The United States Postal Service delivers at least one thing consistently. It has lost money in every quarter since 2007, even though its 2021 Delivering For America plan guaranteed that it would finally break even in fiscal 2023.
Instead, it lost $6.4 billion in fiscal 2023, projects a $6.3 billion loss in fiscal 2024 (the first-quarter loss of $2.1 billion is more than double the $1 billion loss in the first quarter of fiscal 2023), and a $5 billion loss in fiscal 2025. The fiscal 2023 loss, which was $2 billion, or 44%, more than the planned loss of $4.5 billion, was attributed to lower mail volume, higher inflation, and service improvement efforts.
The losses continue despite the enactment of the Postal Service Reform Act, which codified six-day delivery of mail and packages together in an integrated network across the country, reduced liability for pension obligations, and increased financial transparency.
The initial DFA included $34 billion in cost-cutting to break even in fiscal 2023. But in the April 27, 2023, two-year DFA update, the USPS said it would have cumulative losses of $70 billion from fiscal 2021 to fiscal 2030. That makes the projected break-even turn into a $104 billion hole.
It also makes the USPS like the rest of the federal government, promising a balanced budget every year while sinking further into a fiscal hole. The biggest reason is a failure to control expenses for labor, which is 75% of total costs.
Indeed, the USPS has made it more difficult to turn its fiscal woes around. It has converted 125,000 temporary positions into permanent, unionized career positions with lifetime benefits to replace others who were retiring. This was a huge missed opportunity to have a more flexible, leaner workforce.
Hourly wages for permanent employees are 50% higher, and when total compensation (including retirement benefits) is considered, the cost is closer to 100% greater than temporary workers. While the initial cost might be somewhat lower because more junior personnel are being substituted for more senior retirees, the long-term costs are far greater than keeping the temporary workers.
And the USPS is not even getting what it should from these employees. Labor productivity declined by 2.9% in fiscal 2023 despite mail volumes declining by 8.9%. Work hours in fiscal 2023 were higher than in fiscal 2013 despite volume declining by 32%. To add insult to injury, the USPS added more than 6,000 managerial jobs in the last two fiscal years, which means more supervision and less mail handling and delivery.
The USPS is now also insourcing jobs that were previously provided by lower-cost, more efficient private partners providing transportation and sales functions. For example, the USPS terminated a local transportation contract in Oklahoma, allegedly saving money, but in a lawsuit, it admitted that it had not been required to do a cost-benefit analysis. The USPS is also insourcing the operation of its 13 Surface Transportation Centers, which are contracted mail facilities that distribute, consolidate, and dispatch mail. Again, there is no cost-benefit analysis, and without one, a presumption can be made that the private sector will do the job more effectively and less expensively.
Furthermore, rather than focusing its efforts on improving its final-mile delivery capability, its true core competence and unique advantage, the Postal Service has been spending billions to expand its mail and package processing facilities, duplicating existing postal facilities and those in the private sector. The deceivingly named Network Realignment Plan is not only expensive but also does not deliver results.
Mail delivery times fail to meet even the agency’s lowered performance standards. Businesses and families across the country see every day that the mail is delayed in arriving and getting to its destination. Bills to pay show up late and then do not get paid on time.
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At the same time, everyone is paying more for this deficient performance. As mailer groups commented to the Postal Regulatory Commission last November, the last postage rate increases were the fifth in 30 months, cumulatively increasing first-class postage rates between 25 to 29%, far more than the already high rate of inflation over the same period. Higher costs and inferior service are not the recipe for success.
The Postal Service needs to stop delivering consistent losses and start saving money by matching labor costs with the amount of mail it processes, stop insourcing services that are or could be provided by the private sector, and get back on track to break even as the original DFA promised would occur one year ago.
Tom Schatz (@ThomasASchatz) is the president of Citizens Against Government Waste.