The Cruel March of Technology now has the USPS in its Crosshairs

Posted by PITHOCRATES - August 3rd, 2013

Week in Review

The United States is not the only country trying to figure out what to do with a dated institution long past its prime that few people use these days.  Something that was a large part of our parents’ lives.  But becoming more and more meaningless to the younger generations.   The Postal Service (see Canada Post needs to reduce home delivery by Daniel Fontaine posted 7/31/2013 on Vancouver 24 hrs).

The reality today is tech-savvy Canadians are no longer enamoured with their postal service, nor do they rely upon it to operate their daily lives. Thanks to online banking, e-mail, scanners and texting, Canada Post and its costly, outdated service look ancient by comparison…

Today, door-to-door mail service in many rural or even less-populated urban areas is no longer an option. Canada Post abandoned the front-door policy in new subdivisions, instead favouring group mailboxes…

… would it really impact those getting home delivery if they received their mail only twice a week? I doubt it would make a whit of difference — except perhaps to the bottom line of Canada Post. Reducing home delivery means paying fewer postal workers and a more efficient operation…

But don’t expect the public-sector unions and a majority of home-delivery recipients to let daily mail service go without a fight, even if the business case no longer exists to maintain this costly level of service.

The United States Postal Service (USPS) has been on life-support for a long time.  First it was email.  Then ecommerce.  Then online bill paying.  Then texting.  With FedEx and UPS delivering the things we buy on line with our tablets and smartphones what’s left for the USPS?  Besides junk mail?  Even the Social Security Administration uses e-banking.  The volume of mail has fallen so far that they cannot raise stamp prices high enough to cover their operating costs and fund their pension plan.  Unless they can get people to mail a postcard for $57.  Or more.

There used to be video stores all over the place.  As renting videotapes was a booming business at one time.  But the same reasons that have made the USPS obsolete have made the video store obsolete.  There are still a few around.  But it is hard to compete with vending machines renting movies at the grocery store.  And watching them over the Internet.  Where they can charge less as they don’t have the costs of a brick and mortar store to pay for.  And this is the problem the USPS has.  There are less costly and faster alternatives available.  Why pay to mail a letter that will take days to travel to the recipient when you can email something for free that arrives seconds after sending?  Even the video stores don’t have competition that bad.

Remember receiving a telegram?  Probably not.  Something else that has long since fallen by the wayside.  The telephone put that to rest.  Today people can call with bad news.  They don’t have to send a telegram.  Putting a lot of telegram deliverers out of a job.  But life went on.

So perhaps it’s time to pull the plug on the USPS.  Or greatly reduce the service.  Maybe twice a week.  For let’s face it, nothing good comes in the mail these days anyway.  Bills, junk mail and jury duty summons.  Things we just won’t mind waiting an extra week to get.

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Britain is looking to sell the Royal Mail to escape Out of Control Pension Costs

Posted by PITHOCRATES - July 13th, 2013

Week in Review

The United States Postal Service isn’t the only postal service flirting with the idea of privatization.  So is the Royal Mail.  And, predictably, some are not happy about making government jobs like private sector jobs (see Royal Mail privatisation ‘will lead to soaring prices and job losses while taxpayer keeps debts’ by Graham Hiscott posted 7/11/2013 on the Mirror).

STAMP prices will soar and jobs will be slashed when the Royal Mail is privatised.

The warning came from critics as the Government announced its controversial plan to kick off a £3billion sale.

It is feared the sell-off could see a big chunk of the company snapped up by foreign investors, with investment banks raking in millions in fees.

So while the Treasury pockets a pre-election windfall, the taxpayer will still be paying for Royal Mail’s £12billion pension deficit.

Chuka Umunna, Labour’s Shadow Business Secretary, said it amounted to “nationalising its debts and privatising its profits”.

This pretty much says it all.  Pension costs are so out of control that the only way the Royal Mail can survive is with huge government subsidies.  And if they cut those subsidies they will have to pay for those pensions with the revenue from stamps.  Which means stamp prices will have to rise to replace those lost subsidies.  So these government workers can continue to enjoy those generous pensions.

