U.S. Postal Service losing tens of millions annually subsidizing shipments to Alaska

The U.S. Postal Service has lost about $2.5 billion since the early 1980s delivering goods to Alaska’s remote villages. The program, called the Alaska Bypass, was created in part to help curb the otherwise high cost of shipping groceries to Alaska Natives. Critics say the savings are not passed on to customers and are pressing for a lower postal subsidy. (Whitney Shefte/The Washington Post) (Whitney Shefte/The Washington Post)

In the soggy, unforgiving tundra on the shores of the Bering Sea, Royala Bell defrosts a rack of beef ribs for dinner in a kitchen that doubles as a bedroom for six of her seven children.

A dead owl lies on the floor, ready for her husband, Carlton, to defeather it for a headdress. Fish dry on a line out back, for the larder in winter. On a small counter are some of the groceries the Bells consume from the Lower 48: Sailor Boy Pilot Bread, potatoes, Kool-Aid, Aunt Jemima pancake mix and a can of Coca-Cola.

The U.S. Postal Service paid to ship the items on a turboprop bush plane to this small settlement of Yupik Indians on Alaska’s western edge. The Bells brought them home on the back of their all-terrain vehicle from Hooper Bay’s only grocery store. The 12-pack of Coke alone cost the Postal Service $21 to get here.

Under a federal program exclusive to Alaska, the Postal Service is responsible for shipping more than 100 million pounds a year of apples, frozen meat, dog food, diapers and countless other consumer items to off-road villages in the sparsely populated outposts known as the bush. Over three decades acting as freight forwarder, the agency has lost $2.5 billion.

In many ways, the Alaska Bypass, as it’s called, keeps Hooper Bay and 100 other isolated villages in rural Alaska afloat. But groceries do not come cheap for Royala Bell, 43, and her neighbors, most of whom, like her family, survive on food stamps and federal subsidies.

“I think the food is too, too high,” the slight Yupik woman said of the prices at the Alaska Commercial store here, stretching her hands wide like an accordion. “It takes about $200 for a little tiny amount of groceries.”

Rural Alaskans are not the only ones paying a steep price. The system cost the Postal Service $77.5 million last year, agency officials said, with ordinary stamp-buying customers covering the tab, while a long line of commercial interests here benefited, from the airline and shipping industries to rural grocery chains.

Retailers pay the Postal Service about half of what it would cost them to ship the goods commercially; the subsidy allows them to charge a hefty markup on a can of Coke, for example, in some cases 30 percent or more. The agency, by law, must pay private air carriers well above market rates in the only corner of the country where airline prices are still regulated.

In the name of families such as the Bells, the late senator Ted Stevens (R-Alaska) pushed an earmark through Congress 33 years ago aimed at helping his constituents back home. But today, the Postal Service is going broke. On Capitol Hill, this is the kind of federal spending lawmakers in Washington have said they will swear off in a time of austerity.

Despite critics’ efforts, the Alaska Bypass has been untouchable. Few in Congress understand it. Tinkering with it would rankle politicians from other rural states who fear this could be the first step toward scaling back mail delivery to other far-flung places. And even with one of the Senate’s top power brokers gone, in Washington the legislative muscle of this most remote state remains ironclad.

When he created the program in the early 1980s, Stevens said it would not only subsidize “affordable” necessities for rural Alaska, but passenger and commercial cargo service in a state with more runways than roads.

Royala Bell paid $15.15 for a 12-pack of Coke, which began its journey to Hooper Bay on a wooden pallet of beverages. The pallet cost the Postal Service nearly $3,200 to fly here, according to analysts at Anchorage-based Northern Economics. For that shipment, Alaska Commercial paid only about $485 in postage. Not only is this well below commercial rates, it’s even less expensive — about 20 percent less per pound, postal regulators say — than customers anywhere else in the country pay to send a package via parcel post.

Throughout history, the U.S. government has often vowed to support Americans no matter where in the country they live. But critics question whether covering the cost of shipments to Alaska should fall on the Postal Service, which is losing billions of dollars as Americans are increasingly turning to the Internet to communicate and pay bills. The losses also come from a mandate to set aside $5 billion a year to fund future health-care expenses for retired postal workers.

Congress, meantime, has not passed legislation that would stabilize postal finances. An influential Republican congressman is pushing a bill that would relieve the Postal Service of at least some of the costs of the Alaska Bypass.

Alaska may be the one of the least populous states, with 732,000 residents, but its congressional delegation has swiftly beat back every attempt to wring savings from the program or shift its costs to the state.

When Rep. Darrell Issa (R-Calif.), chairman of the House committee that oversees the Postal Service, first proposed the changes in 2012, Alaska’s two senators, Lisa Murkowski (R) and Mark Begich (D), lobbied senators from other rural states to leave the Bypass alone. They won an opinion from the Congressional Research Service, which said having Alaska pay for the delivery service might be unconstitutional.

At at a hearing on Issa’s bill in March, he and other lawmakers highlighted a report from the Postal Service inspector general, who suggested that Alaska build more roads so groceries could be delivered more cheaply by truck.

