Dismantling the Postal Service
Chase is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Whatever reason you ascribe to the Post Office default, be it political or economic, the fact is the USPS is quickly going broke. A congressionally mandated $5.65 billion per year payment to pre-fund employee benefits has effectively driven the service into the ground, and with no government action in sight (Congress just went on recess; "recess" is such a fitting term, isn't it?) the Postal Service could very well soon be gone.
So rather than mulling whatever politics was involved to come up with such a scheme, let's try and figure out what could happen to the $19 billion in net property and equipment value that would have to be divvied up should the USPS head off in to that good night.
The obvious candidates for absorption are FedEx (NYSE: FDX) and UPS (NYSE: UPS). Both provide an amazing service at a reasonable price. FedEx and UPS are businesses, USPS is a government service. Yes, since the 1971 Postal Service Reorganization Act, it is "self-funding" and not dependent on tax dollars. All that money borrowed from Treasury will be paid back promptly, I'm sure.
Even before the $75 billion pre-funded benefit requirement, the USPS never really made money; it's not really supposed to. Sending a letter for 41 cents is a money-losing gig. Perhaps the best way to understand how much it actually costs to send mail is to look at the prices FedEx and UPS are charging. To wit, a 1 oz. letter sent 3-day ground from Evanston, Ill., to Boulder, Colo., would cost $12.52 for UPS, $8.60 for FedEx, and a stamp for USPS.
Even at the higher prices, the private companies continue to gain market share. The USPS now only handles 14% of the US small package market. FedEx comes in second at 34% and UPS is the top with a 52% share, according to Bloomberg. Of course, USPS has a pretty good lock on the first class mail department, as they have a government-mandated monopoly on first class mail (basically defined as personal communications weighing under 13 oz.)
Could private companies make better and more profitable use of USPS' considerable infrastructure? Well, they already kind of are. Or the other way around, to be more exact. According to law firm Husch Blackwell, "FedEx transports [USPS] Express, Priority and First Class Mail, and earned postal revenues of $1.373 billion in fiscal 2010 - falling slightly from the $1.4 billion it earned in fiscal 2009. Another postal competitor, United Parcel Service, is the Postal Service's 12th largest postal supplier, earning $95 million in revenue - a $12 million increase from last year."
In 2011, USPS, with 31,000 locations and 574,001 employees, made $66 billion in revenues. FedEx, on the other hand, with 1,900 locations and 290,000 employees, made $39 billion. In this very manpower-intensive business, that means they're making $114,982 per employee at USPS vs. $134,482 at FedEx. To be fair, the USPS pretty much has to ask for permission to use the restroom from Congress. They can't even sell candy at their physical locations to make a little extra scratch without Congressional approval. Nevertheless, if Congress is dead-set on killing the postal service, I wouldn't be surprised to see a pretty large FedEx service expansion come soon thereafter.
TheLaowai has no positions in the stocks mentioned above. The Motley Fool has no positions in the stocks mentioned above. Motley Fool newsletter services recommend FedEx. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. If you have questions about this post or the Fool’s blog network, click here for information.