The United States Postal Service made two announcement recently. First, it announced a $5 billion annual loss. It also said the price of a first class stamp would rise from $.46 to $.47. At some point the current drop in the use of first class mail has to fall more rapidly than the USPS can increase first class rates. First class may become no class at all–at least in terms of usage.

When the Post Office announced its last fiscal financials, operating revenue posted at $66 billion compared to $65.2 billion the previous year. First class revenue was worse–down from $28.2 billion to $28.1 billion, not much of a drop at all. However, almost any product can price itself out of the market, and for first class mail, that problem can and will accelerate.

First class mail revenue continues to lead all other classes in terms of the revenue it contributes to the USPS. At $.47, the Postal Service could claim it offers an unmatchable service for letters. That has not been true in part for some time because of the advent of e-mail, and the ancient fax machine. The final challengers to the value of the service–UPS (NYSE: UPS) and FedEx (NYSE: FDX).

FedEx and UPS have mostly stayed with business package shipping, although each has products meant for the home delivery market. The $28 billion first class market has to be attractive, eventually. FedEx’s revenue in the last fiscal year came to $44.3 billion. Logistically, FedEx may not be ideally set up for lighter packages now, but it has the infrastructure to change that at some point–the point at which it become profitable.

Each of the financial opportunities for FedEx holds true for UPS which cannot afford to have its primary rival move into a large opportunity unchallenged.

The Postal Office claims the primary challenge to its financial status involves pre-funding of retirement benefits. That is only partially the case . At some point, first class mail rates increase will make that part of the postal service’s business more attractive to the private sector. The Post Office cannot afford that sort of competition

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