The U.S. Postal Service quarterly financial report this week revealed, for the first time in several years, a modest net gain. The surprising results have left many scratching their heads and some have even described the outcome as a “moment of celebration.”
However, a closer look at the Postal Service’s fiscal record over the past several years would suggest that there is little room for rejoicing. Truth be told, the USPS has lost more than a billion dollars annually during the last 14 consecutive years, and in 2020, USPS was $9.2 billion in the red. So, in reality, it would be sensible to not jump to conclusions about the meaning behind a modest three-month profit.
Among other knee-jerk reactions, the USPS’ positive uptick has been shrouded with an overly simplistic view of the postal system. Reports have focused heavily on the “surge in holiday deliveries,” and significant impacts of “COVID-driven ecommerce shopping.”
Yet, selectively describing it all in such basic terms would be unwise. We must look at the overall fiscal health and longevity of the agency, and disregard the debunked theories that more revenue alone regardless of cost will solve all of the Postal Service’s fiscal problems. Past results reveal that the USPS cannot just simply boost its way to solvency without accounting for cost.
Looking back at the COVID-driven e-commerce market that dramatically altered 2020, the expense growth of the Postal Service was yet again on full display. In fact, 2020 was the Postal Service’s most cost-intensive year ever after recording $77 billion in controllable expenses. This reflected a major jump from when expenses were $67.7 billion just 5 years ago.
So, while it might not make for great headlines, it still bears repeating that the early figures for 2021 are showing much of the same: that the postal service is even more expensive to operate and maintain. USPS total liabilities have also risen to $117.4 billion, which prompt questions about how the $10 billion grant via the CARES act will be reflected on its balance sheets.
The Board of Governors also painted a clear reminder of just how fragile the Postal Service’s fiscal matters really are, citing that they could have easily suffered a loss of $650 million for the first 3 months. Yet, the effects of interest rates, actuarial revaluations and a time-limited peak surcharge worked out in the Postal Service’s favor, this time.
Among these features, the Board’s move to tinker with peak-period rate adjustments provides a potentially interesting case study on the long and arduous road to implement commensurate pricing throughout the entire postal system.
As with the products of any business, there must be an interrelated relationship between the prices that consumers are willing to pay and the extent of the resources are expended by the firm to bring its products and services to the market. For this reason, our organization has sought to work with Postal Service’s regulator on identifying the vulnerabilities in postal cost assignments, including clarifying just how heavily costs and risks can be shifted from one product segment to another.
The real world concerns of this are already underway, as the Postal Service will soon embark on a broad swath of price increases on letters and various mailing classes. Because of this, an infusion of funds is likely to come in the door, but as it does, the latest financial report reveals that dollars are also headed outwards in a variety of ways. USPS signals that it is preparing to invest deeply in package sortation infrastructure, while also adding a new fleet of more robust and accommodating vehicles.
This all represents a hefty price to pay for the Postal Service’s largest base of customers, which are predominantly users of the mail letter system and the millions of individuals who mainly just want USPS to fix its painfully slow delivery.
The Postal Service and its regulators will need to be mindful of ensuring that price increases are narrowly tied to the greatest drivers of costs, rather than force other parts of institution to foot the bill. Until they institute a more transparent full cost accounting method for all of product segments, we should not be fooled by the latest financial report. Without some fixes, the Postal Service business model is not sustainable.
Steve Pociask is the president/CEO of the American Consumer Institute, a nonprofit research organization.
Editor’s Note: The House Committee on Oversight and Government Reform is set to hear several proposals to set USPS finances to rights at a Feb. 24 hearing.