September 20, 2011
Column | outbound

Can the USPS survive?

The short answer is, not without considerable restructuring.

By Mitch Mac Donald

As the saying goes: "Neither snow nor rain nor heat nor gloom of night stays these couriers from the swift completion of their appointed rounds." But what about insolvency? We may find out in the months ahead.

As this issue went to press, U.S. Postmaster General Patrick Donahoe was slated to appear before the Senate Homeland Security and Governmental Affairs Committee, where he was expected to seek congressional permission to override anti-layoff language in the agency's collective bargaining agreement with postal workers. That would pave the way for substantial reductions in staffing.

That's just one of several cost-cutting measures the U.S. Postal Service (USPS) has proposed in recent months. It has also offered up such suggestions as suspending Saturday deliveries and closing several thousand branch offices. Such drastic measures are said to be necessary to keep the postal service from essentially going under before the end of the year.

The fiscal crisis facing the postal service has been brewing for the better part of a decade, but the problem now appears to be coming to a head. According to published reports, the venerable agency that touches almost every American every day (except Sunday, of course) is so cash poor that it's on the brink of defaulting on a pending $5 billion-plus payment to pre-fund retiree health benefits.

This is no temporary setback. A number of independent analysts have reviewed the USPS's projected profit-and-loss profile over the next eight to 10 years, and the results could only be described as dismal. For example, a recent study by McKinsey & Co. concluded that without significant changes, the postal service faces a cumulative net loss of $238 billion by 2020.

It's clear that the USPS's centuries-old business model is no longer sustainable in a digital world. Its customers have abandoned "snail mail" for e-mail in droves. It will have to look elsewhere for revenue if it hopes to stay afloat.

So what options does the USPS have? What are its strengths, and how can it use them to its best advantage? What many see as the agency's most valuable asset is its enormous and underutilized ground delivery network, which reaches every node within the postal infrastructure. The nodes include not only every business and residential address in the United States, but also a vast network of regional distribution centers, bulk mail centers, and destination delivery units (i.e., local post offices).

In fact, the USPS has already leveraged this network with some success. For instance, it has carved out a profitable niche providing "last mile" delivery and "first mile" pickups of returns on behalf of private parcel service companies like FedEx and UPS in places where the private carriers lack the package density to justify sending out a truck.

So is this the agency's ticket to sustainable, long-term success? Could the USPS reinvent itself as primarily a provider of parcel services?

The short answer is, not without a great deal of difficulty. Such a step would require overcoming considerable hurdles. Right now, the postal service faces severe regulatory constraints. Congress essentially micro-manages the USPS's operations. For instance, it tells the postal service which post offices it must keep open and which it can close, which days it can and/or must deliver, and so forth. The bottom line is that the USPS is subject to a vast array of governmental and political imperatives, while its private sector rivals operate free from any such constraints.

What that means is that in order to reinvent itself as primarily a parcel delivery provider, the USPS would first have to convince Congress to free it from the regulatory yoke it wears as a quasi-government agency. Otherwise, it most assuredly would be unable to compete and ultimately, to survive.

This article has been updated to reflect the fact that the $5 billion-plus payment is needed to pre-fund retiree health benefits, not fund current retiree health benefits.

About the Author

Mitch Mac Donald
Group Editorial Director
Mitch Mac Donald has more than 30 years of experience in both the newspaper and magazine businesses. He has covered the logistics and supply chain fields since 1988. Twice named one of the Top 10 Business Journalists in the U.S., he has served in a multitude of editorial and publishing roles. The leading force behind the launch of Supply Chain Management Review, he was that brand's founding publisher and editorial director from 1997 to 2000. Additionally, he has served as news editor, chief editor, publisher and editorial director of Logistics Management, as well as publisher of Modern Materials Handling. Mitch is also the president and CEO of Agile Business Media, LLC, the parent company of DC VELOCITY and CSCMP's Supply Chain Quarterly.

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