Opinion: Congress needs to act before the U.S. Postal Service goes 'bust' because of 'outdated constraints'

The USPS does 'what no other business would do.'
(Photo by Victória Kubiaki, Unsplash)

The U.S. Postal Service does what no private company can: It delivers mail 6 days a week to every address in the country at an affordable price. But the business model the USPS has been mandated to use is outdated and has plunged the delivery titan into insurmountable debt. Should the USPS be allowed to go bust? No. Congress needs to address USPS structural problems now, writes The Wall Street Journal editorial board.

Last week, the USPS "reported a $2 billion quarterly loss. 'We are in a cash crisis,' Postmaster General David Steiner said. 'We require urgent Congressional action to expand our borrowing authority and to address outdated constraints on the organization," the board writes. "The important part for lawmakers to hear is that last part."

The USPS business model was implemented when letter delivery and profits were reliable sources of revenue. Since the advent of email, Evites and online communications for almost every business need, the demand for "snail mail" sank, and with it, USPS profits. They write, "Last year the USPS handled 108.7 billion pieces, down 49% from a peak of 213.1 billion in 2006. A majority of what’s left is euphemistically categorized as 'marketing mail.'"

When Steiner testified to the House about the state of USPS finances and its inability to address losses without sizable shifts in its business model, he candidly pointed out the massive demands and their corresponding expenses that the USPS undertakes every day, saying, "We deliver from the tip of Puerto Rico to the tip of Alaska for 78 cents. That’s a distance of 5,000 miles.”

When addressing the House, the "Postmaster laid out two paths: 'First would be to remove the mandates that ensure the Postal Service loses money,'" the board writes, "Second, 'public service reimbursement,' meaning 'payment by Congress in return for the Postal Service doing what no other business would do.'" The editorial board writes, "Start with option one, and let Steiner run the business like a business."

Faced with the possibility of running out of money, the U.S. Postal service asks Congress to consider 'drastic measures'

Changes to USPS mail delivery have an outsized
impact on rural Americans. (Photo by D. Trinks, Unsplash)

Expensive delivery obligations and government constraints both contribute to the U.S. Postal Service's deepening financial woes. "In testimony to Congress last month, David Steiner, the postmaster general, delivered a dire warning," reports Adam Sella of The New York Times. "Without drastic measures, he said, the U.S. Postal Service could run out of cash in less than a year."

Some of the "drastic measures" Steiner outlined included reducing service days from 6 to 5, dropping "unprofitable routes," and closing some smaller post offices, Sella writes. All three changes would have an outsized impact on rural communities that other carriers, such as FedEx and UPS, avoid due to higher costs.

A large part of the agency's financial turmoil can be blamed on what Congress has tasked it with doing, which doesn't create a profitable business model (which is why UPS and FedEx don't do it), and federal limitations on its financial options, including pricing and pension investments.

For instance, USPS is supposed to be financially self-sufficient while meeting its universal service obligation, which requires it to deliver to everyone in the United States at a reasonable price, Sella explains. "In 2022, Congress added a six-day-a-week delivery requirement. . . .That commitment has cost the agency money: more than $6.5 billion a year."

USPS is also restricted on pricing. "It must get approval from an independent regulatory commission, which limits the agency’s ability to raise prices," Sella reports. Congress also limits its borrowing power, which means it can run out of money.

USPS leadership isn't allowed pension portfolio flexibility, which could have a dramatic impact on its bottom line. Sella explains, "The Postal Service is only allowed to invest its retirement funds in Treasury notes. The Postal Service’s Office of Inspector General estimated in 2023 that USPS retirement funds would have been worth approximately $800 billion more if they had been able to be invested in a mix of 60% stocks and 40% Treasury bonds."

Meanwhile, USPS has turned to one of its few reliable revenue streams: postal price increases. "The commission approved a temporary surcharge of 8% on packages, in light of rising fuel and transportation costs," Sella reports. The Postal Service also requested a 5% increase in first-class mail rates. "That means first-class mail 'forever' stamps would increase from 78 cents to 82 cents."

Amazon's rural hubs speed up reliable delivery. In 4 years, the company could deliver to every U.S. ZIP code.

A look inside Amazon's 17,000-square-foot Missoula facility. 
(Photo by Eric Dietrich, Montana Free Press)

Amazon is betting that its rural hub expansion plans will help it increase sales and delivery services to its more remote-living customers while lessening its dependence on the U.S. Postal Service, reports Sean McLain of The Wall Street Journal. The company "aims ultimately to have 200 rural delivery hubs serving around 13,000 ZIP Codes covering around 1.2 million square miles of America — an area the size of Texas, California and Alaska combined."

By opening rural hubs, Amazon hopes to "reduce its reliance on the U.S. Postal Service, a relationship that has become rocky following a dispute over contract terms," McLain writes. The company has also used United Parcel Service to complete the final leg of deliveries, which hasn't always gone smoothly either. "In 2013, a sudden surge in Amazon orders overwhelmed UPS, causing some packages to not make it in time for Christmas."

Residents in Conner, Montana, who used to wait about a week for their packages to arrive, are already reaping the benefits of speedy deliveries from the rural hub Amazon built on the outskirts of Missoula. Now most Conner-bound packages arrive within Amazon's traditional two-day window. McLain adds, "Around 14,000 packages leave the [Missoula] warehouse on an average day."

Rural Amazon routes require delivery drivers to carefully plan and be ready to handle extreme weather, big horn sheep, dirt or mud roads, high winds and mountain passes. McLain reports, "Deliveries to the Missoula warehouse come from a large urban hub in Spokane, Wash., a three-hour drive across two mountain passes."

Despite backcountry travel and weather challenges, Amazon plans to "construct around 40 to 50 new delivery hubs a year," McLain reports. At that pace, the company should "be able to ship packages to every U.S. ZIP Code in four years."