Issues & Insights

U.S. Postal Service Needs To Get A Grip On Package Pricing

Airman 1st Class Jordan Castelan

All eyes have been on the beleaguered U.S. Postal Service (USPS) in recent weeks, with calls to “Save the Post Office” inundating Twitter.

On May 6, the USPS Board of Governors announced the arrival of new Postmaster General Louis DeJoy. Critics are already unfairly accusing him of being a “job-killer.” Buck-passing, charged rhetoric, and false claims are nothing new in postal policy, but the struggling agency recently offered reform advocates a glimmer of hope. Major media outlets reported on May 14 that the USPS was launching an internal review of its dysfunctional pricing policies as a condition of receiving $10 billion in federal loans. With new leadership and continued review, the USPS can turn its ship(ments) around and save taxpayers from a costly bailout. 

In recent weeks, USPS leadership helmed by outgoing Postmaster General Megan Brennan hasn’t been shy about asking for a coronavirus-related bailout far in excess of projected losses from pandemic disruptions. But, agency officials proclaim that their underlying pricing policies are fine even when they’re clearly not. USPS leadership claims that package delivery services are generating revenue and can be a panacea for the agency once virus pressures have subsided. Promising-looking revenue figures mean nothing, however, when operating costs are continually greater than revenue. The agency needs to be talking about profits, not boasting about revenue figures.

An online retailer-backed package coalition readily makes this mistake in a recent, starry-eyed statement to the press. The head of the coalition said, “the package delivery business of the USPS is a moneymaker for the agency, pulling in $24 billion in revenue last year.” But the group fails to mention costs, along with the troubling likelihood that the USPS is systematically underestimating how much packages are contributing to overall agency expenses. Sure, the agency claims that “attributable costs” for “competitive products” such as packages were about $16 billion for fiscal year 2019 (compared to $24 billion in revenue).

But something just doesn’t add up with how the agency is arriving at these figures. In its FY 2019 Annual Compliance Report, it estimates that the (specifically listed out) “Competitive Products Property and Equipment Assets” cost less than $5 million (see CP03). This bizarre estimate is just 0.03% of total net equipment and property assets reported by the USPS in its FY 2019 10-K report.

Elsewhere in its financial reporting (see CP04), the agency claims that “net property and equipment” costs for competitive products were $2.88 billion in FY 2019, but unlike the aforementioned $5 million figure, calculations aren’t shown. Even if we take the agency’s word for it and accept this bloated figure, it still amounts to only 20% of total net equipment and property assets stated in the 10-K report.

This cost attribution is absurdly low. From more spacious trucks to package-centric delivery scanners, the agency has been purchasing assets for years that specifically accommodate packages. The USPS has been purchasing thousands of “Extended Capacity Delivery Vehicles” over the past few years, which feature cargo area space and durability designed for packages. And, with the USPS slated to purchase 180,000 package-centric trucks for more than $6 billion later this year, parcel-related costs will only increase.

Given that the USPS debts have soared by $78 billion from fiscal years 2007 through 2019 (according to the Government Accountability Office), estimating costs and postal profits has never been more important. While the regulated mail business is likely covering costs, the USPS cannot defend its business model when the agency loses billions of dollars each year and cannot prove that packages are profitable.

The soon-to-be-retired Brennan promised a 10-year business plan to Congress more than a year ago, but this plan never materialized.

The USPS, and all taxpayers, will benefit from having a knowledgeable leader in the logistics industry as postmaster general. DeJoy has been in the logistics world for more than 30 years and has repeatedly worked with the agency he will soon lead. The USPS needs a leader focused on the big picture instead of narrowly focusing on revenue at the expense of profits. Evidence-free claims that “this is fine” will just lead to taxpayer bailouts and a blank check for continued mismanagement.

Ross Marchand is the director of policy for the Taxpayers Protection Alliance.

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3 comments

  • We ship using the USPS, it is by far the cheapest. Time to change it, that and how do they justify paying a person $50,000 a year plus benefits.to deliver mail in a small town. Another issue is , in our little area of Maine, we have 7 post offices, some year-round, some seasonal. Still in this day and age do we need 7?

  • If I send a six-page letter, about an ounce, anywhere in the states, it costs around 50 cents. If I mail a small spatula In a bubble envelope that weighs under an ounce, it suddenly becomes a “package” and costs between $3.50 to $4.50, depending on where I send it to. People want free shipping of merchandise, and I have no choice but to let others fulfill my orders, depriving someone local of a part-time job. This isn’t right.

  • It would help if the USPS didn’t prepay their annual retirements based on projected employment and payroll. If they paid it near the end of their FY based on actual employment and payroll, they could save billions.

  • [print-me target="#post-%ID%"]

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