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Pragmatism From the Postal Service in the Face of Congress' Obstinacy
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| Tremendous piece from the New Yorker in defense of the Postal Service and their new partnership with Amazon...
NOVEMBER 14, 2013
NEITHER SNOW NOR RAIN NOR FUNDING TROUBLES
I come from a postal family: two of my aunts, one of my godfathers, and a slew of family friends are employed by the Postal Service; my mother has been a rural letter carrier for more than thirty years. She’s driven tens of thousands of miles along the same stretch of roads, tracing the same route almost every day for decades. She’s delivered everything from gold bars to live bees, diamonds, turkeys, tombstones, crickets, ducks, pheasants, and human ashes.
I remember watching my mother’s careful hands sort the mail for customers on her route, listening as my aunt assisted clients at the clerk’s window, and studying the conveyer belts full of packages and envelopes as machines read Zip Codes while my godfather supervised the local processing plant. That any envelope or scrap of paper found its way from one coast of the country to the other struck me as a miracle when I was a child; frankly, it still does.
It’s rare to hear anything but complaints about mail being lost or carriers being discourteous, but the mail is one of those things to which we give distorted attention. Almost every day, it arrives without error or fanfare. Yet on those days when it doesn’t, we notice.
Only nine months after announcing that it planned to reduce regular delivery from six to five days a week, the United States Postal Service revealed earlier this week that it would be delivering packages on Sundays for Amazon.com. Starting this Sunday, if you live in Los Angeles or New York, your postal carrier could be knocking on your door with an Amazon package.
The negotiated service agreement between Amazon and the U.S.P.S. is sealed, but representatives and press releases from both companies explained the unusual arrangement. Postmaster General Patrick R. Donahoe told the Times, “Consumers have shown that there is a market for package deliveries seven days a week, and we are glad to be in a position to partner with Amazon on providing this service.” Dave Clark, Amazon’s vice president of worldwide operations and customer service, said, “We’re excited that now every day is an Amazon delivery day.”
While the Postal Service already delivers some express-mail packages on Sundays for an additional fee, the agreement with Amazon greatly expands Sunday delivery. It’s not clear who is covering the additional cost for weekend service. Millions of products qualify, although only the Los Angeles and New York metropolitan areas are eligible for now. As early as next year, the same service will be available in Dallas, Houston, New Orleans, and Phoenix.
It’s a win for all involved: consumers, desperate for last-minute deliveries during the holiday season; Amazon, eager to stay ahead of its online competitors; and the U.S.P.S., which continues to lose money on regular mail but hopes to grow its package services. While first-class-mail delivery fell from ninety-two billion pieces in 2007 to sixty-nine billion in 2012, package volume rose from 3.3 billion to 3.5 billion in the same period.
The Postal Service’s effort to stay profitable is hampered by its unusual status as independent government agency. While U.S.P.S. hasn’t received government funds directly for decades (funding comes entirely from postage and product revenues), the agency is still subject to special regulation by Congress. There is very little the Postal Service can do without congressional approval: for example, consider Congress’s prerogative to name post offices.
Likewise, almost no element of the Postal Service’s plan for profitability can be implemented without congressional approval. Among the reforms that require it are ending Saturday mail delivery, consolidating rural offices and regional sorting facilities, restructuring employee benefits, even raising stamp prices by a single penny. Annual revenue fell by half a billion dollars last year, and while cutting Saturday delivery alone would save two billion dollars, Congress has opposed any such reductions in service.
That’s one of the reasons the agreement with Amazon.com is so notable: it represents the U.S.P.S. acting within its limited power to become more profitable. Perhaps it is the first of many such arrangements that the Postal Service will make with online retailers, hoping to capture the delivery market for these sites instead of other carriers like FedEx and United Parcel Service. Even while other countries are privatizing their mail services, the Postal Service has asked for reform, not privatization.
U.S.P.S. handles forty per cent of the world’s mail—that’s more than a hundred and sixty billion pieces annually. The inscription carved above the entrance to the James A. Farley Post Office Building on New York’s Eighth Avenue turns out to be more often true than false: “Neither snow nor rain nor heat nor gloom of night stays these couriers from the swift completion of their appointed rounds.” Now we can add funding troubles to the list of deterrents that will not stop the U.S.P.S., if it has its way.
