The financial backdrop to Postal Service union talks

Wednesday is the deadline for negotiators at the U.S. Postal Service to reach a new collective bargaining agreement with the American Postal Workers Union, which represents nearly 200,000 workers, including clerks, mechanics and vehicle drivers.

The talks are unfolding against a bleak financial backdrop. USPS’s financial losses have moderated a bit recently, but it’s still very much in the red. It reported a $1.5 billion net loss in the second quarter of the year, compared to a $1.9 billion loss in the period a year earlier.

Its troubles date back at least a decade. The internet chipped away at one of its biggest moneymakers: first class mail.

“That mail has dried up and will continue to dry up as more people migrate to electronic payments,” says Jerry Hempstead, president of the shipping logistics company Hempstead Consulting. Hempstead says USPS has managed to get the internet to work in its favor in other ways; it now ships a lot of the stuff we buy online. But Hempstead says that revenue is not enough to offset some big costs.

“The elephant in the room is the requirement to pre-fund retiree health,” he says.

A 2006 law required that USPS pre-fund 75 years' worth of future-retiree health benefits. That can cost as much as $5.8 billion a year.

“They can’t do it. They missed the last four payments,” says management professor James S. O'Rourke at the University of Notre Dame.

O’Rourke believes the solutions to the Postal Service’s problems include privatizing its pension and health care plans and closing more post offices.

“The union workers simply won't agree to any of that,” he says. “And the Congress won't agree to save them.”

O'Rourke fears those groups will only come together in a crisis, like USPS running out of money to meet payroll.

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