By
Karen Kerrigan
June 10, 2015 at 5:00 am ET
On the heels of another disastrous financial quarter for the U.S. Postal Service, questions need to be raised about the agency’s financial future and whether its current management is able to steer it in the right direction.
The Postal Service recently announced a quarterly deficit of $1.5 billion for the months of January through March, which marks 24 of the past 26 financial quarters they have operated in the red. In addition to their $754 million loss in the previous quarter, their annual shortfall amounts to more than $2.2 billion for the current fiscal year.
The financial quandary the Postal Service finds itself in, and its attempts over the years to rectify the problem, has impacted many across the nation, including small businesses and entrepreneurs.
Newly installed Postmaster General Megan Brennan has indicated that the Postal Service will generate new revenue by expanding into enterprises that extend beyond the agency’s core mission, which is mail delivery. Aside from the fact that this strategy diverts from their duty and charter, these attempts are risky for an entity that has a history of financial irresponsibility and lacks the incentives and know-how to operate in the competitive marketplace.
Two failing ventures that the Postal Service continues to operate (despite a lack of profits) are a grocery delivery service called Customized Delivery and Metro Post, a same-day delivery service for chocolates, flowers, and teddy bears. It was uncovered that Customized Delivery lacked the financial data necessary to estimate revenues, and Metro Post lost $100 per package delivered. The latter was approved for expansion.
Both of these services operate in markets with existing competition. The fact that such subsidized ventures intrude upon specialized markets for which there are established businesses ready to meet the needs of customers is, well, troubling. Existing providers in these areas must become profitable in order to stay in business. The Postal Service receives as much as $18 billion in government subsidies.
The responsibility and charter of the Postal Service is to provide letter mail delivery to every household at a reasonable rate. Regrettably, this core service has withered substantially in recent years as postage rates have climbed and delivery times have grown longer. Service standards are expected to languish even more in 2015.
In dissecting its services specifically, the Postal Service covers their costs by at least a 2-1 rate on both First Class and Standard mail services. Yet, as shipping volumes have increased, the agency’s deficits have also grown. Not only are they attempting to undercut competitors in specialized markets and in parcel delivery, but they aren’t even covering their costs while doing so.
Further troubling for private business are longstanding international treaties maintained by the Postal Service to provide discounted shipping rates to foreign shippers. In fact, it often costs less to ship a package from a foreign country, such as China, to a U.S. city than it does from one U.S. domestic city to another. Such international arrangements are putting American businesses at a disadvantage due to the reduced costs to their foreign competitors.
Small businesses and entrepreneurs are key to our nation’s economy and its vitality. They not only provide new services and products to consumers by meeting changing needs in the marketplace, they are also generate jobs, innovations and form the fabric of communities. The most recent data available shows that they produced 46 percent of our country’s GDP and were responsible for 63 percent of the net new jobs created between 1993 and 2013.
The Postal Service’s poor finances are troubling enough. But their expansion into thriving competitive markets, combined with advantages they provide to foreign shippers is alarming. Citizens and businesses have counted on the Postal Service for over two hundred years. It’s sad and infuriating that they are undercutting entrepreneurs and small businesses. The agency must be made to focus solely on its core service, practice fairness in dealing with customers, and improve mail delivery.
Karen Kerrigan is president & CEO of the Small Business & Entrepreneurship Council.