Perspectives Summer 2013
Perspectives magazine is published by the College of Business at the University of Illinois Urbana-Champaign. ON THE COVER: Is Home Delivery Forever? What does the future hold for the United States Postal Service?
[ COvER STORy ] USA 20 13 2013 USA 2013 If this were a race, the United States Postal Service— the deliverers of “snail mail”—would be the tortoise. Anyone you designate as their competitors— FedEx, UPS, the Internet—would be the hares. As in the fable, the USPS is not in the lead. ER FOREV ER USA FOREV Is Home Delivery FOREVER? 2 paid government employees, averaging about $83,000 per year. Their cost structure remains as inflexible as a mailbox. They have been saddled with prefunding their retirees’ health benefits by making annual payments of about $5.5 billion in a 10-year span. And they are restricted in their ability to create new revenue streams by their own stepparent, the U.S. government. Can the United States Postal Service survive? Can they even finish the race they are in? RETURN TO SENDER “Their hands are tied,” says Jaimi Goodfriend, adjunct lecturer of finance and director of the Investment Banking Academy for the College of Business. “Other firms have a wide range of options to improve profitability, but the post office is severely limited in its flexibility. For example, most firms can cut costs by exiting unprofitable business lines. The post office loses money every time it delivers a letter, but they can’t cut that. Further, they don’t get to merge like Pe r s p e c t i ve s S U M M E R 2 0 1 3 T he postal service conjures up images of bulkiness and slowness. For good reason: They have 574,000 employees; they operate 260,000 vehicles (the largest fleet in the world, which in 2009 consumed 444 million gallons of gas at a cost of $1.1 billion); and in 2011 they delivered 177 billion pieces of mail. They’ve been hit hard by their competition. Their revenues have declined sharply. Thanks to a strong union, they are among the highest- 3