The Impact of USPS Shut Down on Small Retailers

In a few weeks, the United States Postal Service (USPS) may run out of money. The reason? Well, according to Postmaster General, Patrick R. Donahoe, the Internet is to blame.

In his testimony prepared for a congressional hearing this week, Donahoe explains that “the way people work, interact, learn, communicate, do business, and live their daily lives is vastly different than it was for our parents and even for many of us.”

He’s right. I now pay all my bills online, as many Americans do. I email and text dozens of times a day. Heck, I even send digital holiday cards. But is the reduced mail volume really to blame for the possible default facing the USPS?

The Factors Behind the $9 Billion Loss

The Internet, the digital age, the Information Superhighway….however you refer to it….certainly is a contributor to the reduction in mail and the $9 billion the USPS is on track to lose this year.

But when you look at the numbers, it’s tough to place a ton of blame here. In 2006, several years after those “hypertubes” that power the Internet were born, the USPS handled more mail than in any other year in it’s 236-year history. 2005 and 2007 were its second and third busiest years.

It’s clear there are other factors at play. For instance, did you know the USPS has universal healthcare coverage? That’s right, in 2006, Congress passed the Postal Accountability Enhancement Act (PAEA), which forces the USPS to provide healthcare coverage for its retirees for the next 75 years. In a few weeks, on September 30, they’re supposed to fork over $5.5 billion for future employee coverage, and making good on that payment is not looking good.

On top of that, the USPS pays a ridiculous amount of money in unionized employee pensions. In fact, more than it should. An independent audit found that the USPS overpaid $50 billion in pension funds. Whoops!

So then why don’t they get that money back and get out of the fiscal mess they’re in, you ask? There’s actually a proposal on the table to do just that, but as it goes in Washington, not everyone is in agreement that it’s the best or right solution.

Everyone in Washington is in agreement that something needs to be done to fix the balance sheet, and unfortunately the main proposal under consideration involves slashing 120,000 jobs, stopping mail delivery on Saturdays, and closing thousands of post offices around the country.

The Impact on Small Retailers

For many people and businesses, they could get by without the USPS. For others, namely the elderly, poor and small businesses, they can’t afford to not have this public service available to them. Not only are alternative options, such as FedEx and UPS, more expensive in many cases, they also are not required to deliver mail and packages to every place in the country.

As a small retailer, removing USPS from the equation would limit your options, but not change the fact that every one of your orders still needs to be fulfilled, some of which the U.S. Postal Service will fulfill at less cost currently, and some which, right now, FedEx and UPS may deem as being “off limits.”

As a fulfillment services company, we certainly understand the significance of shipping savings, even as little as a few pennies on each order shipped. And for many retailers, those which already have tight margins and face growing consumer expectations of shipping bargains, the increased expenses resulting from the loss of this carrier option could be enough to put them out of business.

The notion that the country’s second largest employer will just die seems unlikely. But major restructuring is in order, and the obstacles faced are big. Still, they’re not insurmountable, and as Senator Lieberman put it, let’s hope action is taken quickly so that the United States Postal Service “remains a relevant part of our 21st century communications infrastructure, rather than an 18th century relic.”