Can America Survive Without the United States Postal Service?

Story first reported from Yahoo.com

As the United States Postal Service misses key financial payments, critics and supporters speculate about bankruptcy or worse for an institution that predates the Constitution and the Declaration of Independence.

USPS officials have said they will miss two benefit payments mandated by Congress, which has caused a whirlwind of speculation about the future of the Postal Service.

The United State Postal Service is one of the few current government institutions spelled out in the Constitution.

The ability of Congress to “establish Post Offices and Post Roads” is spelled out in Article I, Section 8, of the Constitution, as part of a short list of enumerated congressional powers.

The Framers saw the postal system as critical to facilitating commerce and communications among the 13 states, and it was ranked as a high-priority item, along with the ability to create money, form an army, and ensure fair trade among states.

A lot has changed in 225 years, and today, the Postal Service is in a bad financial way–and subject to the control of a Congress that can’t agree on financial assistance for it.

One problem is the unique charter for the Postal Service: It is a federal institution and Congress has an oversight role (along with the executive branch), but the Postal Service has to pay its own way.

A second issue is that a 2006 act requires the Postal Service to fund its employee retirement plan for decades in advance. That additional cost has places a huge financial burden on the Post Office.

A third issue is that the Postal Service has a heavy union presence, which critics say restricts its ability to cut costs and remain competitive with UPS and FedEx.

And finally, the Postal Service has taken a huge financial hit on profits from first-class mail and package delivery, thanks to UPS, FedEx, the Internet, and mobile devices.

Rand Paul, the libertarian senator from Kentucky, told the conservative website Newsmax that a bankruptcy filing was certainly in the Postal Service’s future.

Paul says the USPS, as a private or public institution, needs to contain union costs, and only a bankruptcy filing would let the Post Office cut expenses related to its unionized employees.

Fredric Rolando, the head of the letter carriers’ union, says it’s an issue with congressional policy that is causing the business crisis.

“Besides bringing the Postal Service to the financial precipice, pre-funding also has prevented the agency from doing what it has done for 200 years–adapt to an evolving society. Instead, this artificial political crisis has focused management’s entire energy on a desperate attempt to pay bills that no one else has to pay,” he said in a statement.

What happens to the Postal Service?

Postal Service critics also want to see the service made into a privately run institution. One idea put out by conservative think tanks is that the USPS could monetize its huge real estate inventory, valued as high as $105 billion, to defray costs, attract investment and remain competitive with other delivery services.

But realistically, could the Postal Service actually shut down, if its problems grow worse and Congress can’t or doesn’t act to help? And how would Americans in rural areas or citizens with a lack of access to digital alternatives survive a postal outage?

No Immediate Shutdown for the Postal Service

For a variety of reasons, the Postal Service doesn’t face an immediate shutdown. For pure business reasons, UPS and FedEx partner with the Postal Service on local delivery, especially for packages ordered via Internet shopping. A shutdown would have a ripple effect on the whole package delivery business, and on businesses that market through the mail.

And then there is the issue of privatization and how the process would work.

Proponents of selling the Postal Service believe it would provide a financial lifeline to the 225-year-old system.

Rand Paul, however, points out one key problem.

“I’ve been trying to find somebody who would buy it. I can’t find anybody who’s interested in buying the Post Office. We’ve talked about this for decades,” he told Newsmax.

One reason is the huge unfunded pension obligation compiled by the Postal Service over the years. A buyer would have to pick up the tab for $46 billion, just in pension costs, according to a Bloomberg analysis.

Peter Orszag, an economist and former Obama administration official, argues that privatization is the only way to go, because it would remove Congress from having any role with the Postal Service.

“The U.S. Postal Service has a long and storied history. Yet it is now struggling because the world has changed and because congressional sclerosis has prevented it from adapting to the new realities. The best way to modernize it now is to move it out of the government,” he says.

Finally, there are a slew of potential constitutional issues related to removing the Post Office from the government system.

Postal Service supporters say it is a constitutionally mandated institution, pointing to the Postal Clause in Article 1, Section 8, but privatization supporters believe Congress was only given an option to establish the Post Office.

Add to the fray all the various interest groups tied to the Postal Service, from unions to local politicians.

Also, some people don’t have electronic communications devices and live in rural locations that only the Postal Service serves. Would there be a legal obligation to provide access to mail that would include government communications, like tax information or social security payments, as well as everyday mail?

And imagine the post office’s fate as argued as a Supreme Court case. The Postal Clause is one of the few enumerated powers in the Constitution. As seen in the recent health care decision, there are a lot of creative lawyers and academics who would certainly like a part of what could be an historic decision.

