The US Postal Service (USPS) today unveiled a heavy $1.5 billion loss for the October – December peak delivery quarter as spiralling costs outweighed revenue growth driven by higher parcel volumes.
Revenues increased by 2.9% to just over $19.7 billion in the first quarter of its 2018/19 fiscal year with growth in parcels and marketing mail more than compensating for lower first-class mail revenues. Shipping and Packages revenue increased 8.7% on volume growth of 5.4% between October and December 2018.
But the postal operator’s operating costs soared by 7.9% to over $21.2 billion due to higher spending on labour, transportation and employee benefits. As a result, the operating loss tripled to just over $1.5 billion and the net loss was nearly three times higher at $1.54 billion.
“We continued to drive growth in our package business and expanded use of the marketing mail channel during the quarter. Nevertheless, we face ongoing financial challenges. We remain focused on aggressive management of the business, legislative reform, and pricing system reform, all of which are necessary to put the Postal Service on firm financial footing,” said Postmaster General and CEO Megan J. Brennan. “Our nation is best served by a financially sustainable Postal Service that can invest in its future and meet the evolving mailing and shipping needs of the American public.”
CFO Joseph Corbett added: "Overall volumes increased this quarter driven primarily by growth in Marketing Mail and our package business, which resulted in total revenue growth of $553 million. This growth was offset by increased work hours and related salaries and benefits, increases in transportation costs due to these higher volumes and the continued focus on meeting customers' needs."
In Q1, 2018/19, the still dominant letters business, which accounts for nearly 60% of revenues, saw a drop in overall revenues to $11.3 billion. First-Class Mail revenue declined by 1.2% to $6.6 billion on a 2.8% volume fall but Marketing Mail revenue increased 4.9% to $4.7 billion on a 4.8% volume rise.
Shipping and Packages revenue increased by a strong 8.7% to $6.5 billion as volumes grew by 5.4% to 1.8 billion items during the final quarter of the calendar year, which included the Black Friday/Cyber Monday long holiday weekend as well as the traditional Christmas season. The business now accounts for 33% of total USPS revenues.
“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 as well as end-to-end markets, although the rate of growth is slowing,” USPS wrote in its quarterly financial report.
“Volume growth has been driven by consumers’ continued use of online shopping, which provided a surge in package volume with a record number of packages delivered during both the calendar year 2017 and 2018 holiday seasons.
To accommodate the volume surge and avoid service disruptions during the peak holiday seasons, the postal operator increased Sunday delivery service for some customers in limited U.S. markets as well as taking on temporary workers.
Priority Mail, the flagship service offering delivery in 1-3 business days, increased revenues by 4.8% to nearly $3 billion on higher prices and as volumes rose by 3.9% to 321 million items. Parcel Services, a low-priced final-mile delivery service for large shippers, increased revenue by 11% to $2.1 billion with volumes up by 4.3% to 946 million and on higher prices. First-Class Package Services, covering low-priced lightweight packages, grew strongly, with revenue up 17.9% to $1.15 billion and volumes up by 14.9% to 378 million.
Meanwhile, revenue from International Mail (letters and packages) decreased 6.1% on a volume decline of 9.3%, largely due to a fall in higher-priced outbound volumes.
Commenting on the decision of the US administration to withdraw from the Universal Postal Union over the issue of terminal dues with effect from October 2019 after a 12-month period of notice, USPS noted: “During this one-year period, the Department of State will seek to negotiate agreements that resolve the problems discussed in the Memorandum. If such negotiations are successful, the U.S. will rescind the notice of withdrawal before it takes effect.”
USPS added: “We are currently evaluating the potential impacts if negotiations are unsuccessful and the U.S. withdraws from the UPU.”
On the long-running issue of US postal reform, USPS said it is still reviewing the recommendations of a governmental task force that were published on December 4, 2018.
These recommendations, according to USPS, include:
• Strengthening the Board and developing enforcement mechanisms to ensure financial commitments and reforms are met;
• Clearly defining the Universal Service Obligation by specifying what are “essential postal services,” or types of mail and packages for which a strong social or macroeconomic rationale exists for government protection;
• Developing a new pricing model that removes price caps and charges market-based prices for both mail and package items that are deemed commercial services rather than “essential postal services”;
• Changing the current costing standards and cost allocation methodology;
• Pursuing cost-cutting strategies that will help enable us to meet the changing realities of our business model;
• Reforming employee compensation in a manner consistent with proposed reforms to the broader federal workforce;
• Restructuring retiree health benefit liabilities with a new actuarial calculation that is based on employees at or near retirement age; and
• Exploring new services that will potentially enable us to extract value from our existing assets and business lines, but that present no balance sheet risk.
