Both UPS and FedEx Could Benefit From The Postal Service’s Pension Problems

But while the Post Office loses money, it does generate cash flow, thanks to the fact that retirement expenses are accrued according to basic accounting principles, but aren’t paid until quite some time in the future. In the long run, covering those cash expenses could lead to higher pricing, which would ultimately benefit UPS and FedEx.

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A changing shipping landscape has created some rough waters for a $70 billion shipping giant, but it isn’t FedEx or the United Parcel Service. In fact, it’s the United States Postal Service, which loses around $400 million a month. And yet, such hefty losses aren’t even its biggest problem. It’s actually the overwhelming size of its pension obligations. Taking care of that financial problem would be difficult, and could be beneficial to publicly traded parcel shippers; such a benefit would even overshadow current concerns over competition with Amazon.

Fact of the matter is, USPS pension obligations massively outweigh those of FedEx and UPS. This of course, makes some amount of sense; the organization is actually older than the country it serves, since it was started in 1775 when Benjamin Franklin was appointed Post Master General. Right now, USPS employs over 630,000 employees, and handles approximately 146 billion pieces of mail annually.

As for retirement obligations, the grand total for the United States Postal Service is $322 billion; four times as much as the combined obligations of FedEx and UPS. On top of that, the USPS pension plans are underfunded by about $43.5 billion.

To put that into perspective, consider this: the grand total of all U.S. civil servant pension obligations is $1.8 trillion. The U.S. government has only set aside $900 billion to cover all of that. This is one huge problem for taxpayers.

But while the Post Office loses money, it does generate cash flow, thanks to the fact that retirement expenses are accrued according to basic accounting principles, but aren’t paid until quite some time in the future. In the long run, covering those cash expenses could lead to higher pricing, which would ultimately benefit UPS and FedEx. They both compete with the Post Office, which is usually negative influence on marketplace pricing.

President of iDrive Logistics, Glenn Gooding, put it this way, “A rising tide can lift all boats. UPS and FedEx look at the USPS for baseline pricing.”

In layman’s terms, if the Post Office has to raise its baseline prices to cover all that pension money, FedEx and UPS can proportionally raise their prices as well, since there’s quite literally no one else to undercut them, including Amazon.

Despite how powerful and wealthy it is, Amazon doesn’t have the same level of delivery network as these three companies. Estimates show that it would take nearly $120 billion in investment from Amazon to do that.

What this means is higher prices in parcel delivery in the future; which is great for UPS and FedEx, but not so great for us normal folks looking to get presents delivered on Christmas.