COULD YOUR MAIL REALLY STOP?

 

You may not get any Christmas cards this year. Or bills. Or junk mail. The U.S. Postal Service is once again warning it’s in real trouble, and this time, they’re not whispering. 

You want to see someone speaking truth to power, check out Postmaster General David Steiner testifying to a House Oversight Subcommittee. “Without action,” he told the pols, “the Postal Service will run out of cash.”

Without Congress doing something the USPS won’t stop your home deliveries, at least not every day.  But we may lose Saturday mail.  And see smaller post offices close.  And first class rates could zoom up to about $1 per letter.

The problem is simple: first-class mail is dying. Not sick. Not struggling. Dead… replaced by email, autopay, and whatever app you’re using to read this.

Think of it.  How much “real” mail do you get each day?  I mean letters from people, not just companies trying to sell you something.  How many letters do you send and how many stamps do you buy?  Compare your volume of paper mail to your email and you’ll understand the problem.

Not that the USPS hasn’t innovated on technology.  I love their “Informed Delivery” option telling me (ironically, by email) what will be delivered to my real mailbox later in the day.

There’s been a 50% drop in first class mail since the early 2000s.  And it’s first class where the USPS has historically made its real profits, not with marketing mail or packages.  In 2019 a stamp was 55 cents.  Today it’s 73 cents.  And despite that jump the Postal Service is losing about ten cents per letter in delivery cost vs revenue. 

That’s what we call a death spiral: raising prices to cover losses, only to drive away the customers you needed to survive… just like on our commuter rail lines.

The problem is worsened because the Postal Service has to deliver to every address in the US.  In Connecticut that means everywhere from Hartford to Union (population 785, so small it doesn’t even have its own zip code).

To do its job the USPS maintains a fleet of 257,000 vehicles, from trucks to delivery vans, serving 168 million delivery addresses.  They have over 530,000 employees making the USPS one of the largest employers in the country.

And those employees, while they presumably enjoy the jobs, are also promised nice pensions.  Long time workers (hired before 1984) can retire with pensions of 60%+ of their final salary. 

Despite staffing reductions of 25% between 2008 and 2015, the Service is looking at $10 - $15 billion in annual pension and retiree health benefits in the next few years, long-subject to pre-funding requirements.

The USPS also supports more than 33,000 physical post offices nationwide, making it the largest retail network in the US, roughly the same as Starbucks and McDonalds combined but with a lot fewer customers. That’s a lot of overhead. 

How will the Congress respond to the Postmaster General’s dire warnings last week?  Probably by letting USPS borrow even more money beyond its current $15 billion cap, because nothing says “long-term solution” like more short-term debt.

So pick your poison:  higher prices for stamps, fewer post offices, reduced deliveries, all of the above… or just “kick the can down the road”?  Which do you think Congress will choose in this election year?

 

 

 

 

A GIFT AT THE PUMP IN AN ELECTION YEAR

Do you want a “gas tax holiday” to help buffer the rising cost of fuel?  Your first reaction is probably a loud and enthusiastic “Yes!”

But before we all start planning what to do with those extra quarters’ savings per gallon, it’s worth asking a couple of uncomfortable questions:  who really benefits and who’s really paying for it later?

Governor Lamont says suspending the gas tax would help your already-squeezed wallet as global oil prices climb during the Iran war. Fair enough.

But let’s not forget one small detail.  It’s also an election year.

And if that sounds familiar, it should. The last gas tax “holiday” came in 2022 — another election year.  Funny how that works.

Still, as one seasoned Connecticut legislator once told me: “Sometimes good politics is also good policy.”  Translation: even a political stunt can occasionally help people.

Gas taxes fund the state’s Special Transportation Fund (STF) which spends about $2.3-billion-a-year for highways, buses, rail service and the endless maintenance required to keep Connecticut moving.

Right now the STF looks healthy enough.  But the state’s own forecasts show trouble ahead as costs rise and revenue from gasoline taxes slowly declines.

A gas tax holiday would drain about $40 million a month from the fund… money that normally pays for things like fixing potholes, maintaining bridges and subsidizing Metro-North.

So yes, a gas tax holiday would save you a little money at the pump.  But remember: the state’s transportation system still needs to be paid for somehow.

Until recently, transportation planners worried that electric vehicles would slowly starve the STF because EV drivers don’t buy gasoline and therefore don’t pay gas taxes.  But now federal policy toward EVs has been, shall we say, less enthusiastic.  Which means that deficit problem may arrive later than expected.

