Postal Service posts massive net loss in FY ’23
The U.S. Postal Service posted a $6.5 billion net loss for its 2023 fiscal year, which ended Sept. 30, a much sharper decline than the $4.5 billion loss the agency forecast a year ago.
Operating revenue declined $321 million to $78.2 billion, as a $300 million year-on-year increase in shipping and revenue was offset by a nearly $900 million drop in marketing mail revenue. First-class mail revenue increased by $515 million due to two increases in first-class postage rates during the fiscal year.
Shipping and package volumes declined to 7.05 billion from 7.23 billion in fiscal 2022 as the Postal Service dealt with a general slowdown in e-commerce activity. The bloodletting occurred in first-class and marketing mail, its two largest volume generators. First-class mail volumes fell by nearly 3 billion pieces, while marketing mail volume dropped by about 7.3 billion pieces.
Both segments continue to be hit hard by digital conversion. In the case of first-class mail, the two price increases may have hastened the conversion to digital alternatives.
Total volumes fell by 11.3 billion pieces year over year, the Postal Service said.
Much of the net loss can be attributed to a $5.8 billion year-on-year increase in operating expenses.
The fiscal 2023 performance stood in stark contrast to the $56 billion in net income reported in fiscal year 2022. The fiscal 2022 gain was due primarily to the one-time, noncash impact of the Postal Service Reform Act signed in April of that year. The law provided the Postal Service with about $107 million in assistance to help it shed prior liability for pre-funding retiree health benefits and for exempting it from future payments.
At that time, the Postal Service had hoped that its 10-year Delivering for America reorganization plan launched in March 2021 would result in the agency achieving a break-even financial position in fiscal year 2023. Rapidly rising inflation, slowing volumes and the cost of revamping huge portions of its network kept the Postal Service from reaching that goal.
In a statement, Postmaster General Louis DeJoy said that the Postal Service is in the “early stages” of its transformation, and that it is addressing near-term “financial headwinds” caused by inflation. In an effort to cut costs, the Postal Service is shifting package deliveries from airfreight to less expensive ground transportation.
In a related development, the Postal Service plans in the next few days to reduce prices on short-haul shipping and package services to high-volume, commercial shippers. The discounts, which would be off of July rates, would mostly apply to shipments moving less than 600 miles and weighing between 1 and 6 pounds. Virtually all of the discounts in those weight and distance ranges are in double-digit amounts.
The discounts apply to Priority Mail, a two-to-three-day delivery product, Ground Advantage, a recently launched two-to-five-day delivery product, and Priority Mail Cubic, a product for smaller packages that sets prices based on the pieces’ dimensions rather than weight. The discounts are designed to support parcels moving over truck-friendly lengths-of-haul.
The Postal Service competes for shipping volume through various online shipping platforms that provide the user with discounted shipping costs that are not available everywhere. In competition with UPS Inc. (NYSE: UPS), for example, the least expensive service typically wins the shipping label battle.
“This year has continued the shift in leverage to the shipper due to overbuilt carrier capacity. This idle capacity is the ammunition for discounting in these faceless transactions,” said Gordon Glazer, who heads the postal practice at consultancy Shipware LLC. “The advantage of these programs is simplicity, no need for a specific carrier contract, no minimum volume requirements either. On the downside there is no opportunity to build your own carrier relationship.”
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