8 ms·
How to lose $5B
- mistermann 11y agoI wonder if these USPS losses have anything to do with the fact that I can order something from China for $2 with free shipping.
- Alupis 11y agoShipping is never free (and it's often more expensive than most would assume). It just means the retailer/manufacturer has baked into the product price, enough headroom to pay for shipping. In reality, you are still paying the shipping, you just don't realize it. Would you prefer to purchase a $60 product with $15 of shipping, or purchase a $75 product with free shipping? Obviously it's the same, but psychologically, most people gravitate towards the latter because it "feels" like it's less. Paying shipping fees, for most people, often feels like a rip-off, so the lure of "Free shipping" is very powerful. In addition, it's common for some of a retailer's products to lose them money (due to having to subsidize and/or pay for shipping out of the total invoice price), while they make very healthy profits from other products (meaning it averages out to a net profit in the end). USPS' losses are purely due to being very inefficient. My company ships UPS, FedEX, and USPS. USPS loses the most number of packages on any given week, many of which they have to pay a partial re-reimbursement for (the retailer's cost).
- 542458 11y agoI think her/his point was that shipping is cheap enough that there's even room to bake it in on a $2 product - I can't imagine that being viable were you skipping exclusively with USPS. There are stores on aliexpress that sell nothing but sub-$2 products, so I don't believe that those are all loss-leaders.
- Alupis 11y ago> so I don't believe that those are all loss-leaders Probably not. If the products are from over-seas, it's likely a great many are being shipped at the same time (a pallet of various products, etc... which cuts down dramatically on shipping fees), then broken out into individual packages once arriving at port. The cheapest way USPS will ship a regular package is "USPS First Class Flats", which offers no tracking information and is restricted to light-weight and mostly small/flat packaging. It's $0.98 usually (anywhere in the US). So, if you purchase a $2.00 item with includes "Free shipping", it's safe to assume about $1.00 of the price is for packaging materials and shipping fees. Perhaps another $0.50 is product cost, leaving less than $0.50 in profit after labor is paid for. Seems like very little, but if you ship a large volume every day...
- djcapelis 11y agoYou probably haven't ordered a sub $2 product with free shipping from aliexpress recently, have you? They are not shipped together and broken out at port, they get separate tracking numbers in a separate package. There is no fulfillment middleman on the US side. Looking at USPS's domestic rate table to understand how most aliexpress shippers get their products to the US isn't likely to be that enlightening. Read up on epacket, which is one program between Hong Kong post and USPS that is used pretty frequently.
- Alupis 11y agoJust because they have individual tracking numbers certainty doesn't mean they don't come over in a container together. For a domestic example, check into UPS Mail Innovations (FedEx has a similar service). Regardless, epacket appears to be a subsidy-like system setup by USPS (yet another reason they are losing money), and masks the true shipping cost.
- djcapelis 11y agoIf you've ever looked at the packaging and the documents around it, it's very clear that what you're saying just isn't the case. They are individual parcels. I'm sure the post offices involved stuff a bunch of them into the same container (it goes by air not by sea, by the way. So we're talking air mail containers, not 40ft shipping containers.) when they send it, but that's true of any package. I understand why you would speculate these things are true, but all the evidence seems to indicate that none of those speculations are correct. And yes, USPS may be losing money on those packages, but that doesn't really matter to the shipper and certainly doesn't show up in the product pricing.
- Marazan 11y agoWell, the fact it has to fund retirement benefits for people who aren't even born yet (yes the provisions are that wacky) probably has something to do with it.
- ars 11y agoThis shipping actually is free to the retailer. The costs are paid by the Chinese government, and the US postal service. The US postal service gets no money at all to deliver a package from China, and the Chinese government has free postage to the US for certain small packages.
- pawelk 11y ago> Shipping is never free (and it's often more expensive than most would assume). It just means the retailer/manufacturer has baked into the product price No, in this case the shipping is not part of the price. When you want to send a post card to someone anywhere in the world you pay USPS for the stamp, but the post service on the other side doesn't get a share - it's delivered for free. If they mail you back they buy a stamp, the proceeds go to their USPS equivalent, but USPS doesn't get a cut. It makes sense as long as the amount of mail sent abroad is similar to what's received from other countries, which probably was the case when postal services were used for actual letters. Shipping goods as "letters" skews the system, because Chinese vendors get to send whatever they want for nothing (subsidized by their govt) and national postal services in destination countries have no other choice than to deliver it for no compensation.
