The US Postal Service (USPS) is in a dangerous death spiral as it could run out of cash by the mid-2020s. The postmaster general warned in May that unless significant reforms are made to the quasigovernmental agency, it could soon collapse.
A new report from The Wall Street Journal suggests that the downfall of the USPS could be more imminent than thought. Package delivery volume declined in 2Q19 for the first time since 2009. The cause of the drop is due to Amazon, United Parcel Service, and FedEx increasingly delivering online packages to homes.
The USPS has experienced diminishing revenues for years even though they deliver packages to at least a million new addresses per year. The increased competition, largely from private shippers, has made the marketplace more competitive, leading to lower shipping rates that have financially stressed USPS.
The Journal said USPS delivered 3.2% fewer packages for the quarter ended June 30.
Postmaster General Megan Brennan said Friday that other delivery players are convincing shippers to switch to their networks, noting that they’re “aggressively pricing their products and services in order to fill their networks and grow package density.”
Brennan added, “That said, we are constantly adapting our competitive posture to counter emerging developments.”
The USPS will likely notice higher package volume declines through 2020. FedEx plans on shifting 2 million of its daily packages that are diverted to USPS for “last-mile delivery” into its Ground network next year.
Overall for 2Q, USPS posted a modest drop in revenue to $17.09 billion. It lost money on first-class mail, marketing mail, and periodicals.
Total operating expenses fell by 4.3% to $19.3 billion for the quarter.
The total loss for the period was $2.26 billion, compared with $1.49 billion a year earlier.
USPS has avoided collapse by defaulting on $48 billion in mandated payments over the past several years, Brennan said at a recent hearing called by the House Committee on Oversight and Reform.
Brennan has called for legislative and regulatory changes to correct USPS’ busted business model, where its largest and most profitable business of first-class mail remains in a slump.
“We anticipate that given our ongoing liquidity concerns, and without legislative action and regulatory reform, we may not be able to pay all legally required obligations and also invest in much-needed capital expenditures in 2019 and future years that are necessary to ensure our ability to fulfill our primary mission,” USPS said Friday.
Early indications show that the USPS is headed for a credit crunch sometime in the early 2020s. The one question that we have: Could the government let the USPS fail in a push towards privatization?