Even Cutting 28,000 Jobs will not help the USPS Compete against the Internet

Posted by PITHOCRATES - May 27th, 2012

Week in Review

The United States Postal Service (USPS) hates the Internet.  Before the Internet they had a monopoly in the letter industry.  If you wanted to send Granny a letter you had to go through them.  There’s only one problem with a monopoly.  Because they have a captive audience they don’t have to innovate.  They don’t have to improve anything.  Just make a lot of money.  And give your employees generous wage and benefit packages.  Just like the railroads did.  Before trucks came around, that is.  The trucking industry nearly destroyed the railroad industry.  But the railroads learned how to compete.  They helped redefine the transportation industry that now includes trains, ships and trucks.  The railroads are back.  Stronger than ever.  And making money.  But is it too late for the USPS?

The Internet is the USPS’ trucking industry.  It has all but destroyed the snail mail industry.  To survive the USPS has to do what the railroads did.  Reinvent itself.  Reinvent the industry they participate in.  If they can.  And they better hurry.  Because their monopoly is gone.  Not from other people entering the snail mail business.  But by new technology that created a better alternative to the snail mail business.  The Internet.  And it’s tap-dancing all over the USPS (see U.S. Postal Service offers buyouts to 45,000 workers by Emily Stephenson posted 5/25/2012 on Reuters).

The mail agency, which lost $3.2 billion in the first three months of 2012, plans to begin this summer moving mail-processing activities away from smaller sites to reduce annual costs.

As part of that plan, the Postal Service will offer $15,000 in two installments to full-time mail handlers who take early retirement or leave the agency, USPS spokesman Mark Saunders said on Friday…

The Postal Service has been hit hard by tumbling mail volumes as more Americans communicate online and by massive payments for future retiree health benefits…

The agency needs to reduce its workforce by 150,000 people by 2015, Saunders said. Consolidating and closing processing facilities, which will continue through 2014, could eliminate up to 28,000 jobs and save $2.1 billion a year, the Postal Service has said.

Saunders said he could not speculate how many mail handlers would take buyouts this year, but added that the change “will not affect mail service.”

It’s not enough.  If you annualize that $3.2 billion quarterly loss that comes to a $12.8 billion loss for the year (4 X $3.2 billion).  Cutting only $2.1 billion per year will not solve their problems.  They’ll still have an operating deficit of approximately $9.6 billion.  And if the Internet doesn’t go out of business in the foreseeable future these numbers are only going to get worse.

It’s pretty interesting that a company can cut 28,000 jobs without affecting its business operations.  Why, it’s almost as if they never shrunk their labor force all these years that their business has shrunk.  It’s as if 28,000 people have just been sitting around waiting for the work to pick up again.  While collecting a paycheck.  And while the USPS pours billions into a pension plan for their future retirement.  Hmm.  I wonder if this could have anything to do with that $3.2 billion quarterly loss. 

The clock is ticking.  While the USPS is still struggling to compete with email texting is giving email a run for its money.  And it just may be that the USPS is not as nimble as the railroad industry in pulling up its tracks and laying them on the road to profitability.



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The future of the USPS is questionable, Ditto for Obamacare

Posted by PITHOCRATES - August 12th, 2011

New Technology has Destroyed Snail Mail 

A government established monopoly is having problems.  Revenues are down.  Costs are up.  The United States Postal Service (USPS) is virtually insolvent.  And they’re looking to take some desperate action (see Postal Service proposes cutting 120,000 jobs, pulling out of health-care plan by Joe Davidson posted 8/11/2011 on The Washington Post).

The financially strapped U.S. Postal Service is proposing to cut its workforce by 20 percent and to withdraw from the federal health and retirement plans because it believes it could provide benefits at a lower cost.

The layoffs would be achieved in part by breaking labor agreements, a proposal that drew swift fire from postal unions. The plan would require congressional approval but, if successful, could be precedent-setting, with possible ripple effects throughout government. It would also deliver a major blow to the nation’s labor movement.

You can’t blame this on outsourcing of American jobs.  Only the USPS can deliver first class mail.  And it’s not free trade.  It’s just progress.  New technology has destroyed snail mail.  People email.  Text.  Pay their bills on line.  And where competitors (UPS and FedEx) were allowed to compete the competition blew them away.

In a notice informing employees of its proposals — with the headline “Financial crisis calls for significant actions” — the Postal Service said, “We will be insolvent next month due to significant declines in mail volume and retiree health benefit pre-funding costs imposed by Congress.”

During the past four years, the service lost $20 billion, including $8.5 billion in fiscal 2010. Over that period, mail volume dropped by 20 percent.

