December 9, 2015

Make no mistake about it—the USPS faces a very difficult task in adjusting to lower mail volume without adversely affecting its business. Here is a sampling of several of the risks recently listed by USPS in its 2015 10-K:

• Current and future management actions to generate cash flows by increasing efficiency, reducing costs and generating additional revenue may not be sufficient to meet all of our financial obligations or to carry out our strategy.
• We are subject to Congressional oversight and regulation by the PRC and other government agencies. We have a wide variety of stakeholders whose interests and needs are sometimes in conflict.
• The expiration of the exigent pricing surcharge will have an adverse impact on our future operating revenue and liquidity
• Our need to restructure our operations in response to declining mail volume may result in significant costs. It is possible that the measures being considered would be insufficient to reduce our workforce and physical infrastructure to a level commensurate with declining mail volume.
• Our business and results of operations are significantly affected by competition from both competitors in the marketplace as well as substitute products and channels provided by electronic communication services. If we do not compete effectively and operate efficiently, grow marketing mail and package delivery services and increase revenue and contribution from other sources, this adverse impact will become more substantial over time.
• Existing laws and regulations limit our ability to introduce new products or services, enter new markets, generate new revenue streams or manage our cost structure. These laws and regulations may also prevent us from increasing prices sufficiently or generating sufficient efficiency improvements to offset increased costs. This would adversely affect our results of operations…PAEA generally limits price increases on our Market-Dominant services to the rate of inflation as measured by the CPI-U. However, our costs are not similarly limited. A large portion of our cost structure cannot be altered expeditiously. Accordingly, we may not be able to increase prices sufficiently to offset increased costs.
• A union contract arrived at either through negotiation or arbitration could have a significant adverse impact on our future results of operations by impacting our control over wages and benefits and/or by limiting our ability to manage our workforce effectively.

Absent new legislation that seems increasingly unlikely in a Presidential election year, especially with such a disruptive leading candidate in the Republican primary race, the post-election year will afford an opportunity to re-evaluate the pricing regulation of USPS as well as recalibrate the pre-funding of post-retirement obligations. The 2006 postal law requires a ten-year regulatory review led by the independent PRC that happens to begin shortly after our 2016 election, and before the new President and Congress are sworn in.