Sunday, August 23, 2009

Why the Post Ofice is losing money

The WSJ took a look at why the U.S. Post Office was featured by Barack Obama as doing so poorly in competition with FedEx and UPS. It sounds a lot like the woes afflicting the American auto industry. First there are the problems of technological change that are passing the Post Office by. Communication is shifting from snail mail to email. Demand has shifted back and the Post Office has not adapted. But an even greater problem is due to the salaries and benefits that union workers have won that account for the great majority of USPS spending and compensate those workers better than even other government employees.
About 80 cents of every postal dollar pays for employee salaries and benefits (compared to less than 50 cents for Fed Ex and UPS). What that means is that if you want to cut costs at the post office, you have to slash labor expenses. Mr. Potter has reduced Postal Service employment to 650,000 from 800,000 the past four years, largely through attrition. But he still employs 650,000 workers who have among the best wages and benefits in all of American life.

Most employees have no-layoff clauses, the starting salaries are about 25% to 30% higher than for comparably skilled private workers, and the fringe benefits are so expensive that the Government Accountability Office says $500 million a year could be saved merely by bringing health benefits into line with those of other federal workers. Mr. Potter has to set aside $5 billion a year just to pay for health insurance. Postal management now wants to "save" money by not advance-funding those obligations, and Congress is likely to say yes. But that doesn't save a dime; it simply creates even larger unfunded liabilities down the road.
Such statistics help to explain why the USPS can't compete with FedEx and UPS and why it continually loses money. The story mirrors what has been happening to the American auto companies.