Shipping and Packages growth cannot save the day for the USPS

A recurring narrative related to the United States Postal Service (USPS) over the last several quarters pertains to how even though the organization continues to fight an uphill battle, as evidenced by ongoing steep quarterly losses, its Shipping and Packages Group continues to see increases. That was evident in its fiscal year 2020 results, which were issued earlier today.

That does not come as a surprise, given that e-commerce volumes are up significantly, due, in large part, to the ongoing COVID-19 pandemic, which has seen more consumers shop online, driving business away from traditional brick and mortar retailers.  

By the numbers, USPS’s fiscal year 2020 operating revenue—at $73.1 billion—was up almost $2 billion annually and was paced by the Shipping and Packages’ $5.8 billion increase in revenue, which was up an impressive 25.3%, to $28.537 billion. What’s more, USPS noted that package volume, for the fiscal year, headed up by almost 1.2 billion pieces, or 18.8%, annually, to 7.323 billion citing an e-commerce surge as the growth driver.

The USPS’s Shipping and Packages group, which has been a standout, of sorts, for the organization, through its services which directly benefit shippers, including Priority Mail, Priority Mail Express, Parcel Select, Parcel Return, and First-Class Package Services for Retail and also Commercial, as well as its successful efforts to compete in shipping services such as ‘last-mile’ e-commerce fulfillment markets and Sunday delivery, as well as end-to-end markets, had a growth quarter overall.

USPS officials said that although package volume growth has recently slowed since its early fourth-quarter peak, the organization “believes that consumer behavior has evolved during the pandemic as the nation has increasingly relied on the safety and convenience of e-commerce.”

Not surprisingly, net losses continue to mount, for the USPS, with a $9.2 billion net loss, up $363 million annually, and a controllable loss of $3.8 billion, marking a $334 million increase.

USPS CFO Joseph Corbett said in a statement that there continues to be great uncertainty over the future impacts of the pandemic on the Postal Service.

“Given the lasting declines in mail that accompanied the 2007-2009 Great Recession, the Postal Service expects that the COVID-19 crisis may have similar effects on mail volume going forward and that it may never recover to its pre-pandemic levels,” he said. “Further, while we do believe that our package volumes will remain higher given what looks to be a potential permanent shift in consumer behavior, we do not expect our package revenue growth over the medium-to-long term to make up for our losses in mail service revenue caused by COVID-19.”

That was echoed by Chase Flashman, co-Founder and CEO of Indianapolis-based ShipSights.  

“Despite revenue and volume gains in the package segment, the USPS continues to struggle in terms of profits due to its costly and outdated package network,” he explained. “We do not see this improving in 2021, which will put them at a further disadvantage in the marketplace as Amazon expands its presence and new solutions and entrants enter the last-mile space to rival FedEx and UPS.”

And Jerry Hempstead, president of Hempstead Consulting, noted that the volume surge is very evident throughout the Parcel industry, with it mainly coming from Amazon, FedEx, UPS and DHL. 

“Some of that USPS volume comes from the other players using the USPS for the last mile,” he said. “A big portion of the package count is for parcel transactions under a pound where the USPS is the most efficient method and means to accomplish delivery at the best price. Sadly, we see the integrators profits soaring with this package windfall yet the financial losses at the USPS is widening. The USPS is just not charging enough for their services and I expect the next administration will have the taxpayers bail out the USPS. The hole the USPS is in keeps getting deeper.”

Gordon Glazer, senior consultant for San Diego-based parcel consultancy Shipware LLC, observed that Shipping and Package Revenue has exceeded First Class for the first time, for the fiscal year, which he called a positive development but it also highlights the structural need for reform. 

“Shipping's contribution margin is about a third of what First Class Mail (FCM) revenue contributes,” he explained. “The report acknowledges that the continuing decline in FCM is not coming back.  Our Post Office is coming off the most high profile examination in recent history, being under the microscope in this contentious election cycle, being pulled apart by politics yet still delivering on its mission at an extremely high level of performance during a pandemic.  We have seen ordinary citizens demonstrating their desire to keep their postal service free from political interference.  Riding this recent wave of success the Postal service is facing yet its biggest challenge.  Virtually every competitive carrier has put limits on package volume this holiday season. Some analysts are predicting up to 7 million packages a day will be impacted, and the carrier of last resort will be the USPS.  It is being referred to as 'Shipageddon.'”

And he added that he foresees tough times ahead for the 640,000 postal workers who will be facing staggering volumes of packages as the Coronavirus is expected to peak this winter. 

“We recommend patience, merchants need to provide clarity in their guidance and expect delays, “Shop Early” and expect to pay more for shipping,” he said. “As we get closer to Christmas, we recommend shifting lightweight volume that would normally go First Class Package Services (FCPS) to the more expensive Priority Mail (PM).  When the planes can take no more volume, PM will often make the cut while FCPS may have to wait.  Expect to see the USPS shift volumes to ground transit when air cargo becomes scarce.  Expect to see Postal carriers working late into the night to deliver for us, God Bless them, they are true heroes.”

The hole Jerry Hemsptead mentioned is getting deeper, for sure, no question. How deep of a hole from here, for the USPS, remains a key question for parcel shippers heading into 2021.