- toomuchtodo 11y agoNo. It's Congress purposely forcing onerous pension funding requirements on the USPS in order to dismantle the organization. No more, no less. https://www.uspsoig.gov/blog/be-careful-what-you-assume https://www.uspsoig.gov/blog/be-careful-what-you-assume http://www.bloombergview.com/articles/2012-08-02/understanding-the-post-office-s-benefits-mess http://www.bloombergview.com/articles/2012-08-02/understandi... http://www.gao.gov/products/GAO-14-398T http://www.gao.gov/products/GAO-14-398T
- Retric 11y agoThat and requiring them to subsidize mass junk mail delivery for Non profits. https://www.usps.com/business/every-door-direct-mail.htm https://www.usps.com/business/every-door-direct-mail.htm Non profits can send mail for as little as 10.2¢/piece. http://savepostage.com/bulkmail101/rates.html http://savepostage.com/bulkmail101/rates.html
- jessriedel 11y ago> That and requiring them to subsidize mass junk mail delivery. Actually, I believe junk mail is a big money maker for USPS. > "What we want to do is to make standard mail more interesting for customers so we can grow the total volume," Postmaster General Patrick Donahoe said in an interview. "We don't call it junk mail—it's a lucrative avenue for anyone who wants to reach customers." http://www.wsj.com/articles/SB10001424052970204612504576606743516301586 http://www.wsj.com/articles/SB100014240529702046125045766067...
- toomuchtodo 11y agoIndeed. Junk mail subsidizes first class mail. The solution would be for the USPS to deprecate junk mail, properly price first class, priority, express classes, and start offering banking services to the unbanked.
- Retric 11y agoCommercial bulk mail arguably makes the post office some money, but the huge non-profit discount is simply lost money. However, even for Commercial it's tricky to work out the actual costs as they are overhead heavy and they can't charge different prices per region. So, on it's own it's a money loser.
- adevine 11y agoThey have wholly to do with the health benefit pre-funding mandate (mentioned briefly in the article) which amounts to about $5.6 billion a year.
- navait 11y agoYou understand the article explains what the problems of the USPS are right? No need for speculation.
- fijal 11y agoWow. 125bln USD is half of greek GDP and just under a third of its debt.
- vezzy-fnord 11y agoThe Postal Clause and the Private Express Statutes are looking heavily anachronistic by now. If only Lysander Spooner's ALMC had prevailed.
- stephengoodwin 11y agoAs a consumer who ships packages every now and then, I'm impressed with how usable USPS's web site is compared to UPS or Fedex.
- Phlarp 11y agoAs a consumer that often buys many small low value items (electronics, often from china) I find their level of service and rates to be phenomenal as well. I don't understand why the TSA can be an open and shameless jobs program but the postal service gets shit on? The website is excellent as well, you can link your online package tracking account with your physical mailbox so that incoming packages addressed to you will often appear in the dashboard without any input from you.
- dragonwriter 11y agoThe only reason for have providing a postal service be a Constitutional power of government is because having one in place and operational was viewed as having a public, externalized benefit. As such, one shouldn't expect it to be profitable -- not that its bad if it is, but as long as the magnitude of the net expenditure is less than the externalized benefit, its worthwhile. Clearly, the unsubsidized-but-government-controlled model doesn't make a whole lot of sense, either from the "it is a public benefit and should be a public service" perspective or the "it is not a public benefit and should be provided in the private market" perspective.
- pdeuchler 11y agoI'd also argue the rights afforded to communication transmitted over USPS (and not afforded to UPS/Fedex) are a huge part of that externalized benefit
- sophacles 11y agoOne of the reasons it doesn't work is there are congressional rules and laws limiting it to only "not working". Things like - requiring full pre-funding of all benefits, limits to what it can carry that come from congress, etc. Many of these rules seem to exist only to make the post office look bad.
- deleted 11y ago[deleted]
- jbob2000 11y agoWith the serious presence of corporate money in American policy making, I wonder if that is the result of lobbying from FedEx and UPS. They stand to profit from a weakened USPS.
