USPS sees fiscal third quarter revenue gain while net losses mount

Many obstacles, including the ongoing COVID-19 pandemic, its own financial travails, and general economic uncertainty, among others, remain front and center for the United States Postal Service (USPS). That was made clear in its fiscal third quarter earnings results, which were issued today.

For the quarter, the USPS reported $17.6 billion in total revenue, which represented an increase of $547 million, or 3.2% annually. Total operating expenses—at $19.8 billion—were up $477 billion, or 2.5%, compared to a year ago, and it reported a net loss of $2.2 billion, which was in line with a $2.3 billion net loss for the same period last year. And its controllable quarterly loss, of $1.5 billion, was steeper than the $1.1 billion loss for the fiscal third quarter in 2019.

This quarterly net loss is the most recent in a string of several, going back to 2007 through June 30, 2020, during which it has incurred $85.3 billion in net losses over that span. And it expects these losses to continue without needed legislative and regulatory assistance, which, USPS noted, could lead to the organization lacking sufficient liquidity to meet its existing legal obligations when due and reduce its debt and make the critical infrastructure investments, which have been deferred in recent years.

Late last month, the USPS received $10 billion within the $2 trillion CARES (Coronavirus Aid, Relief, and Economic Security Act), which was signed into law by President Trump in late March. This $10 billion in borrowing authority will be used to address operating losses caused by the COVID-19 crisis, subject to terms and conditions imposed by the U.S. Treasury. But USPS cautioned that it does not address what it called its “broken business model,” as it “merely postpones the impending liquidity crisis and the borrowings must be repaid in a period where cash shortages are forecasted.”

The USPS’s financial issues come as no surprise, given commonly cited reasons related to its ongoing revenue declines in First Class and Marketing Mail, which USPS said each continue to see declining volumes, coupled with volumes expected to fall further in the future, due to what the USPS has called the “migration to electronic communication and transactional alternatives resulting from technological changes.” Things like e-mail, texting, and other electronic communications channels continue to hinder First-Class Mail, too.

What’s more, it added that the COVID-19 pandemic “continues to have an unpredictable impact on the economy and the Postal Service.” COVID-19-related quarantines and stay-at-home orders, and travel and logistics restrictions have affected retail and commercial customers, suppliers and mail service providers, it added.

“As a result of the pandemic, and to a lesser extent secular mail declines, the Postal Service’s sales from mail services, its largest sales category, continued to significantly decline during the third quarter,” said USPS. “Meanwhile…sales from Shipping and Packages experienced substantial growth as a result of the surge in e-commerce driven by the COVID-19 pandemic, and we expect this surge to abate as the economy opens. However, the package volume increases drove substantial increases in work hour and operating expenses.”

That was made clear in Shipping and Package revenue increasing by $2.9 billion, or 53.6%, to $8.311 billion for the quarter, and volume up 708 million pieces, or 49.9%, to 2.128 million pieces.

The performance of this USPS unit has been lauded in recent years, as the USPS has made major inroads through its strong operations for last-mile e-commerce fulfillment, Sunday delivery, and end-to-end markets, according to the USPS. But it observed that this segment is replete with “intense competition” [UPS and FedEx, among many regional players] that has an impact on both revenue and volume. USPS said that its Shipping and Package revenue and volume is usually highest in the first quarter, due to the holiday shipping season, and it has remained strong, as e-commerce activity over the course of COVID-19 continued to surge. 

“Significant declines in our mail volumes as the result of the pandemic were largely offset by corresponding growth in our package business, but the reality remains that the Postal Service is in a financially unsustainable position absent significant fundamental change,” said Postmaster General and Chief Executive Officer Louis DeJoy in a statement. “As we work on a plan to ensure our future, we will continue to focus on efficiency and revenue growth opportunities while delivering vital services for the country, and our dedicated employees on the front line continue to provide trusted, safe and secure service. Despite our very significant challenges, I remain optimistic about the future of the Postal Service, but we need to get moving to effect change immediately.”

But the growth in this unit cannot be viewed as a panacea for all of the organization’s ills, with USPS CFO observing that steep declines in First Class and Marketing Mail seeing deep declines, due to COVID-19, with that volume possibly not returning.

First Class Mail revenue, at $5.481 billion, was down around 6%, with volume, at 12 million pieces, down more than 8%. Marketing Mail revenue, at $2.427 billion, was off by more than 37%, with volume, at 11.240 million pieces, down 36.5%.

In an interview, Jerry Hempstead, president of Orlando, Fla.-based Hempstead Consulting, said that, from a business point of view, the USPS is the only entity that goes to every residential address in the United States six times a week, which led to the idea to sell that capacity, as it already had terminals, drivers, and delivery vehicles needed to sell that capacity to parcel service providers for last-mile delivery, which it does today through its Parcel Select offering.

“The USPS did not have to add one incremental cent to handle any of this, because it already had the terminals, drivers, and trucks,” he said. “These were all for new packages, which was followed by the explosion of e-commerce and now COVID-19. First Class Mail is in decline, because hardly anything important comes to your house via the mail. President Trump has unfortunately been focused on its parcel business and has an ongoing war with [Amazon] related to parcel pricing. And UPS, FedEx, DHL, and Pitney Bowes all have NSAs with the USPS and don’t pay the published price; they get a discount off of that. The volume from them is extraordinary, and they are entering into the USPS at the best place the USPS can handle it, which is at the Destination Delivery Unit, the post office closest to your home. But when rates go up, Amazon, for example, moves business to their own vehicles and UPS, to go somewhere less expensive and will less hassle.”