Of course, with gasoline pushing toward painful levels again, an electric car is suddenly looking pretty attractive, assuming you can afford one.

Remember the last “holiday” in 2022, when Russia invaded Ukraine and fuel prices surged?  The state suspended the 25-cent-per-gallon tax for nine months, then slowly restored it over five months so drivers wouldn’t feel the shock all at once.  Average savings worked out to roughly $100 to $120 per driver.  Nice, but not exactly life-changing.

In other transportation news this week…  the Connecticut Department of Transportation seems to be going after truckers again.

During February’s blizzard, CDOT did an admirable job clearing the highways.  Unfortunately, their work was repeatedly slowed by tractor-trailers ignoring the statewide truck ban and jackknifing across the interstates.

Currently the fine for violating a truck ban is just $90.  That’s barely more than a parking ticket.  CDOT wants to raise the penalty to $250, which might finally get some drivers’ attention as a deterrent to risking travel in a blizzard.

But where exactly are trucks supposed to go?  If they pull off the highway during a storm, where exactly can they park?  Connecticut has only 363 truck parking spaces statewide at rest areas.  But CDOT estimates that more than 10,000 trucks a day travel I-95 alone.

Truckers get paid for delivering freight on time, not for sitting in a parking lot waiting for the snow to stop.

So if the state wants stricter compliance with truck bans, it might help to provide drivers with two things:  more notice … and somewhere safe to park.

 

IS OUR ECONOMY IN A "STRAIT" JACKET?

Why are your gasoline prices jumping?  Because oil tankers can’t travel through the Strait of Hormuz… and not just due to the Iranians, but because of insurance.

Funny thing about global oil trade: it’s not controlled by admirals or presidents.
It’s controlled by insurance underwriters in London.

My favorite go-to expert on all things regarding world shipping is Sal Mercogliano’s amazing YouTube channel, “What’s Going on with Shipping”, a nightly TV addiction of mine.  As a former merchant mariner turned academic, Mercogliano points out that the cost of war risk insurance is what’s really stopping the tankers.

When you own a $100 million tanker (empty and not carrying a drop of oil) you usually pay 0.1% – 0.3% of the vessel’s value per trip for coverage.  This past week the underwriters were demanding 1-3%, or about $1-3 million per voyage. 

If 20–40 tankers make that transit daily, the theoretical exposure could reach $5–10 billion per day of insured cargo and vessels.

At those prices, anchoring your tanker becomes cheaper than risking the transit.  Because crippling a tanker doesn’t take a $100 million fighter jet anymore.  A $50,000 drone boat will do just fine: a lot of bang for the buck.

Russian LNG tanker attacked by drone in Mediterranean

The recent Red Sea crisis of 2023 shows how widespread these attacks have become: 164 missiles and 265 drones fired at shipping, 79 ships targeted and 29 vessels hit.  And that’s just by the Houthis. Imagine if a real navy joined the party.

Can the White House realistically offer to have Uncle Sam underwrite that cost and assume those incredible amounts of risk?  It may have to, right after it finishes fixing health care, student loans, and the Northeast’s commuter rail system.

How about US Navy escorts?  That could be done, though in the Red Sea crisis the Pentagon did not run full convoy escorts like it did during the 1980s tanker war.  And again, not cheap.

What’s this all mean to Connecticut, the economy and your wallet? 

Like Covid, this may qualify as what economists call a “black swan” event: extremely rare and unexpected, having a massive impact and, after the fact, people claiming it was predictable (which it probably was).  So maybe that makes this a gray swan instead?

Think of the 39-mile-wide Strait of Hormuz as the Merritt Parkway of global oil traffic: too narrow, over‑capacity, and one bad move from a miles‑long backup.  The difference is that when something goes wrong in Hormuz it’s not a Subaru crashing into the guardrail near Trumbull… it’s a supertanker full of crude and a shock to the global economy.

2 million bbl VLCC - Very Large Crude Carrier 

With about 20% of the world’s oil passing through this, the world’s most vulnerable oil chokepoint, we can expect higher gasoline and home heating oil prices, a devastating effect on the stock market, a disruption of global supply chains and soaring inflation.  That probably means higher food prices, more expensive airline tickets… and, of course, even higher gasoline prices.

When Hormuz sneezes, the global economy doesn’t just catch a cold; it ends up in the ER with a stack of unpaid bills and a lecture from the IMF.