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Thu Mar 7, 2013, 10:03 AM

Gutting the Postal Service.

James Royal recently published an article at Motley Fool evaluating the Postal Service as a business. Link: http://www.fool.com/investing/general/2013/03/04/how-the-postal-service-is-being-gutted.aspx

The title of the article is "How the Postal Service is Being Gutted" and draws the conclusion that "...the postal service is a fundamentally sound business, though not without its challenges. If you look closely, you'll see a concerted campaign to drive USPS out of business..."

Royal outlines three myths about the Postal Service. The first myth is that recent losses demonstrate that USPS is not a viable business. Royal notes that the majority of the red ink is the result of the healthcare pre-funding mandate imposed by the lame-duck Republican Congress in 2006. The pre-funding mandate requires the Postal Service to pay for 75 years of future employee health care benefits in a 10 year period. This onerous requirement means that the Postal Service is currently paying for future health benefits for employees who have not been hired yet and, in many cases, not born yet. Despite this burden, credit needs to be given where credit is due:

And the USPS has been a model for prudent squirreling. As of Feb. 2012, it had more than $326 billion in assets in its retirement fund, good for covering 91% of future pension and health-care liabilities. In fact, on its pensions, the USPS is more than 100% funded, compared to 42% at the government and 80% at the average Fortune 1000 company. In health-care pre-funding, the USPS stands at 49%, which sounds not so good until you understand that the government doesn't pre-fund at all and that just 38% of Fortune 1000 companies do, at just a median 37% rate. The USPS does better than almost everyone.

As if the pre-funding mandate were not a sufficient burden, the Postal Service is also restricted to investing those funds in low-yield Treasury bonds. This forces the Postal Service to save even more now than a private company would to obtain the same payout later.

The second myth that the article examines is "snail mail is dead." The article points out that, even though letter mail volume is declining due to replacement by e-mail, the larger problem is that, at 46 cents, first class mail is grossly underpriced compared to European services which are priced closer to $1 for a letter. Though the article doesn't mention the fact, European postal services tend to be more privatized than their American counterpart. FedEx and UPS provide no comparable service at anything close to the same price. Another area in which USPS provides underpriced service is pre-sorted bulk mail. Bulk mailers get discounts for pre-sorting mail that exceed the cost-savings to the Postal Service.

One barrier to proper pricing is that price increases are overseen by a separate agency, the Postal Regulatory Commission, and are restricted to increasing no more than the general rate of inflation. If costs exceed the inflation rate during a given period, they can not be recovered.

Proper pricing is important for a business mandated to deliver everywhere for a fixed price, a burden not faced by private services. Of necessity, many locations, such as rural ones, lose money -- part of the price of a national postal service. Private services can simply leave a location if it's not profitable. In fact, private services rely on USPS to deliver to unprofitable locations for them.

In addition to saddling the Postal Service with the suffocating health care pre-funding mandate and preventing it from properly pricing its products, Congress has also prevented the USPS from increasing revenue by expanding its services into related lines. While our representatives exhort the Postal Service to operate like a business on the one hand, on the other they also say that USPS can not "unfairly" compete with private companies. Recent restrictions include: implementation of an online payment system in 2000 (internet companies complained); putting public copy machines in Post Office lobbies; selling phone cards; and selling postage meter cartridges (Pitney Bowes objected). "And, of course, rivals such as UPS complained, ultimately leading Congress in 2006 to restrict USPS to mail delivery."

The third myth examined is that "privatized mail delivery would be cheaper and more effective." The article points out that in 2011, USPS delivered more than 30% of FedEx Ground's packages. FedEx uses the Postal Service because it is cheaper. Another way the Postal Service is forced to operate at a handicap is by preventing it from negotiating volume discounts with large parcel shippers. And then there's this:

It's bad enough that USPS is forbidden from entering new markets. When it does well on its home turf, rivals turn to Congress, silencing USPS when it delivers better rates. As economist Dean Baker explains, "About a decade ago, the Postal Service had an extremely effective ad campaign highlighting the fact that its express mail service was just a fraction of the price charged for overnight delivery by UPS and FedEx. {They} went to court to try to stop the ad campaign. When the court told them to get lost, they went to Congress. Their friends in Congress then leaned on the Postal Service and got it to end the ads."

The article concludes by suggesting that the only sensible reason for handicapping the Postal Service in this fashion is to set it up for "failure" and subsequent privatization. The Cato Institute, which was founded by Charles Koch, has been advocating for this outcome for decades. FedEx founder and CEO Frederick Smith has served on the Board at the Cato Institute and FedEx continues to help fund the think tank.

