Despite ongoing Shipping and Packages growth, USPS reports another quarterly loss

As has been the case for several quarters, the financial condition of the United States Postal Service (USPS) remains in a difficult spot.

In its fiscal first quarter earnings results announced today, the USPS reported controllable income of $353 million, which was down 33% annually compared to $522 million a year ago. USPS said that this decrease was driven by various factors it has cited in the past, including: First-Class and Marketing Mail volume declines, a higher normal cost of retiree health benefits of $140 million, and higher transportation expenses of $109 million, which it said were partially offset by a reduction in compensation and benefits expenses of $91 million. The USPS had a quarterly net loss of $540 million, which was down compared to net income of $1.4 billion a year ago.

USPS said quarterly revenue at $19.2 billion was essentially flat year-over-year, with First Class Mail and Marketing Mail revenue down $309 million to $6.683 billion and $248 million $4.448 billion, respectively, with the main reason for the declines being lower volumes.

First Class Mail volume fell 4.1% annually to 646 million pieces, with USPS citing the ongoing trend of declines due to the continuing migration from mail toward electronic communication and transaction alternatives.

But an ongoing bright spot, again was the Shipping and Packages group, which saw revenue climb 9.3% to $505 million.

USPS said that Shipping and Package volume for the quarter increased by around 7%, to 1.718 billion. Priority Mail Services volume rose 1.4% to 306 million, and Parcel Services headed up 8.8% to 906 million, First Class Package Services rose 8% to 326 million, and Package Services volume was up 1.2% to 180 million.

“Our Shipping and Packages business has continued to show solid revenue and volume growth as a result of our successful efforts to compete in shipping services, including ‘last-mile’ e-commerce fulfillment markets and Sunday delivery, although the rate of growth is slowing,” USPS said in its Form 10-Q statement. “Volume also experienced end-to-end growth as consumers continued to utilize online shopping, which provided a surge in package volume with a record number of packages delivered during both the calendar year 2016 and 2017 holiday seasons. To accommodate this surge in volume and to avoid service disruptions during the holiday season, we increased Sunday delivery service for some of our customers in limited U.S. markets and added non-career employees for the season in accordance with our labor agreements.”

While the Shipping and Packages results are positive, USPS leadership said it cannot be viewed as the rising tide to lift all boats.

“Although we continue to win customers and grow our package business, these gains are not sufficient to offset continuing declines in our mail business, which is our main source of revenue and contribution,” said Postmaster General and CEO Megan J. Brennan in a statement. “We will continue to do everything within our control to improve operating efficiencies, manage expenses, expand our use of technology and keep mail affordable, but these actions must be combined with regulatory and legislative changes.”

And she added that the organization’s abilities to react to declining volumes by controlling costs or growing revenue through pricing flexibility are constrained by current law, with these legal constraints are widening a systematic financial imbalance.

The USPS also stated that its long-term financial stability is contingent on the Parcel Regulatory Commission (PRC) establishing a new pricing system enabling the organization to generate sufficient revenues to cover its costs. It explained that the USPS agrees with the conclusion of the PRC that the current Consumer Price Index price cap does not work and needs to be changed, because it does not enable the Postal Service to achieve its mission of providing prompt, reliable, and efficient universal postal services to the American people in a financially sustainable manner.

“The USPS showed incredible growth in the package business,” said Jerry Hempstead, president of Hempstead Consulting. “Much of it driven by FedEx Smartpost, UPS SurePost, DHL ecommerce, Newgistics and Amazon. Unfortunately the increases in parcel don’t offset the revenue lost by the decline in the ‘mail’ business. It’s been a recurring theme, and the solution to the financial balance sheet issues lay with Congress and also the Rate Commission. The problem is that the Postal Service should be able to charge enough money to cover all its costs.”