US Postal Service's Sad Song Continues: Billion-Dollar Losses, Mail Weakness Offsets Parcel Gains
For the U.S. Postal Service, the story remained much the same in its fiscal 2019 second quarter as its been for many prior quarters – gains in shipping and package revenue offset by declines in first class and marketing mail, flat to down total revenue and net losses measured in the billions of dollars.
USPS reported total revenue of $17.5 billion for the quarter ending March 31, an $8 million year-over-year decline. Shipping and package revenue rose 4.9 percent to $5.4 billion on volume growth of 0.3 percent, or 5 million pieces. First class mail revenue dropped 3.3 percent to $6.2 billion, while volume fell by 576 million pieces as digital delivery alternatives continued to erode USPS' most profitable segment. Marketing mail revenue fell 3.9 percent to $3.8 billion, while volume dropped by 959 million pieces as digitization took its toll on that segment as well.
The quarterly net loss hit $2.1 billion, widening from the $1.3 billion reported in the year-earlier quarter. Total operating expenses were $19.6 billion for the quarter, a 4 percent increase from the same period last fiscal year. So-called controllable expenses, costs that are within USPS' operating control, rose to $806 million compared to $656 million for the same quarter last year.
USPS confronts a number of Congressionally mandated expenses that are beyond its control, notably the requirement that it pre-fund employee retiree health care expenses, an obligation that amounts to billions of dollars each year and is a key obstacle to sustainable profitability.
USPS is also restricted in how it can price its products and streamline its expenses. Rate increases proposed for its "competitive" products such as "Priority Mail" must go through an approval process overseen by the Postal Regulatory Commission, which can accept, reject or modify the proposals.
Demand for e-commerce fulfillment has made parcel delivery the one bright spot, both in terms of revenue and volume. Ironically, the higher costs of labor and equipment to process and deliver parcels means that USPS' costs will rise along with the growth of parcels, which is expected to continue. By contrast, mail processing and deliveries are highly efficient, and the margins from letter deliveries dwarfs that of parcels because of the unmatched cubic efficiency of letter volumes.
"We continue to face challenges from the ongoing migration of mail to electronic alternatives, and we are legally limited under current law in how we can price our products and streamline our legacy costs," said Chief Financial Officer and Executive Vice President Joseph Corbett. "Within the framework of our current business model, we are executing to grow revenue and reduce operating expenses."
A postal reform task force appointed by President Trump suggested last December that USPS be given flexibility in terms of delivery days and speed, that it re-evaluate the cost consequences of its universal service mandate where it delivers to every U.S. address, and that it be allowed to monetize the mailbox structures where it retains a monopoly.
Image sourced from Pixabay
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