How to Profit from Possible US Postal Service Bankruptcy
The United States Postal Service is so low on cash that it might not be able to make a $5.5 billion payment that is due this month and could even be forced to shut down by the end of the year as it racks up billions of dollars in losses. Postmaster General Patrick Donahoe is scheduled to speak before Congress today and is expected to ask for Congress to give him more leeway in dealing with the many financial problems facing the postal service. Proposals to save money include workforce reductions, changes to the employee benefits system and the end of Saturday mail delivery.
The United States Postal Service hasnít been able to keep up with the times, as its revenues continue to fall due to advances in technology that have made many of its services nearly obsolete. While Postal Services in many other countries have remained relevant because they offer other services such as banking and insurance, the services that the United States Postal Service is allowed to offer are limited by law. The Postal Service also faces a long term revenue crisis because each year the number of pieces of mail shipped by the Postal Service declines. The loss of business is further exacerbated by the fact that the Postal Service cannot raise its prices any faster than inflation.
Another factor in the Postal Serviceís decline is that its labor costs are much higher than private sector companies like FedEx (NYSE: FDX) and United Parcel Service (NYSE: UPS). While private companies like FedEx and United Parcel Service have been able to offer contracts to their employees that allow the companies to be profitable businesses, the Postal Service continues to offer its employees extremely generous contracts that include pension plans, guarantees against layoffs and other benefits that would be the envy of many workers in the private sector.
There is no sign that Congress is anywhere close to coming up with a plan to save the Postal Service, as Congressmen bicker over details of what services the Postal Service should maintain and whether or not it should receive a federal bailout or force its unions to accept cost cutting expenses. For their part, the unions say they will fight against any cutbacks in services offered by the Postal service or benefits received by its employees. However, they may not have much leverage since many Americans no longer see the Postal Service as a vital institution.
The combination of falling revenue, expensive labor contracts and limited possibilities for new income streams have put the United States Postal Service in a downward spiral and investors may want to take advantage of the situation in which the Postal Service finds itself.
Investors who feel that the United States Postal Service is doomed, may want to invest in its private sector competitors like FedEx and United Parcel Service. Although much of the services offered by the Postal Service are in decline, mail delivery still plays an important part in the U.S. economy and if the Postal Service is eliminated, these companies will be the ones to pick up the slack. Unlike the Postal Service, private companies will be able to price their services at a cost that allows them to make a profit.
While companies like FedEx and United Parcel Service could benefit if the Postal Service is unable to adapt, companies that send a great deal of their products to customers through the mail could see their shipping costs rise. Companies like Amazon.com (Nasdaq: AMZN) could see their stock prices drop if investors anticipate lower profit margins.
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