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U.S. Postal Service Gained Revenue in 2019 but Lost $8.8 Billion Due to Retiree Costs

January 8, 2020

Package delivery is the one area where USPS makes money.

The Postal Regulatory Commission (PRC) proposed allowing the U.S. Postal Service (USPS) to set rates that more closely follow its costs in a revised notice of proposed rulemaking.

The rule would tie price caps to the declining density of mail and mandatory payments the agency must make toward pension benefits for future retirees. The PRC suggested a new formula that factors in the higher costs of delivering mail in lower-volume areas, and a second formula based on the costs of mandated payments for retirees.

USPS announced price increases on October 10 set to take effect on January 26, 2020. The new prices will raise shipping costs to consumers by 1.9 percent overall and have been approved by the governors of the Postal Service.

The USPS reported losses for fiscal year 2019 totaled $8.8 billion on November 14. USPS had a positive cash flow in 2019, but it must contribute to the cost of retiree pensions and health care from its operations under the Postal Accountability and Enhancement Act.

USPS revenues increased by $514 million compared to fiscal year 2018.

“The higher revenues were driven largely by price increases and continued growth in the Shipping and Packages business, where revenue increased $1.3 billion, or 6.1 percent, which more than offset revenue declines in First-Class and Marketing Mail as a result of declining volumes,” USPS stated in a press release on November 14.

Money-Making Package Service

Package delivery is the one area where USPS makes money, says Edward Hudgins, research director of The Heartland Institute, which publishes Budget & Tax News.

“Package delivery is the one part of postal operations not losing money,” Hudgins said. “The USPS by law must charge shippers rates that cover both direct and overhead costs, and those shippers currently cover much more overhead than legally required. Further, these rates are regularly renegotiated with shippers.”

There is concern among shippers the rule proposed on December 5 will reduce USPS’ ability to negotiate discounts with large-volume customers, Barron’s reported on Nov. 14.

“Amazon, a major USPS customer, and FedEx are expanding their own package delivery services,” Hudgins said. “So, raising package rates beyond the legal requirements to bulk shippers will simply drive more delivery business to private express carriers, and the result will be less revenue for USPS.”

Calls for Retirement Reforms

The pension costs USPS is required to cover under federal law present fiscal obligations other government agencies aren’t required to meet, Hudgins says.

“The USPS leadership must work with Congress to deal with unaffordable retiree health and pension benefit guarantees,” Hudgins said. “USPS might consider in the future moving from defined benefits for employee retirement to defined contributions to private employee accounts.

“I hope the USPS Board of Governors can be as innovative in coming up with real reforms as those other innovators who have been leading the e-commerce revolution,” Hudgins said.

Public comments on the revised rule are due by February 3, 2020. The PRC could enact the rule a month or so later.

Joe Barnett (joepaulbarnett@att.net) is managing editor of Budget & Tax News.

Internet Info

Edward Hudgins, “FedEx Seven Day Package Delivery Casts Doubt on Postal Service Package Delivery Rate Hikes,” The Heartland Institute, August 1, 2019: https://www.heartland.org/news-opinion/news/fedex-seven-day-package-delivery-casts-doubt-on-us-postal-service-rate-hikes

Author
Joe Barnett was managing editor of Budget & Tax News, a publication of The Heartland Institute. He now serves as a volunteer policy advisor.
jbarnett@heartland.org