- Jtsummers 11y agoThey stand to profit regardless. USPS actually makes their lives easier. UPS/FedEx would be taking on a huge expense trying to properly service remote (rural) areas to the level of the USPS. If they can sit on top of it via partnerships (FedEx, at least, already makes use of USPS for last-mile delivery on some delivery tiers), they can focus on their high population density and global logistics business instead.
- roymurdock 11y agoHere's the relevant data: [The USPS's] unfunded liability grew 76% between 2007 and 2015, to $125.2 billion. The Tax Foundation, a think-tank, doubts it can ever repay this money. The service has done much to improve its financial state—hours have been cut at rural branches and it has reduced work hours by 420m since 2002, saving some $17 billion annually. It has shrunk its staff by nearly 300,000, but it still has staggering labour costs. About 80% of its budget goes to its workers. Under a law of 2006, the service has to pre-fund 75 years’ worth of health benefits for retired workers, something no other company, much less a government agency, is required to do. Privatization isn't looking too bad. I'm all for strong employee benefits and organized labor, but 75 years' pre-funded benefits for retired workers seems excessive. We might end up losing a few of the more rural branches, but the employee/employer negotiations and business model would be much more sane under a private for-profit structure.
- dragonwriter 11y ago> Privatization isn't looking too bad. I'm all for strong employee benefits and organized labor, but 75 years' pre-funded benefits for retired workers seems excessive. The whole purpose of that unique mandate is to make privatization look better by making the state of the USPS look bad.
- ta0o0o0 11y agoI'm all for strong employee benefits and organized labor, but 75 years' pre-funded benefits for retired workers seems excessive Those two things are not related. The prefunding requirement was specifically added for political reasons to screw over the Postal Service.
- roymurdock 11y agoSo you're both [edit: all] saying that Congress is being paid (by who? UPS/Fedex?) to screw USPS over. Do you have any citations? Why wasn't this mentioned in the article if it's such a well-known scheme?
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- fredgrott 11y agoThe bigger question, obviously one could contract out mail delivery to FedEx, DSL, etc..why has not the move been made yet? One could do areas to each one like say Alcohol is done..and the public would still get the public benefit
- toomuchtodo 11y agoFedex and UPS already do alcohol delivery (USPS regulations prohibit it). USPS contracts with FedEx to move priority mail between distribution hubs.
- mywittyname 11y agoThis is the end goal. Congress is pushing to destroy USPS so they can claim it failed and justify selling it's profitable services off to a private company who will then raise prices by a factor of 10. Congress literally decided to tell USPS owed $125B one day [1], knowing full-and-well that it would take USPS like 60 years to pay that much money. Figuring that the population will grow tired of USPS running a billion dollar (artificial) deficit for decades. [1] http://thomas.loc.gov/cgi-bin/query/z?c109:H.R.6407 http://thomas.loc.gov/cgi-bin/query/z?c109:H.R.6407:
- jellicle 11y agoLet's take a slightly more factual article: http://www.cnbc.com/2015/11/13/postal-service-tallies-51b-loss-in-2015-budget-year.html http://www.cnbc.com/2015/11/13/postal-service-tallies-51b-lo... USPS made $1.2 billion in operating profit in the last fiscal year. The USPS has been an independent, revenue-neutral agency since 1971.
- sparky_z 11y agoBut your link also says it had a $5.1 billion loss, and doesn't explain the discrepancy. So which is it? Did the postal service gain or lose money this year?
- jdmichal 11y agoThere is no discrepancy to explain. "Operating profit" is not "net profit". Specifically, operating profit consists of only line items generated from operations, so mainly revenues less operating expenses. It does not include things like funding liabilities, interest, taxes, etc.
- sparky_z 11y agoThanks for explaining the discrepancy to me (though I'm not sure why you started by denying its existence). It would have been nice if the article had included that info.
- jdmichal 11y agoI denied its existence because there is no discrepancy. A discrepancy is a mismatch between two data sets. This is not a discrepancy, because the two numbers -- operating profit and net profit -- are not the same data set.
- 100k 11y agoHow to tell if an article about the USPS is hackery: check and see if it mentions that Congress requires the Postal Service to fund its pension obligations for 75 years.
- tastynacho 11y agoOther fun fact with that nugget is that mandate was originally written and lobbied for by UPS and Fedex. USPS's financial woes were manufactured by the public competition.. Funny also how quickly perception of USPS changed. Prior to that many considered them a model of an anti-red tape beaurucratic government entity.
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