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Straight USPS Talk From Senator Bernie Sanders
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| Senator Bernie Sanders of Vermont responded to a New York Times piece on Amazon and USPS Sunday Delivery with this letter, which echoes sentiments that have been screamed by Postal workers and their advocates for several years now...
The Postal Service’s Burden
Published: November 13, 2013
But the financial problems of the Postal Service are not nearly as dire as the article claims when it says the Postal Service “lost nearly $16 billion last year.” During the first three quarters of this fiscal year, the Postal Service made a profit of some $330 million picking up and delivering the mail to households and businesses throughout America.
The reality is that 100 percent of the financial “loss” of the Postal Service this year is due to the onerous requirement that it prefund 75 years of future retiree health benefits in just 10 years. (As noted, it would otherwise be profitable.) No other public- or private-sector entity in America is burdened with such a requirement.
This $5.5 billion-a-year burden, mandated by Congress in 2006, has been responsible for about 80 percent of the financial difficulties of the Postal Service since 2007.
If we are serious about protecting the Postal Service, an institution enshrined in our Constitution and relied upon by all Americans, it is imperative that we immediately terminate the prefunding requirement.
BERNIE SANDERS
U.S. Senator from Vermont
Washington, Nov. 12, 2013
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More on the Amazon, USPS Sunday Partnership
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| From the Washington Post, more data on why the planned Amazon deliveries by the Postal Service is mutually beneficial...
The news out this morning that Amazon.com had essentially hired the U.S. Postal Service to deliver on Sundays was both surprising and completely sensible.
The partnership of a floundering, old-world institution and perhaps the nation's most future-oriented tech company — Amazon's strategy is to take losses today in the service of profits down the road — would at first seem incongruous. As my colleague Brian Fungoutlined, though, teaming up for Sunday delivery gives both of them an edge over the competition that could force the rest of the industry to adapt.
And why stop there? Amazon and the USPS have lots more to gain from each other — so much so that an outright merger might maximize the best qualities of both.
Let's start with the situation of the USPS.
The Postal Service has known for a while now that the economics of the shipping industry were changing such that it would have to make dramatic changes to stay afloat. A Boston Consulting Group study in 2009 mapped declining mail volumes out through the year 2020, when it calculated that the USPS would lose $15 billion in a single year — especially since revenue per delivery point would fall by 30 percent, as profitable first class-items disappear.
And yet, the Postal Service has been bettering itself. Even as overall revenue falls, it's been serving more delivery points and increasing income from "negotiated service agreements" with private companies. It's proven itself to be a decent innovator, keeping up with technology to move mail more efficiently. It has shed more than 200,000 employees over the past 10 years and is in a position to lose more, as about half are eligible for retirement. That should make it easier to bring down labor costs, which now make up some 80 percent of the USPS' budget, compared to UPS and FedEx's respective 61 percent and 43 percent.
The biggest problems for the Postal Service today are the overhang of pension and retiree health benefit obligations, which totaled $96 billion at the end of 2012, and endless congressional wrangling over how it should operate. Although it's managed toreduce 21,000 routes and consolidate some mail processing facilities, pleas to close unprofitable post offices and cut Saturday delivery always run into a wall of "no," and substantial changes to the business model — like the ability to offer "non-postal" services — are subject to legislative approval. That's led to a consistent drumbeat ofcalls for the USPS' privatization, which has been happening gradually for decades anyway, and which most of Europe has already accomplished. The question is just how to pull it off.
Now, let's turn to Amazon. The company has been investing heavily in ways to deliver more products faster, cheaper, and farther than the competition, including dozens of warehouses in the U.S., a fleet of trucks, and even "lockers" for people to pick up their goods at local convenience stores. It's expensive: Fulfillment costs amounted to $1.96 billion, or 11.5 percent of revenue, last quarter alone. Amazon considers it an investment in the future, as part of its strategy to provide anything customers might need as fast as they could possibly get it (as well as a tax strategy, since it knows it'll lose the benefits of lacking a physical presence in states soon anyway). The embodiment of this gambit is AmazonFresh, which doesn't yet make a profit, but is supposed to ease the transition towards delivering more and more goods.
