Height: Post Office's Strong Liquidity Makes Immediate Crisis, Changes Less Likely

Dave Royse

Don’t look for major changes to the postal service in the coming year, analysts from Height Securities say.

The United States Postal Service does have long-term financial challenges resulting from changes in how we all send packages — and expensive retiree benefits.

But in a Monday note, Height Securities analyst Hunter Hammond said the chance of big change anytime soon is pretty small, in part because of strong liquidity at the post office makes a major, immediate crisis unlikely.

“Absent a liquidity crisis, lawmakers and interest groups remain apprehensive about major reform, especially privatization,” Hammond said.

Height analysts put the odds of Congress considering a major overhaul of the USPS this year at about 15 percent.

Hammond’s analysis follows the release earlier this month of a White House task force report on the postal service that said the USPS business model is “unsustainable and must be fundamentally changed if the USPS is to avoid a financial collapse and a taxpayer-funded bailout.”

The task force did not call for privatizing the Postal Service, something that has been suggested by some in the Trump administration.

Effect on FedEx, UPS, Amazon?

The task force did agree with Trump, who has criticized the service for not charging enough for package delivery. The task force said USPS is underpricing its commercial parcel delivery service counterparts and suggested raising prices on e-commerce companies like Amazon.com, Inc. (NASDAQ: AMZN) that contract with the post office for delivery.

The task force called for across-the-board pricing changes for both mail and packages that put USPS prices more in-line with market prices.

Amazon, according to some estimates, relies on the USPS to deliver nearly half its packages to customers' doors. Any change to agreed-on rates would also affect United Parcel Service, Inc. (NYSE: UPS) and FedEx Corporation (NYSE: FDX).

Height's Hammond noted that the task force recommends that any price increases "be heavily scrutinized to prevent market distortions that might 'drive industry participants out of the market.'”

The Postal Service lost nearly $69 billion last year, and expects tens of billions in losses over the next 10 years, according to the White House. It has lost money for more than a decade.

Related Links:

Analysis: Neither Trump Nor Congress Can Do Much To Alter Amazon's Post Office Rates

Analysis: US Postal Service, Built To Deliver Letters, Struggles To Compete In Package Delivery

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