Sorry!! The article you are trying to read is not available now.
Thank you very much;
you're only a step away from
downloading your reports.

Why the USPS Is Destined to Fail


And why that could be bad news for UPS and FedEx.

"Because the mail never stops. It just keeps coming and coming and coming. There's never a letup, it's relentless. Every day it piles up more and more, but the more you get out, the more it keeps coming. And then the bar code reader breaks. And then it's Publisher's Clearinghouse day!"
-- Newman, on Seinfeld

The mail never stops?

With an estimated 10 billion "piece" volume decrease for the United States Postal Service expected in 2010, Newman may have to start applying for a new gig.

Faced by overpowering competition in the private sector and feverishly amassing debt, the USPS yesterday announced its revamped plan to eliminate Saturday delivery, raise delivery prices, reduce national workforce by 30,000 people, and reduce overtime opportunities.

The decision by the USPS to reduce to a five-day delivery week is an attempt to prevent a repeat of 2009, when the government service recorded a $3.8 billion deficit. The Postal Service currently struggles with a $10 billion debt, and it's legally allowed to borrow only $15 billion.

However, as the USPS' troubles mount, shipping companies in the private sector are having no problem staying afloat. Despite the slowdown associated with the recession, private, non-government affiliated services FedEx (FDX) and United Parcel Service (UPS) still reaped celebratory profits last year. In 2009, FedEx saw total revenue of $35.5 billion and $98 million in profits while UPS made $45.3 billion in revenue and $2.2 billion in profits.

This success isn't entirely a result of the business decay of USPS -- FedEx and UPS are actually negatively affected by the putrefying mess USPS has become.

Companies like UPS and FedEx depend on USPS to deliver more than 400 million of their ground shipments every year. A true "I scratch your back, you scratch mine" scenario, the USPS returns the favor by contracting FedEx and UPS to deliver packages via air. With USPS suspending Saturday service, these private shippers will have to sail off route.

But they're not the only ones who'll be immediately affected by the change.

Many e-commerce businesses like Amazon (AMZN), Netflix (NFLX), and eBay (EBAY) that rely heavily on USPS ground distribution will be forced to consult with private carriers to negotiate a partner service. If the private carriers assume this role, the USPS will suffer immensely.

It's not like the USPS ever had it easy. Regulations on how the USPS can charge and handle everyday business have long crippled its ability to make a steady profit. Up against the private carriers who can charge as they please, the USPS is faltered with this governmental handicap, making it nearly impossible for it to gain an edge on its competitors.

Yesterday the USPS revealed its 10-year plan to curb its estimated $238 billion cumulative shortfall by 2020. Postmaster General John Potter expects these latest actions will amount to around $120 billion in saving throughout the present decade.

Of course, these are just the latest efforts in a series of cutbacks by the USPS. According to the Washington Post, since 2002, the USPS has cut costs by $43 billion by reducing overtime limitations, shrinking workforce, and renegotiating contracts.The USPS hasn't received any taxpayer funds to support operations since 1982, and it's responsible for covering all of its costs.

With Potter's new "10 year plan" on the table, hope seems to be restored -- for now.

However, it seems inevitable that the authority and presence of the USPS, with all its regulations and deficits, will eventually succumb to the power of the private sector. As technology and modernization has slowly eliminated the need for newspapers, magazines, and other classical businesses, the US mail system may be the next victim of the smother.

Buzz & Banter: Where 30 professional traders share trading ideas and insights in real-time. Take a FREE 14 day trial to begin getting inside insights not available anywhere else. Learn more.
< Previous
  • 1
Next >
No positions in stocks mentioned.
The information on this website solely reflects the analysis of or opinion about the performance of securities and financial markets by the writers whose articles appear on the site. The views expressed by the writers are not necessarily the views of Minyanville Media, Inc. or members of its management. Nothing contained on the website is intended to constitute a recommendation or advice addressed to an individual investor or category of investors to purchase, sell or hold any security, or to take any action with respect to the prospective movement of the securities markets or to solicit the purchase or sale of any security. Any investment decisions must be made by the reader either individually or in consultation with his or her investment professional. Minyanville writers and staff may trade or hold positions in securities that are discussed in articles appearing on the website. Writers of articles are required to disclose whether they have a position in any stock or fund discussed in an article, but are not permitted to disclose the size or direction of the position. Nothing on this website is intended to solicit business of any kind for a writer's business or fund. Minyanville management and staff as well as contributing writers will not respond to emails or other communications requesting investment advice.

Copyright 2011 Minyanville Media, Inc. All Rights Reserved.
Featured Videos