Britain has an aging population.  Like most of the developed world.  People are living longer.  Giving them more time to suffer more diseases.  Raising the cost of pensions and health care for retirees.  Ponzi schemes like state pensions worked when there was an expanding population growth rate with more people entering the workforce than were leaving it.  But those days are long gone.  As are the days of defined benefit pension plans.  Where today they only result in unfunded pension obligations.  And companies like the United States Postal Service and the Royal Mail unable to pay their bills.

The reason why unions resist the privatization is that these business models cannot survive in the private sector.  For their labor costs (pay and benefits) far exceed anything available in the private sector.  And the only way they can keep those generous pay and benefit packages is by having the taxpayer subsiding their cost.  But if they go private and it costs $7.50 to mail a utility payment people aren’t going to mail their utility payments anymore.  And people will see the true cost of union labor.  Which means either unions must match the pay and benefit packages they have in the private sector.  Or they will lose all their union jobs.  Because no one is going to pay $7.50 to mail a letter.

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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 Government Model of Doing Business is a Failure because it’s more Politics than Business

Posted by PITHOCRATES - September 7th, 2011

Finding other People to pay for Generous Benefits is the Government Way

The United States Postal Service (USPS) is not a part of government.  It doesn’t receive any tax dollars.  It’s supposed to survive alone on the revenue of their services.  In particular, the postage stamp.  But the USPS is dying.  Thanks to new technology.  People are using email.  And paying bills on line.  And FedEx and UPS deliver packages better than they do.  So they’ve lost a lot of business.  This enterprise that is not part of the government.  Which is now seeking help from the government.  To survive.

Even though it’s not a part of government it is protected by government.  The USPS has a monopoly on 1st class mail.  And like all businesses with a government enforced monopoly they didn’t innovate.  They didn’t exceed the expectations of their customers.  They just trusted in government.  That government would maintain their fat revenue stream.  So they could continue to pay fat pay and benefit packages.  But you can never truly keep competition away.  For there is always someone looking to innovate.  And exceed customer expectation.  The USPS has learned this lesson.  The hard way (see Obama crafting fix as Postal Service faces default by Emily Stephenson posted 9/6/2011 on Reuters).

The White House will offer its reform plan in the next few weeks for the agency, which lost $3.1 billion last quarter and is approaching due dates for multiple billion-dollar payments, said John Berry, director of the U.S. Office of Personnel Management.

The Obama administration wants Congress to delay for 90 days a $5.5 billion retiree health benefits payment due this month. The Postal Service has said it expects to default on that payment…

It has proposed cutting 220,000 jobs, or more than a third of its full-time staff, by 2015, and is studying about 3,650 of its 32,000 offices for potential closure.

A $3.1 billion loss in one quarter?  Revenue for that quarter was only $16 billion.  So that’s a loss of 19%.  What’s even more startling is that the retiree health benefits payment due is 34.4% of revenue.   That’s just over a third of all revenue going to people no longer working for the post office.  This is not a business.  This is pure government. 

It’s little more than a Ponzi scheme.  And it worked until technology provided competition in other forms.  Now they have a declining revenue base supporting an expanding group of benefit recipients.  Sound familiar?  Sounds a little like Social Security, doesn’t it?  Another failing Ponzi scheme.

Finding other people to pay for generous benefits will always end this way.  And that’s the government way.  Which explains why the economy produced zero jobs last month.  It doesn’t know how to create a job.  All it knows how to do is to take money from those who work and give it to people who support them.

In Canada the Government is letting the Private Sector find and bring Oil to Market

You know who knows how to create jobs?  Canada (see Canada’s Oil-Sand Fields Need U.S. Workers, Alberta Minister Says by Jeremy van Loon posted 9/7/2011 on Bloomberg).

Unemployed U.S. construction workers should look for jobs in Canada’s oil-sands industry, which faces a shortage of as many as 75,000 positions in the next few years, Alberta Energy Minister Ronald Liepert said.

Alberta’s oil sands, the world’s third-largest recoverable reserve of crude, needs workers including electricians and construction staff, Liepert said in an interview at Bloomberg headquarters in New York late yesterday. Labor restrictions between Canada and the U.S. need to be eliminated first, he said…

U.S. President Barack Obama will address Congress tomorrow with a plan to boost job growth by injecting more than $300 billion into the economy next year. Unemployment in the world’s largest economy remains at 9.1 percent more than two years after the recession’s official end. That compares with 7.2 percent in Canada.

