The US Postal Service increased package revenues in the October – December 2019 quarter thanks to higher average prices but volumes dropped as Amazon continued to switch business to its own delivery network.
The postal operator’s Shipping and Packages revenue increased by 2.3% to $6.6 billion in the quarter despite a 4.6% drop to 1.74 billion pieces. The revenue increase was largely due to price increases introduced in January 2019 for certain competitive products.
“The volume decline during the three-month period largely resulted from intense competition and certain major commercial customers and competitors keeping more packages in their own network, compared to the same period last year,” USPS commented in an indirect reference to Amazon.
“Our Shipping and Packages category has historically shown 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. However, this service category is subject to intense competition which significantly impacts both our revenue and volume,” it wrote in its Q1 report. FedEx Ground, for example, launched Sunday deliveries for the 2019 peak season.
At a product level, Priority Mail, the USPS premium parcel service, increased revenues by just 0.3% to nearly $3 billion in the October – December quarter as volumes dropped by 5.3% to 304 million parcels.
Parcel Services, a low-price last-mile delivery service, suffered particularly from the loss of customer volume, with a 3.8% volume drop to 908 million items but a 3.8% rise to revenues of $2.2 billion on higher prices. First-Class Package Services, a low-price delivery service for light e-commerce items, saw volumes fall by 2.9% to 371 million pieces but revenues rose by 6% to $1.2 billion.
Meanwhile, USPS First-Class Mail revenue fell by 2.5% to $6.5 billion on a 3.8% volume decline and Marketing Mail revenue dropped by 5.4% to $4.4 billion on a 7.9% volume decline in the quarter.
Overall, USPS reported a 1.8% drop in revenue to $19.4 billion in the first quarter of its 2019/20 fiscal year (ending in September 2020). But it managed to reduce operating costs by about $1.1 billion as total work hours declined, resulting in lower compensation and benefits expenses. USPS halved its reported net loss to $748 million but its ‘controllable’ loss tripled to $387 million.
"We demonstrated once again the power of our unrivaled network and our ability to provide solutions for our customers while growing package volumes during our peak period. Package revenue for the quarter grew by $146 million. However, overall volumes and mail revenues for the quarter were down, and we continue to face systemic profitability challenges due to our restrictive business model and mandated costs," said Postmaster General and CEO Megan J. Brennan.
"We will continue to aggressively pursue opportunities to generate profitable revenues and drive greater operational efficiencies under our current structure, while also seeking legislative and regulatory reforms to allow the Postal Service to better invest in our business, compete for customers, control our costs and serve the evolving needs of the public," she continued.
“While many of our network costs are fixed to meet our universal service obligations, we continue to aggressively manage operating expenditures under management’s control," added Chief Financial Officer and Executive Vice President Joseph Corbett. “The Postal Service reduced work hours by 6.4 million relative to the same quarter last year, helping us to reduce overall compensation expenses.”