And they can’t afford their health care.  Unless they can somehow raise revenue.  By forcing people to use mail instead of new technology.  But that’s not likely to happen.  Revenue is not much of an option here.  People have just stopped using their services.  And you can’t fix that by raising the stamp price.  You have to cut costs.  To reflect that 20% drop in business.

In a white paper on health and retirement benefits, the USPS said it was imperative to rein in health benefit and pension costs, which are a third of its labor expenses…

The USPS said the programs do not meet “the private sector comparability standard,” a statement that could be translated as meaning that government plans are too generous and too costly…

 “Unfortunately, the collective bargaining agreements between the Postal Service and our unionized employees contain layoff restrictions that make it impossible to reduce the size of our workforce by the amount required by 2015,” according to the optimization document. “Therefore, a legislative change is needed to eliminate the layoff protections in our collective bargaining agreements…”

 “We are absolutely opposed” to the layoff proposal, he said. “We are opposed to pulling out of the Federal Employees Health Benefits plan.”

It will be an interesting debate.  On the one hand, you can understand how employees don’t want to lose any pay or benefits.  But on the other hand, there is no other option.  Unless people start using first class mail again.  Because you can’t raise taxes to solve this problem.  They are not part of the government.  Even though a monopoly, they have to function as a business.  Which means costs can’t be any greater than needed to support a given revenue.

Without Competition, Nothing gets Better

Obamacare will be a lot like the USPS.  It will have out of control costs.  That will forever outpace revenues (i.e., taxes).  And it will be no doubt be a dysfunctional bureaucracy.  As all government agencies are.  As all monopolies are.

Competition makes everything better.  Therefore, without competition, nothing gets better.  Because it doesn’t have to.  That’s why the USPS lost so much business.  Because technology created better ways to do things.  So the old monopoly stagnated.  Still trying to do business with an out of date business model.  As Obamacare will do to health care.  Because it won’t have to do anything better.  And, unlike the USPS, the government can keep raising taxes to meet those out of control costs.

If there is an Obamacare, that is.

With the Individual Mandate, there is no Choice

Another court has ruled the individual mandate of Obamacare unconstitutional (see A Stunning Victory for the Constitution over Obamacare by Todd Gaziano and Robert Alt posted 8/12/2011 on Heritage).

This afternoon, a three-judge panel of the U.S. Eleventh Circuit Court of Appeals in Atlanta ruled that the individual mandate in the Patient Protection and Affordable Care Act (PPACA), more commonly known as Obamacare, is unconstitutional…

In short, the Obama administration has lost its battle to delay review of the individual mandate until after the 2012 election.  Until today, there was at least a chance that the Supreme Court would pass on the case until after its forthcoming term, but now, with a split between the Eleventh Circuit and Sixth Circuit, the High Court will have little choice but to take the case and resolve the fate of the forced-purchase mandate.  After over a year of delaying tactics, the Obama Administration has no more options to slow-walk the constitutional end-game for the mandate.  Our best estimate is that the case will be argued either in late March or in April 2012.  The Court will issue its decision near the end of its term in June, during the presidential candidate nominating season.

The Obama administration has been delaying this till after the election because this won’t help the president’s reelection chances.  During the debate to pass Obamacare, they insisted that this mandate wasn’t a tax.  But, instead, it was just commerce.  Like forcing people to buy car insurance.

But not everyone drives a car.  And those who don’t?  They don’t buy insurance.  And are not compelled to do so.  So there is a choice.  With the individual mandate, there is no choice.  Which is why the U.S. Eleventh Circuit Court of Appeals in Atlanta ruled it unconstitutional.

So this places this uncomfortable subject in an election year.  Where the Obama administration will argue in court that the mandate is a tax after all.  Which government does have the power to do.  But, of course, this will mean they were not telling the truth during the Obamacare debate.  So there’s that uncomfortable truth coming out.  And the possibility that his signature accomplishment may get overturned by the Supreme Court.  Which also won’t help his reelection chances.

You couldn’t ask for a Better Spending Cut than Obamacare

One can almost hear the cries for the government to take over the USPS.  So we can bailout the USPS with our tax dollars.  Which would probably not be a good thing what with S&P downgrading our debt because of excess government spending. 

And we really don’t need to dig our debt hole any deeper with Obamacare.  Perhaps the recent court ruling will save us from that.  And in the process restore our credit rating.  For in Obamacare lies that additional $2 trillion in spending cuts S&P wanted.  And the best part of it is that it’s all future spending.  No one will lose anything by cutting Obamacare.  You couldn’t ask for a better spending cut.  No one loses.  Except, of course, Obama.



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