Royal points out "two plums" that can be plucked from a privatized Postal Service. One would be "busting the union, lowering wages, and shifting that profit into investors' hands..." And the other:

Second, and perhaps sweeter, that well-funded USPS retirement account might be opened for raiding. An acquirer could invest in higher-return securities and adjust their return assumptions (not even unfairly), freeing tens of billions that could then be returned to investors. For context, FedEx and UPS have a combined market cap of $110 billion against nearly $330 billion in USPS retirement assets.

I have been following the Postal Service's plight for many years and have explained the financial squeeze imposed by Congress to numerous people. In doing so I have witnessed a curious phenomenon. When I explain the health care pre-funding mandate people suddenly appear almost disoriented. Not a minute later they often refer to it as "pension pre-funding" and I have to correct them. "The pensions are fully funded. The pensions are actually overfunded. The pre-funding mandate covers future health care premiums..." People need to be told twice- and then their jaw drops...

I think people resist understanding the truth about the mandate because the truth is- it is blatantly abusive. Nobody wants to examine what else is hiding underneath that rock. If Congress will sabotage the Postal Service, what else might they be capable of doing? Is the handling of the Postal Service an anomaly or a template? They also have Social Security, Medicare, and Medicaid in their hands...

NALC (the carriers' union) is sponsoring a national day of action to mobilize public support on March 24. Details here: http://www.nalc.org/

Highly recommended site for information on USPS: http://www.savethepostoffice.com/






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Reply Gutting the Postal Service. (Original post)
hay rick Mar 2013 OP
sketchy Mar 2013 #1
Teamster Jeff Mar 2013 #2
duffyduff Mar 2013 #3
Buns_of_Fire Mar 2013 #4
Omaha Steve Mar 2013 #5
KoKo Mar 2013 #6
hay rick Mar 2013 #7
Hayabusa Mar 2013 #8

Response to hay rick (Original post)

Thu Mar 7, 2013, 12:03 PM

1. K & R

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Response to hay rick (Original post)

Thu Mar 7, 2013, 12:37 PM

2. K&R

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Response to hay rick (Original post)

Thu Mar 7, 2013, 12:47 PM

3. The problem is with Congress, not with the Postal Service

 

The Cato Institute lies about everything in order to further a crackpot ideology and to further enrich the Kochs who don't want to pay taxes for anything.

I love my post office. Digital everything is highly overrated.

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Response to hay rick (Original post)

Thu Mar 7, 2013, 12:49 PM

4. I tend to use USPS even when I have other options.

Long gone are the days when "I guess the check got lost in the mail" was an excuse. These guys are good, and a lot more reliable than any other service I've used in the past. Cheaper, too.

Which, I guess, is why republicans want to hobble it. They can't bear to see a (quasi-)governmental agency do a better job than one of their precious corporations.

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Response to hay rick (Original post)

Thu Mar 7, 2013, 03:39 PM

5. Thank you for posting!


There is nothing like a lame duck 2006 R Congress breaking the largest unions in the country.

OS

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Response to hay rick (Original post)

Thu Mar 7, 2013, 04:45 PM

6. Thanks for this post! K&R..

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Response to hay rick (Original post)

Fri Mar 8, 2013, 10:58 AM

7. Fred W. Smith.

The connection between Fred W. Smith, CEO of FedEx and the Cato Institute, which has been pushing for postal privatization, is mentioned above. More on Mr. Smith:

The Postal Service's largest vendor: FedEx.

Unlike USPS and UPS, FedEx is regulated by the Railway Labor Act, making union organizing much more difficult.

The crippling health care pre-funding mandate was contained in the Postal Accountability and Enhancement Act of 2006 which was signed into law by George W. Bush. Bush and Smith were fraternity brothers at Yale and both were also members of Skull and Bones.

From Smith's Wikipedia biography:

On January 31, 1975 Fred Smith was indicted for forgery by a Federal Grand Jury. The suit was filed by Smith's two half-sisters, Fredette Smith Eagle and Mrs. Laura Ann Patterson. The lawsuit alleged that Smith had forged documents to obtain a $2 million dollar bank loan and that he and executives of his family's trust fund had sold stock from the fund to a loss of $14 million dollars. A warrant for Smith's arrest was issued for which Smith posted bond with Federal Authorities in Memphis.

The same evening of his forgery indictment Smith was involved in a fatal hit and run whereby he killed a 54 year old black handyman named George C. Strughill. Smith was arrested and charged with leaving the scene of an accident and driving with an expired license. He was released on a $250 dollar bond.

This was not the first time Smith was involved in a fatal car accident. During his first summer break from Yale, Smith was back in Memphis driving out to a lake with friends when he lost control of the car he was driving causing the vehicle to flip killing the passenger in the front seat. The cause of the accident was never determined.

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Response to hay rick (Original post)

Fri Mar 8, 2013, 11:07 AM

8. Kick and Rec!

Hurt my foot a little on the kick, though...

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