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The Truth About the Postal Service's 'Fiscal Cliff'


And why the private sector needs the USPS to survive.

MINYANVILLE ORIGINAL It was reported this week that the US Postal Service has hit its $15 billion borrowing limit from the Treasury for the first time ever -- which means the USPS will be relying solely on revenue from stamps and shipping charges to cover its operating costs through the end of the year.

"Being at the limit is a serious situation because our limited liquidity does not give us operating flexibility," Postal Service spokesman David Partenheimer told the Wall Street Journal on Wednesday. "Without passage of comprehensive legislation as part of the Postal Service's business plan to return to financial stability, we continue to project low levels of cash."

While many see this situation as a simple case of black-and-white, the reality is actually quite complex.

"We encourage the media to pause and fully consider the situation before jumping to the conclusion that the US Post Service, having reached its $15 billion borrowing limit for the first time, is facing a fiscal cliff," said National Association of Letter Carriers president Fredric Rolando in a statement released yesterday. "It's not."

Rolando explained that although the USPS has, in fact, reached its borrowing limit, it also has a $25 billion surplus in its pension funds.

"Unfortunately, at the direction of Congress, the Postal Service has been forced to set aside more than $45 billion to pre-fund the health care costs of its future retirees and is required to unnecessarily set aside billions more -- although no other business or government agency in this country is required to pre-fund these benefits, and although the amount already accumulated will provide for retirees for decades to come," he argued. "By mandating these payments and refusing to allow the Postal Service to access its own pension fund surplus, Congress has turned a manageable business challenge into a nightmare of artificial deadlines and unnecessary financial burdens."

Indeed, the old handwritten letter has been largely replaced by email. But the Internet and e-commerce have also led to increased growth in the Postal Service's shipping business -- and believe it or not, this is an operating segment that both FedEx (NYSE:FDX) and UPS (NYSE:UPS) rely on heavily themselves.

As we reported over the summer, FedEx earned $1.495 billion from the Postal Service last year as the agency's number one supplier. UPS, the Postal Service's 11th largest supplier, earned $102 million from the Postal Service, a $7 million increase from the year before.

"FedEx, UPS, and the US Postal Service are more business partners today than they are competitors," David Hendel, an attorney in the Postal Service Contracting practice at the law firm of Husch Blackwell, who compiles an annual list of the Postal Service's top contractors, told me. (FedEx and UPS are far from the only companies that enjoy lucrative partnerships with the Postal Service. A quick scan of the Husch Blackwell list shows Northrop Grumman (NYSE:NOC) taking in $410 million from Postal Service contracts last year. IBM (NYSE:IBM) made $108 million from Postal Service contracts. And United Airlines (NYSE:UAL) brought in $102 million.)

FedEx has flown Express Mail, Priority Mail, and First Class Mail for the Postal Service since 2000. According to Alan Robinson, Executive Director of the Center for the Study of the Postal Market and the publisher of the Courier Express and Postal Observer, the income generated by this "represents around 60% of FedEx Express's US domestic air freight revenue."
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