Tuesday, August 25, 2009


That's the USPS cycling team, former cohort of overachieving Lance Armstrong from 1998 to 2004. Whether an [independent?] government agency should be sponsoring a cycling team is not the point I'm trying to make.

The following story hit the wires today:

"U.S. Postal Offering to Pay Workers to Leave, Retire

Aug. 25 (Bloomberg) -- The U.S. Postal Service said it reached agreement with two unions to offer as many as 30,000 employees incentives to resign or retire by the end of next month in a plan that may save $500 million...

[USPS] said in July it may lose at least $7 billion in the fiscal year ending Sept. 30."

In 2004, their last respectable year by decent profitability standards, USPS made $3.1 billion net profit on revenues of $69 billion - and that's not exactly killing it. Their fiscal year ends September 30. In 2007, the numbers had tumbled to a $5.1 billion dollar loss on revenues of $78 billion. 2009 is looking like a greater than $7 billion loss on revenues of $76 billion.

I'm not exactly criticizing USPS, although if you can lose billions three years in a row without having to come to market to issue equity or bonds, explain yourself and have a much better story to tell, you have a better sponsor than I do, but we knew that already.

The Bloomberg story above reminded me of a very strange research meeting I was in at an asset management firm I worked at in San Francisco in 1997 or 1998. Our Director of Research (DOR) told us that USPS was coming in the following week to do a fake road show for a tentative IPO. That wasn't what USPS was saying, that was our DOR's interpretation.

It turns out that the monster UPS IPO was on the way and USPS folks (the US Govvies) were wondering if they should be capitalizing on the same mojo. The process didn't quite get there but as late as January 2000 I found the following article referencing the speculation:

"Article: The Postal Service: One Hot Property

I have a proposal that would allow both the government and the people to benefit greatly from the stock market's growth. United Parcel Service's record-breaking IPO demonstrated that the company's market value was more than $80 billion. The U.S. Postal Service should be sold as well."

We all know what happened. The internet. Just as online shopping and biz-to-biz easier-than-ever eCommerce was giving a turbo boost to shippers UPS and FedEx, it was doing the following to USPS:

  • Killing traditional mail. Email and electronic payments have had a predictable effect on mail volumes, not to mention the fact that USPS' core mail customer are now more than likely to have grey hair.
  • Putting serious pressure on USPS management. A government agency that had a recent whiff of the public market limelight was subsequently faced with declining volumes and the imperative to cut costs in a high fixed cost organization that was not traditionally technology friendly.

In the words of Jessica Rabbit, not bad, just drawn that way.

The irony is that had the USPS IPO gone through as contemplated, the US would probably be without a postal service as you read this, or shortly thereafter.

Not the end of the world, but a strange dozen years none the less.

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