The US Postal Service is going into peak season 2019 with declining package volumes as Amazon insources deliveries heavily, yet another massive financial loss and no sign of political reform to restructure its business model.
And it is also looking for a new Postmaster General and CEO to take over these unresolved long-term challenges from Megan Brennan who retires in January 2020 after five years in the post.
USPS yesterday announced a net loss of $8.8 billion for the financial year ending September 2019, more than double last year’s level of $3.9 billion. But the so-called ‘controllable’ loss, excluding items outside of management’s control, also rose to $3.4 billion from $1.95 billion. Operating costs rose by 7.3% to $79.9 billion, driven by an increase in workers compensation expense of $3.5 billion, of which $3.4 billion was directly the result of changes in discount rates outside of management's control.
On the positive side, the postal operator’s revenues grew slightly by 0.7% to $71.14 billion, with higher revenues in the Shipping and Packages business compensating for the declining mail business where volumes continued to drop significantly.
Shipping and Packages revenues increased by 6.1% to $22.8 billion over the 12 months, almost completely due to higher prices. Package volumes grew only fractionally by 0.3% to 6,165 million items as growth slowed considerably during the year and even turned negative in the two final quarters. The full-year figures were a sharp downturn on the previous 12 months when revenue grew by 9.9% and volumes by 6.8%.
The worsening package decline now looks set to continue during the forthcoming ‘holiday season’ when USPS expects to deliver 800 million packages between Thanksgiving and New Year’s Day. This would be about 11% less than last year’s 900 million packages. Many of the ‘missing’ 100 million items are likely to be Amazon packages processed through the e-commerce giant’s rapidly expanding own US delivery network.
Brennan emphasised to journalists on a financial results call that USPS continues to compete for package business based on its traditional advantages of competitive pricing, nationwide network, access and reach. “That’s a value proposition that is tough to beat,” she declared.
Asked why and where some large customers are insourcing their package deliveries, she responded: “It’s clearly density economics.”
This echoed comments in the operator’s financial report, which attributed the slowing package volume growth to strong competition, last-mile delivery in-sourcing by large customers and “a narrowing of the shipping cost differential between us and our competitors due to several years of above-average price increases”.
Without naming Amazon, USPS wrote: “Our Shipping and Packages category is subject to intense competition which significantly impacts both revenue and volume. Certain major customers have recently begun diverting volume from our network by insourcing the last-mile delivery. These customers are also aggressively pricing their products and services in order to fill their networks and grow package density.”
At a product level, USPS’ premium package service, Priority Mail, increased revenue by 3.5% to $10.45 billion on low volume growth of 0.9% to 1.12 billion items in the year ending September 2019. This was well behind the previous year’s growth rates.
Parcel Services, essentially comprising low-price final-mile delivery services that bypass much of the USPS infrastructure, were particularly hit by Amazon’s insourcing and suffered a 3% drop in volumes to just over 3 billion items, although revenue was up by 5.7% to over $7 billion on higher prices. However, revenues had increased by 13.3% and volumes by 7.2% the previous year.
In contrast, First-Class Package Services, mostly targeting small and lightweight e-commerce packets, continued their strong growth with revenues up by 15.2% to nearly $4.5 billion and volumes 9.3% higher at 1.4 billion items.
Speaking with journalists, Brennan also repeated long-standing calls for the US Postal Service to be permitted to offer new services with more flexible pricing in order to increase its revenues more rapidly along with new postal laws changing the traditional business model. “The results demonstrate why we need reforms,” she commented.