In Canada the government is letting the private sector find and bring oil to market.  Which is good for Canada.  Because oil is high in demand.  Very, very high in demand.  The Keynesian economists all say our current economic woes are due to a lack of demand.  And the Obama administration is a Keynesian administration.  So you’d think they would let Americans find and bring American oil to market, too.  But no.

Instead, they put a moratorium on Gulf oil exploration.  Forbid oil exploration on most American land.  And put all their eggs in the green energy basket.  Especially the electric car.

The Success of Electric Cars depends on the Cost of Gas 

Electric cars don’t pollute.  But the power plants that produce the electricity that charge their batteries do.  The majority of which are fossil-fueled.  Why?  Because wind-generated and solar-generated electricity just can’t produce electricity as plentifully and as cheaply as fossil-fueled plants can.  Which will become a bigger and bigger problem as more electric cars plug into the electric grid (see Bidding for volts posted 9/6/2011 on the Economist).

ELECTRIC cars and hybrids could represent as much as 15% of the new car market by 2020, depending on the price of oil. This means that in some places a lot of vehicles will be plugged simultaneously into the mains after the evening commute home, in order to recharge their batteries for the following day. The sudden demand for power this will entail, on top of the existing evening peak, could put the small electrical transformers that serve local grids under considerable strain—possibly to the extent of causing brownouts.

First of all, note that the success of electric cars depends on the cost of oil.  Why?  Because gasoline-powered cars are better.  And people will always choose them over electric cars.  Unless the cost of gasoline makes them more expensive.

So the switch to electric cars will only happen at great cost to the consumer.  Who will pay more.  In more ways than one.

Electric cars are not like washing machines, which vary little from brand to brand in their electrical demands. Car batteries come in different capacities, have different recharging speeds and use different chemistries which have their own recharging criteria. The picture is complicated still further by the development of fast-charging systems that suck capacity out of the local grid with much greater relish than a traditional charger. And hybrids add yet another dimension since these, if electricity is too expensive, can run on petrol instead.

Luckily, a driver would not have to worry about making any of these tedious calculations if one of Dr Rogers’s software agents were working for him. All he need do when connecting his car to the recharging point of an evening is inform the system, perhaps using a key pad, when he wanted to drive the vehicle again and the likely distance of his journey. The negotiations would then take place on a computer system that linked all the local vehicle-recharging points.

Gee, I hope the electric car owner doesn’t have to rush their child to the hospital during the night.  Say some 6 hours before going to work.  About an hour before that electric car’s charging was scheduled to start.  If so, hopefully the child’s parents have a reliable gasoline-powered car in the garage as well.

Keynesians want to Grow Government and Spend Money 

The USPS is a microcosm of the United States.  At least on the path we’re currently on.  And you can see how well things are working for the USPS.

Keynesians worship the god of demand.  All problems go back to a lack of demand.  They want to tax and spend.  To give money to people to spend.  To stimulate.  As only Keynesians know best.  Despite their near century of failure.  But in the face of record demand for a commodity (oil) that America could look for and bring to market to meet that demand, they shun that demand.  Why?

Instead they’d rather see oil prices rise so high that people will reluctantly buy electric cars.  That will strain our electric grid.  Causing brownouts.  Or more consumer costs to upgrade the grid.  Either way, the consumer will pay more and be inconvenienced more if the government gets its way.

The examples of failure (the USPS and green energy) are all around us.  As are the success stories (Canadian oil).  Yet government keeps choosing failure over success.  Why?

Because something is more important than economic well being.  Political power.  And a bad recession is an opportunity.  To grow government.  And spend more money.  Which is what Keynesians want to do.  And will do.  Every time.  Despite their near century of failure.

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Obamacare and the United States Postal Service to have a lot in Common

Posted by PITHOCRATES - May 29th, 2011

Obama Slams the United States Postal Service (USPS)

Back during the Obamacare debates, way back in 2009, the public option was still on the table.  President Obama tried to soothe people’s worry about the public option putting private insurance out of business.  He said it was ridiculous to worry about such a thing.  Because federal monopolies can’t do anything well.  And that private business will always provide a more superior service than a government provided service.  Strange way to advance his case for more government involvement in health care.  But he said it.  And gave an example of a poorly run government monopoly providing no threat whatsoever to its private counterparts.  The United States Postal Service (see The President and the Postal Service by Ed O’Keefe posted 8/11/2009 on The Washington Post).

