin Franklin as the first Postmaster General. It employs over half a million workers and operates over 200 thousand vehicles. It’s authorized by its own clause in the Constitution, the “postal clause,” which empowers Congress to establish post offices and post roads.

But the Post Office has a problem: it’s losing money. It’s running a $9.2 billion dollar deficit, and it may not be able to make a $5.5 billion pension payment due this month. Email has been cutting into first-class mailings for a decade, and ad mailings fell sharply in during the recession and have continued to slide. Unless it gets a cash infusion, officials warn it may have to shut down entirely as early as this winter.

Congress has given the Post Office two incompatible mandates: make money like a business, but don’t run it like a business–closing remote locations, reducing delivery services or charging variable rates on letters based on cost. Congress should choose: is flat-rate universal service valuable enough to subsidize, or should the Postal Service be free to compete and set its own prices and services?

It’s unlikely Congress will subsidize them; nor will they cut them loose. Some short-term fix to the current crisis will be found, but this just pospones the issue. The Post Office has a labor-cost problem, and the only way out is through innovation. But that can only happen if Congress gets out of the way.

Douglas R. Tengdin, CFA
Chief Investment Officer
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