For now, the Postal Service doesn’t seem to be going anywhere, but there are huge questions about its role with Congress and how it can operate as a self-sustaining business.

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FedEx Delivers International Profits, but Cuts U.S. Jobs

Associated Press

 

FedEx Corp. indicated Thursday that the global economic recovery remains uneven. While strength in international shipments is boosting net income, FedEx is cutting 1,700 jobs in its U.S. freight business to offset losses there.

The world's second-largest package delivery company did raise its financial outlook after as it said first-quarter net income doubled. But projections for the second quarter and full year fell shy of Wall Street expectations. FedEx shares dropped almost 4 percent.

International air shipments have driven FedEx's results for more than a year; international revenue rose 24 percent in the quarter ended Aug. 31. But while FedEx earned $380 million in the first quarter, the FedEx Freight segment lost $16 million and has been unprofitable for four straight quarters.

The unit moves large items like refrigerators and other large appliances from factories to retailers and competes with other large trucking companies such as Arkansas Best and YRC Worldwide, which runs trucks under the Yellow, Roadway and New Penn names. Sluggish demand, combined with the heated competition in this segment of the U.S. shipping market, has forced FedEx to forgo the rate increases that are helping its other segments grow.

The freight unit, started in 2001, is separate from FedEx Ground, which trucks packages directly to consumers.

FedEx will combine its FedEx Freight and FedEx National less-than-truckload operations on Jan. 30 and close 100, or 20 percent, of its service centers. The 1,700 job cuts represent about 5 percent of the freight division's workers. Overall, FedEx has about 280,000 employees.

FedEx says the move, along with other cost cuts, will ensure the freight business is profitable next year. Less-than-truckload shippers take goods from many different manufacturers and consolidate them into a single truck for delivery.

For the current quarter that ends in November, FedEx expects to earn between $1.15 and $1.35 per share. Analysts were expecting $1.36 per share.

Chief Executive Fred Smith thinks the economic hiccups are typical for a recovery.

"We believe slower growth is consistent with historical business cycles," Smith said in a conference call with analysts. "We believe drivers of sustainable growth are in place."

For the fiscal year that ends in May, FedEx forecasts net income of $4.80 to $5.25 per share. That's up from a previous estimate of $4.60 to $5.20 per share. But some analysts had forecasts as high as $5.60 per share, according to Thomson Reuters.

"We expect a very solid peak season," said Executive Vice President Mike Glenn, referring to the important holiday shipping period. "It always gets a little cloudy after that."

While retailers aren't overly optimistic about the holiday shopping season, FedEx has reason to show more holiday cheer. FedEx benefits from e-commerce business, which now routinely outpaces brick and mortar retail growth as more people order gifts online. Also, retailers placed many holiday orders in the spring when their outlook for consumer spending was brightening. With recent mixed signals about U.S. economic strength, some worry that they may have ordered too much - bad for them, but good for shippers like FedEx.

The Memphis, Tennessee, company earned or $1.20 per share in the fiscal first-quarter that ended in August, compared with $181 million, or 58 cents per share a year ago. That's slightly under the $1.21 per share that Wall Street expected. Revenue rose 18 percent to $9.46 billion.

As overall business has improved, costs have risen. The reinstatement of some employee compensation programs, higher pension, medical and aircraft maintenance expenses - as well as the loss at FedEx Freight - countered improvements at the Express and Ground operations.

Operating income at the Ground division rose 37 percent to $287 million. The Express division, which handles everything from air cargo to overnight documents, had operating income of $357 million, more than double a year ago.

Verdict Backs FedEx In Overtime Case
Story from the Wall Street Journal

A Seattle jury ruled that FedEx Corp. didn't illegally deny overtime pay to 320 drivers the company deemed to be independent contractors, resolving the latest in a series of battles over whether thousands of current and former FedEx drivers should be reclassified as employees.

The King County Superior Court jury ruled Tuesday that the drivers for FedEx Ground were properly classified as independent contractors, and thus weren't entitled to overtime payments and reimbursement for other expenses.

The Memphis, Tenn., company still faces many other lawsuits across the country, including a nationwide class-action suit related to the classification issue. The outcome of those cases will determine whether FedEx could be forced to pay hundreds of millions of dollars more to cover such costs as operating expenses and pension and health-care benefits. Nationwide, roughly 13,000 current FedEx drivers are classified as independent contractors.

"Our position that the men and women who contract with FedEx are independent contractors and control their professional success clearly resounded loudly with that jury," FedEx spokesman Maury Lane said Wednesday.