Owning the Postal Service would get Amazon the rest of the way there. It's got 31,000 post offices and 461 mail processing centers, which represent significant excess capacity. The USPS is still the best last-mile mail delivery service provider, and Amazon is perhaps the most aggressive warehousing logistics innovator, which could enable a partnership — similar to one proposed by a group of former postal leaders and partly approved by the National Academy of Public Administration — that would leverage the strengths of both.
Of course, there are important questions to ask about the public role of the USPS in delivering the mail to everyone, wherever they might be, even if doing so costs more than it's able to charge. But there are other examples of former government monopolies that have gone private on the condition that they maintain a degree of universal service, like the phone system (the benefits of the resulting telecom duopoly are debatable, but it's probably better than still having Ma Bell).
Another concern: Wouldn't it be problematic to hand a monopoly to a private company? Well, the new Amazon Postal Service could also be required to offer its services to other companies at competitive rates, as it already does with its rapidly expanding network of data centers. Meanwhile, competition is already shaping up: EBay has partnered with FedEx, and it's not hard to imagine Wal-Mart doing the same with UPS.
Sure, there are still a lot of details to be worked out; the Postal Service isn't Amazon's typical rinky dink acquisition, and the financials could be challenging even for CEO Jeff Bezos's ever-permissive investors. But with no obvious fix in sight, it's worth keeping all options on the table.
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Amazon and USPS Teaming Up for Sunday Delivery
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| In select markets, Amazon customers will soon be able to have packages delivered on Sundays via the United States Postal Sevice.
The Seattle company says Sunday delivery will first be available to Amazon Prime members in the New York and Los Angeles metropolitan areas. Amazon and the Postal Service are expected to roll out service to “a large portion of the U.S. population” next year, including Dallas, Houston, New Orleans, and Phoenix.
Amazon Prime membership costs $79 a year. Members get free two-day shipping on millions of items on the site and access to Amazon’s TV and movie streaming service. Amazon.com Inc. says members can add eligible items to their carts and will see Sunday delivery at checkout when it is available.
From The Detroit News: http://www.detroitnews.com/article/20131111/BIZ/311110061#ixzz2kLgU0WCJ
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Insurance Ignored in Many Financial Plans
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| A report this morning from CNBC finds that many Americans mistakenly overlook insurance when putting together an appropriate financial plan for their families...
Discussing death and disability hardly ranks as a favorite activity for most people. But failure to plan adequately for the financial consequences involved could meanunneccesary hardship for your loved ones and you.
Risk management should form the basis of any financial plan, according to Clark Randall, a certified financial planner and founder and owner of Dallas-based Financial Enlightenment.
"It's the first thing you should look at before investing—it's critical," Randall said.
The easiest and most cost-effective way for most people to mitigate these risks is through insurance products, such as disability, life and long-term-care insurance.
That may be common knowledge, but discomfort with the subjects and the complexity of insurance products prevent many people from obtaining necessary coverage in advance of a life-changing event, according to experts.
(Read more: Tips for year-end planning)
"We have a natural inclination to avoid topics of death and disability," said Tim Maurer, a certified financial planner and vice president of the Financial Consulate. "But they are extremely important."
While people know they should be planning for these events, "it should be a bigger priority than it often is," Maurer said. "It's like flossing: Everyone knows you're supposed to do it but few people actually do."
Disability Insurance
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This "may be the most misunderstood product on the market," Maurer said. "There are a lot of moving pieces, which makes it complicated. And it's expensive."
That's no reason to discount it, though. Between the ages of 25 and 65, people's chances of becoming disabled are much higher than their chances of dying, according to various studies.
(Read more: Post-retirement financial plans are key)
Many people rely on a company disability policy, but most such policies don't adequately cover income loss, Maurer said. Policies have many qualifiers, he said, perhaps the most important being "any occupation" versus "own occupation" coverage.
An "any occupation" policy is stricter, paying out if you can't work in any job reasonably suitable for you; "own occupation" policies pay if you're unable to perform your current job. That's an important distinction for professionals—for example, surgeons, who would want to be compensated if they injured a hand and could no longer perform operations.
Many people lack adequate disability coverage, said Jack Riashi Jr., a certified financial planner with Bloom Asset Management.
"The number isn't very high in terms of people who have it," he said. "And if there isn't a group plan in place [for them at work], the number of people covered is really pretty low."