Rep. Don Young (R-Alaska) shot back,“That’s the dumbest statement I’ve heard in my whole life.” Gov. Sean Parnell (R) has appealed to House Speaker John A. Boehner (R-Ohio) to keep Issa’s bill off the House floor.

As part of its obligation to provide universal delivery, the Postal Service ferries, flies, hovercrafts and even dispatches mules to a handful of other remote communities where letter carriers can’t drive. But only in Alaska do packages weighing at least 1,000 pounds — 930 pounds above the heaviest parcel post box allowed in the Lower 48 states — count as a universal service. Only in Alaska do flat-screen televisions, paper towels, charcoal grills, citronella candles and apples count as mail.

Before the Alaska Bypass, ordinary parcels went through postal sorting plants, as they do elsewhere in the country. But rising consumerism clogged the system. Larger shipments flew at expensive private freight rates. Stevens said a new system subsidized by postal revenue was needed to bring supplies to rural Alaska.


A man sorts packs of Coca-Cola in Alaska Commercial Company's shipping facilities in Anchorage in May. The Alaska Bypass program was established by the late senator Ted Stevens (R) in the early 1980s. The program requires the Postal Service to subsidize the cost of shipping freight, including groceries and household goods, to rural villages in Alaska's bush. (Whitney Shefte/The Washington Post)

Ap'ataaq Simon, 4, a Yupik Alaska Native boy, rides an Era Aviation airplane from Bethel to Hooper Bay, Alaska, in May. Hooper Bay is a small bush village on the coast of western Alaska. It is made up of a few hundred small wooden cabins, most of which do not have running water, and most people who live there are Alaska Natives of the Yupik tribe. (Whitney Shefte/The Washington Post)

The soda bound for Hooper Bay was bottled at a Coca-Cola plant in Seattle and sent by container ship to Anchorage, where it was trucked to a cargo terminal at Ted Stevens Anchorage International Airport. There, pallets of Bypass freight are divvied up among five air carriers.

Dave Squier, the vice president of Northern Air Cargo, looked out his office window at the tarmac, ringed by the rugged snow-trimmed peaks of the Chugach Mountains. He said politicians in Washington who call the Bypass an unaffordable extravagance are meddling in a system they don’t understand. The federal subsidy “is a very small piece of the overall postal problem,” he said.

Outside the window, forklifts hoisted pallets into the bellies of jet aircraft. In the hangar next door, the 12-pack of Coke, on a pallet containing about 2,000 cans and bottles of Coke and Mountain Dew, Crush strawberry and Ga­tor­ade G2 sports drink, was loaded onto a DC-9 operated by Everts Air for the trip across the tundra.

Almost half the Bypass freight that flies to the bush is assembled at Alaska Commercial’s squat beige warehouse in Anchorage. Everything on the concrete floor is outsize, including 30-pound cases of frozen honey barbecue wings and crates of Clorox wipes — and plenty of 12-packs of soda.

On a recent Monday, workers were shrink-wrapping the pallets, applying postage and loading them onto trucks waiting at the bays for the short drive to the airport.

Rex Wilhelm, a burly Washington state native who is the company’s longtime president, explained the economics of flying goods to about 100 remote villages. The company pays the Postal Service 33 to 40 cents a pound, depending on the distance. But without the federal program, he said, cargo rates would run 60 to 86 cents a pound, including a fuel surcharge and excise tax.

“It’s easy to point a finger at Bypass as a problem,” Wilhelm said. “But it delivers at a cost that’s beneficial to the end consumer.” And for his company.

Over Anchorage, as the jet flew west carrying the soda and about 31,000 pounds of other freight and traditional mail, the snow-capped mountains gave way to streams, lakes and, for a time, broad swaths of spindly spruce trees.

Everts is one of the five carriers allowed to fly Bypass freight from Anchorage and Fairbanks to several hubs around the state that have runways long enough to accommodate jets. There, the shipments are transferred to nine bush airlines for the trip to the villages.

Twelve years ago, Stevens pushed through changes in the law that prevented new air carriers from competing for any of the Bypass business. Although Congress deregulated the rest of the U.S. airline industry in 1978, he ensured that the Alaskan skies would remain controlled.

The rates the airlines charge the Postal Service are not the result of competitive bidding or market forces but instead are set by the Department of Transportation, based on costs the carriers submit for fuel, labor, maintenance and terminal fees, DOT officials said. The government does not question the charges, but calculates the rates so the airlines on average make an annual profit of 15.5 percent. Carriers with below-average costs make even more.

“This is an incredible business,” said Ahmed Abdelghany, an aviation expert at Embry-Riddle Aeronautical University in Florida, noting that most commercial airlines struggle to hit profit margins of 2 or 3 percent.

In a 2011 report, the Postal Service’s inspector general concluded that the Alaska Bypass was a “broken” system that had strayed from the agency’s mission of universal service and instead become a subsidy for Alaska’s airline industry.