The verdict comes less than four months after FedEx agreed to pay $26.8 million to settle a similar California lawsuit. A California Superior Court judge ruled that 203 current and former drivers were employees, not contractors. That ruling was upheld on appeal.

Lynn Faris, lead overtime lawyer in the nationwide class-action case, which is pending before a federal judge in Indiana, said the Seattle verdict has no impact on that case, which is based on federal retirement law. In addition, the verdict won't affect 20 other class-action suits that are based on various state laws.

Nonetheless, Ms. Faris called the Seattle verdict "very disappointing. I think it does show that juries can be misled by contracts written by fancy tax lawyers for big corporations."

No trial date has been scheduled in the nationwide class-action case.

Shipping Slump Slows Boats From China

Drop in Pacific Passage Hits Global Sea Carriers; Are FedEx, UPS Next?


A sharp drop in freight shipped across the Pacific during the past two months suggests the shipping-industry slump is about to get worse.

At the major ports of Los Angeles and Long Beach, Calif., which bring in nearly two-thirds of West coast containerized goods, import volume fell 8.8% in both January and February compared with a year earlier, as the weakening economy, tough housing market and high gasoline prices eroded U.S. demand.

In response to slowing. traffic, three of the largest global carriers Danish shipping-giant A.P. MollerMaersk AS's Maersk Line, French carrier CMA CGM Group and Swiss company Mediterranean Shipping Co.are sharing space on the same ships instead of operating their own weekly trans-Pacific shipping services, in hopes of slashing transportation costs by as much as 30%.

"These people are trying to compensate for the lack of growth by getting some of the economies into the system by moving traffic in a cheaper way," says Mark Page, director for liner shipping at Drewry Shipping Consultants Ltd., a London maritime-advisory firm.

The ocean-freight slowdown bodes ill for railroads, delivery companies and others that bring imported goods to U.S. businesses and consumers in the coming weeks and months.

Volumes of Asian-made goods crossing the Pacific Ocean peak in the summer and early fall for back-to-school and holiday shopping. Railroads then move the bulk of the items across the continent from ports on the West Coast. Package-delivery companies such as United Parcel Service Inc. and FedEx Corp., which together handle about 22 million packages a day, close the final gap with stores and consumers.

FedEx Corp.'s earnings report today could shed further light on the health of the industry. The Memphis, Tenn., company is expected to report that earnings for the quarter that ended in February hit the low end of its profit target. The company has said its performance depends on the economy showing no further sign of weakening. Moreover, the company is expected to report flat delivery volumes, particularly in the U.S. air market.

United Parcel Service Inc. told investors last week that, after a strong January, momentum vanished over the following six weeks.

Union Pacific Corp., the nation's largest railroad company in terms of revenue, says its volume dropped 4% from the beginning of the year to March 8 .

Import volume from Asia into the U.S. is expected to grow by less than 2% this year-no better than the tepid growth seen in 2007, says Mr. Page. Average growth for many years prior to 2007 was about 10% annually, he said.

Nationwide, research firm Global Insight expects import volumes to fall 2.1% year, compared with a drop of 0.5% last year. "We feel the market to keep on shrinking," says Rodolphe Saade, chief executive vice It of CMA CGM.

The slowdown comes amid skyrock~l costs, which make up more than 50% of the operating costs for shipping companies. As a result, shipping companies are seeking rates and surcharges despite traffic.

The Transpacific Stabilization Agreement, which covers 15 major container-shipping lines that carry cargo from Asia to U.S. ports, calls for an increase of $400 per 40 feet of cargo space to West Coast ports and an increase of $600 per 40 feet to East Coast ports, beginning May 1.

Mr. Saade says CMA CGM's fuel cost was $240 per ton in January 2007, but the company was paying $450 per ton by December.

China Ocean Shipping Group Co., a major Pacific shipper, and "K" Line America Inc., a unit of Kawasaki Kisen Kaisha Ltd. of Tokyo, plan to extend fuel surcharges to all contracts by the end of this year.

Container ships stack secure, metal boxes that are generally stoked with clothing, shoes and consumer electronics from southern China and furniture, apparel and auto parts from northern China. The Pacific crossing typically takes between 12 to 16 days.

Today companies operate more than 125 weekly container routes to the U.S., an increase of more than 60% since 1999, according to the World Shipping Council, a Washingtonbased trade association.

But in recent years, the U.S. service has generated less profit than other trade routes, shipping experts say. That is leading major shipping companies to shift ships out of the Pacific to routes serving Europe, where growth remains stronger.

By Stephanie Chen, with contributions from Corey Dade
Wall Street Journal March 20, 2008