For someone still working, especially in a one-income household, disability is as important as life insurance, Riashi said, adding, "You have to protect the income."
Group policies generally cover 60 percent of income, he said, but it varies. Some may offer short-term coverage or benefits may not start immediately, in which case a supplemental policy makes sense.
(Read more: Navigating open enrollment options)
Riashi recommends disability policies that last until at least age 62—as most people work that long—unless you have enough financial security to be without income until you retire.
Life insurance: Most people are familiar with the concept, but it doesn't make them any more eager to discuss it.
"I've had many situations when people are averse to buying life insurance," said Randall at Financial Enlightment. He stressed the obvious question: What if something happens to you, and your family is left without an income stream?
"Life insurance isn't the problem—it's the solution for the problem," he said.
Though people have various options—including term, universal, whole life—getting the right amount of insurance is what's most important, he said.
(Read more: Year-end financial checklist for investors)
"I've delivered many death benefit checks, and I've never ever had a beneficiary ask what type of insurance it was," Randall said. "They always ask, 'How much is the check?' "
What type you choose has to do with factors such as cash flow, discretionary income, age and financial objectives, he said. Over the past 10 years, term rates have become so compelling that people buy that most of the time.
In addition to the death benefit, life insurance coverage can be used as a retirement savings vehicle. Certain policies can build up a cash value that can be withdrawn tax-free, although some advisors warn against it.
"Life insurance should be used only to cover catastrophic [situations]—you start getting in trouble when you start using it for retirement," Riashi said, adding that the investment costs of doing that are often high and the choice of funds is limited.
(Read more: Afraid of living too long? Buy this)
Maurer added that the tax advantages with life insurance are not as good as those with an individual retirement account, so an investor should max out other qualified retirement accounts before investing inside life insurance.
Insurance isn't used as much in estate-tax planning, he said.
When the estate tax was in flux, people frequently used insurance to cover potentially large liabilities when they died. According to experts, now that the estate-tax exemption is set at an inflation-adjusted $5 million, it's not so necessary for people with smaller estates.
By the numbers:
- 30 percent of American households have no life insurance. (LIMRA)
- About 100 million workers are without private disability income insurance. (Social Security Administration)
- 68 percent of adult Americans have no savings earmarked for an emergency. (U.S. Federal Reserve Board)
- 33 percent of consumers believe they do not have enough life insurance (LIFE 2013 Insurance Barometer Study)
- 70% of people over age 65 will require some long-term care at some point in their lives. (U.S. Department of Health and Human Services)
- The average private pay cost of a nursing home stay in 2012 was $88,000 per year. It exceeded $100,000 in 10 states. (AARP Public Policy Institute)
Long-term-care insurance: As life expectancies rise, it's increasingly important to establish a plan for extended medical expenses—such as assisted living or home care—that Medicare doesn't cover, financial advisors say.
In the U.S., the median annual rate for care ranges from $40,000 for at-home care to almost $84,000 for a private room in a nursing home, according to a study by Genworth's 2013 Cost of Care Survey.
(Read more: Dealing with Alzheimer's)
For many people, long-term-care coverage is the best way to mitigate these significant costs.
"Once someone gets into their 50s, we usually have a conversation" about it, Randall said.
It's important that a policy increases with inflation, he said. Inflation riders on long-term-care policies typically start growing the day you buy the policy compared with disability insurance policies, which don't adjust for inflation until you become disabled.
Maurer said that the best time to buy a policy is in your mid-50s. Underwriting bans kick in and costs rise substantially once you hit 60, and by 70 it is cost-prohibitive.
Additionally, he said, the average usage for long-term-care insurance is two years, so buying a policy covering up to five years should be more than enough.
Annual premiums range from $1,000 to $4,000, with people in their 50s and in good health tracking at the low end.
While many people benefit from long-term-care insurance, it isn't right for everyone.
"If you have $2 million to $3 million in investable assets, you may be able to self-insure," Maurer said.
(Read more: Do annuities fit into retirement plan?)
If you're considering a long-term-care policy, it may be wise to buy sooner rather than later— especially if you're a woman, experts say.
While premiums on such policies have historically been the same for women and men, that's changing. Many companies are increasing premiums for women (some by as much as 40 percent) because they live longer and tend to require more long-term care.
—By Jennifer Woods, Special to CNBC.com
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