An aerial view of Bethel, Alaska, in May. Bethel, which has a population of about 6,000 and is the largest bush town in the state, serves as one of the Alaska Bypass hubs. There are no movie theaters or bars in the town, but it does have a jail and a regional hospital. Grocery prices are relatively high, with milk costing about $10 a gallon. (Whitney Shefte/The Washington Post)

After about 90 minutes, the jet landed at Bethel, population 6,000 and the largest bush town in Alaska. It’s a desolate place with no trees, movie theaters or bars. But Bethel does have an annual dog-sled race, a regional jail, a hospital and jobs handling Bypass freight. Airline employees can’t wait until they have enough seniority to get a shift that allows them to leave town for two weeks every month.

Justin Cadran handles logistics for Era Aviation. He directs his baggage handlers to move the soda bound for Hooper Bay to the hangar, next to pallets for villages with names such as Quinhagak, Toksook and Kongiganak. The rest of the cargo is trucked down the dirt road into town.

Cadran is a young entrepreneur who came here for work after restaurant ventures didn’t pan out. As a conservative Republican, he believes the government spends too much. When he arrived in Alaska seven months ago, he thought, “ ‘Why is the Postal Service paying to fly all this stuff around?’ It seemed extreme.”

Now his view has changed. “If Bypass wasn’t here, it would take food out of people’s mouths.”

At Swanson’s supermarket in Bethel, there is a full-service deli, toys, clothes, fresh lettuce and other produce, and of course Coke — all delivered via the Bypass program. Because shipping is relatively inexpensive, store manager Jeff Haglund said he can make a 31 percent markup on the soda.

“The largesse of the Postal Service,” he added with a laugh.

Postmaster General Patrick R. Donahoe said the Bypass program has been good for Alaska. “Until the law gets changed, I have to abide by it,” he said. “If you talk to people in Alaska, they’re very satisfied with this service.”

The airlines have mustered a vigorous defense. They said that any changes would force them to curtail passenger service and that competitors would pose safety risks.

“If something upsets the ecosystem we have today, it would cause us to rethink how we serve the market,” said Jeffrey Butler, vice president for customer service at Alaska Airlines, the largest Bypass carrier.

But to Issa, the ecosystem is full of inefficiencies covered by postal customers. “It’s sort of a good-old-boy Ted Stevens deal,” he said. He’s back with a bill that would require the Postal Service to recover at least 50 percent of the program’s losses.

Follow the journey of a pallet of beverages from Anchorage to a remote village in Hooper Bay through the Alaska Bypass delivery system. (Sohail Al-Jamea, Alberto Cuadra, Whitney Shefte and Lisa Rein/The Washington Post) (Sohail Al-Jamea, Alberto Cuadra, Whitney Shefte and Lisa Rein/The Washington Post)

After a night in the hangar in Bethel, the soda en route to Hooper Bay was loaded onto a Cessna Caravan owned by Era Aviation, which makes the flight three times a week.

The plane took off with four passengers aboard, leaving it half empty. Under the law, airlines that carry Bypass freight must set aside a number of passenger seats on every flight. Whenever the airline can’t cover the cost of too many empty seats, the Postal Service makes up the difference.

“It’s a racket,” Mick Bradford said of the program. The engineer, with a face weathered by 30 years spent working in rural Alaska, was headed to Hooper Bay to help lay the village’s first water and sewer lines. “Probably the federal government is taking a beating. But thank God for it.”

Down below, the spruce trees petered out and the tundra unfolded, a frozen swamp in winter and a string of lagoons in May looking like the surface of the moon.

After 45 minutes, the Cessna touched down on a dirt landing strip with no airport, just sand dunes and a horizon stretching above the Bering Sea. An 18-year-old Yupik boy named Max drove up in his pickup truck, loaded the soda onto the back and drove down the bumpy road into town, pulling up outside the Alaska Commercial store.

Mike Simon, 39, an electrician who supports two children on seasonal work, unemployment checks and food stamps, said the village needs another grocery store to create competition and lower prices.

“Everything is pretty spendy here,” he said. “They’re trying to take advantage.”

When dinner at the Bells’s home is done and the dishes cleaned, Royala will put mattresses on the kitchen floor, where her children sleep. A childhood head injury keeps her on disability payments. Carlton, 49, said his only paid work comes from seasonal jobs, the latest building a path across the tundra for hunting moose.

The Bells are lucky: They have one of the few bathrooms in Hooper Bay with running water.

The family counts on groceries delivered through the Alaska Bypass. But with goods in the store so costly, they have to supplement their diet with what they find in the wilderness, gathering duck eggs and stalking moose.

“My husband has to hunt birds and my son goes hunting,” Royala Bell said. “We are living with fish and birds.”


A child rides an all-terrain vehicle in Hooper Bay. Many residents drive ATVs instead of cars or trucks, as there are no paved roads in the small bush village on the coast of western Alaska. It's made up of a few hundred small wooden cabins, most of which do not have running water, and most people who live there are Alaska Natives of the Yupik tribe. (Whitney Shefte/The Washington Post)
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