U.S. Postal Service is a casuality of change

Sunday, December 11, 2011

Like so many other things in our world, the once-essential United States Postal Service may someday go the way of the buffalo.

The Internet and massive labor costs are forcing the Postal Service to consider drastically reducing services or face bankruptcy.

If nothing changes, the USPS will lose over $5 billion this year and has a projected $14 billion loss for next year. Losses of that magnitude will force the institution into bankruptcy. That much is all but certain.

If the proposed cuts by the USPS are enacted, mail delivery will be slowed. And in the not-so-distant future, rates will increase. And the death spiral will continue.

The primary culprit in this looming demise is the Internet. First class mail is down 25 percent in the last 10 years. The USPS delivers more junk mail than first class. At the current pace of decline, by 2020 first class mail volume is projected to drop by half. And first class mail is where the Postal Service makes it money.

But a larger and much more costly issue is labor costs. The Postal Service budget is chewed up by salaries and benefits. A full 80 percent of their budget goes into the salary and benefit category. Compare that to FedEx which spends 43 percent on labor costs or UPS which budgets 63 percent for salaries and benefits.

At the heart of these benefit expenses is a powerful union that has received generous salary increases and pension benefits. If you want to point a finger of blame, you need not look beyond the union power to explain the demise of the Postal Service.

The USPS is just the latest casualty of the changing world. The Internet will continue to grow and take business away. And without major reform with the unions, what little revenue that exists will be consumed by the same salaries and benefits that brought this change.

There's a lesson for all of us in this story. And quite honestly, you don't have to read between the lines to see the formula for a failed business model.

Someday we may well tell our children about the days when a postman actually delivered mail to your home. I hope we tell them the full story.

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