“I mean, if you think about it, UPS and FedEx are doing just fine, right? No, they are. It’s the post office that’s always having problems.”

President Obama is right.  FedEx and UPS are doing just fine.  And, just as he said, it is the USPS that is having the problems.  As always.  To quote Obama.

FedEx is Profitable

FedEx’s shipping volume in their fiscal third quarter set a record.  And their revenue and margins are looking pretty good, too (see FedEx offers strong outlook for this quarter and beyond by Lynn Adler, Reuters, posted 3/17/2011 on msnbc).

FedEx Express volumes were at an all-time fiscal third-quarter high, and “Ground is knocking the cover off of the ball with both volume and yield gains,” [John Koczara, portfolio manager at AMBS Investment Counsel] said.

“We expect continued positive yield trends to improve revenues and margins in the fourth quarter and in fiscal 2012,” said Alan Graf, [FedEx] chief financial officer.

One thing for sure, it doesn’t look like the public option, the USPS, is giving FedEx any problems.  Confirming what Obama said.  FedEx is doing just fine.  Score one for the private company.

UPS is Profitable

Now, FedEx is good, but there is someone even better.  And it isn’t the USPS (see UPS Profit Tops Estimates, Sees Record in 2011 by Reuters posted 2/1/2011 on CNBC).

United Parcel Service, the world’s largest package delivery company, reported a quarterly profit that beat estimates and forecast record-high profits in 2011, sending its shares up 4 percent.

Doesn’t look like the public option, the USPS, is causing any heartburn for UPS.  Unless they consume too much champagne and caviar courtesy of their record profits.  Score another one for the private company.

The USPS is Sucking Air

With FedEx and UPS booming you’d think that the USPS would be booming, too.  So are they?  Are they posting record profits in the latest quarter?  Not quite (see Sun is setting on rural post offices by Kevin Murphy posted 5/28/2011 on Reuters).

The postal service is losing $23 million a day and is $15 billion in debt, its allowed limit, said Rich Watkins, spokesman for its Mid-America District. The service has cut about 100,000 positions through attrition in the past three years and consolidated sorting and other operations, he said.

The postal service is in such bad financial condition that it may not be able to make a $5.5 billion prepayment for future retiree health benefits due September 30, Postmaster General Patrick Donahoe told a Senate subcommittee last week.

Unlike the private companies, FedEx and UPS, who are doing very well, the USPS is sucking air.  That’s private company: 3; government monopoly: 0.  Which is pretty amazing considering that they have a legal monopoly enforced by the federal government.  Only they can deliver letters.  Unfortunately, they do that so inefficiently that postal customers have found alternatives.

The U.S. agency has lost business to electronic mail and to private sector competitors like FedEx and the United Parcel Service.

That’s the problem with a monopoly.  Always trying to do something the way they did it a generation ago.  Meanwhile, people have turned to email and text messaging.  And paying their bills on line.  Because it’s cheaper.  And easier.  No postage required.  No envelopes.  No trips to the post office.  No muss.  No fuss.  And you can send pictures and video in today’s digital world.  You can’t do that with first class mail.  At least, not with a lot of additional cost.

Of course, they can compete with FedEx and UPS.  Because you can’t send packages electronically.  But the one thing the USPS can do well they still can’t do as well as FedEx and UPS.  We need to fix the USPS.  It needs to be reformed.  To meet the needs of today’s generation.  And tomorrow’s.  But that’s one thing that a government monopoly just can’t do well.  Change.  Or be efficient.  Or provide a service that people demand.

The Public Option will be a lot like the USPS

President Obama was right in 2009.  The government can’t do anything well.  And when they compete against private industry they fail miserably.  In fact, these government run enterprises are so bad that only government intervention can maintain their monopoly.  For awhile.  Because when something is that bad, even government intervention can’t prevent the inevitable.

Which begs the question why did Obama use the USPS-FedEx/UPS analogy to promote the expansion of government into the private health insurance industry?  What’s his argument?  Don’t worry about the public option.  It’ll be as horrible as the USPS that it won’t harm the private insurance market.  But we will pattern the public option after the USPS.  Because only the public option will provide affordable, quality health care.

Yes, the public option will be that remarkable.  It’ll be both horrible and the best thing since sliced bread.  Depending on who the government is talking to at the time.

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