Same old problems remain intact for the USPS

When it comes to the financial dire straits of the United States Postal Service, the common refrain goes something like this: another quarter, another loss.

That refrain was clearly intact, when the USPS issued its fiscal year second quarter earnings last week.

Here is a breakdown of some of the key quarterly data regarding its quarterly performance:
-a net loss of $1.9 billion, representing the 20th loss it has incurred over the last 22 quarters;
-operating revenue of $16.7 billion, up $379 billion or 2.3 percent, including the impact of its price change that took effect on January 26;
-operating expenses before non-cash Workers’ Compensation expenses of $17.9 billion, which is down from $18.1 billion annually and a 1.1 percent gain; and
-First-Class Mail volumes were down 4.1 percent

That final data point in regards to First Class Mail is due largely to ongoing trends in the mailing behavior or consumers and businesses resultant of the recession, and ongoing diversion from paper to electronic communications, including e-mailing business documents and online purchasing orders, as well as other electronic mailing processes.

While it is hard to overlook such a steep net loss, which has become somewhat commonplace, there are some glimmers of optimism emanating from the USPS, at least on the Shipping and Package Group side.

For the fiscal second quarter, the group’s revenue was up 8 percent, or $252 million, and was driven largely by e-commerce growth, according to USPS officials, as well as revenues for its “last-mile” services, Parcel Return and Parcel Select, which were up 26.4 percent.

USPS CFO and EVP Joseph Corbett said in the earnings statement that the agency’s liabilities exceed its assets by $42 billion, coupled with a need for more than $10 billion to invest in new delivery vehicles, package sortation equipment and other deferred investments.

What’s more, the USPS continues to be hindered by its retiree health benefits prefunding payments, which it has been unable to meet, due to a lack of capital. And it will again not be able to make the required $5.7 billion retiree

But Corbett said there is more to it than simply having legislation reducing the payment, as that does not offer up more money for the USPS to pay down its debt or put more capital into its business.

“Only comprehensive postal legislation that includes a smarter delivery schedule, greater control over our personnel and benefit costs, and more flexibility in pricing and products will provide the necessary cash flows,” said Corbett.

As if things were not already bad enough, for good measure, the USPS added that if there were to be an economic downturn or another issue that would impact its cash flow, it would have to implement contingency plans to ensure mail and package deliveries were completed, with employees and suppliers paid ahead of the federal government.

The USPS has its hands tied,” said Jerry Hempstead, president of parcel consultancy Hempstead Consulting. “Congress has failed to act to modify some of the onerous financial burdens placed on the Postal service, such as the prefunding of retiree health and modifying the payment for workman’s compensation. The USPS has asked for some service changes and some rule modifications that require congressional approval. No acceptable legislation has moved from either from the House or the Senate and with an election coming in November for the House, I doubt that any meaningful change will be forthcoming. I can see the temporary rate increase that was imposed upon the market-dominate products most likely will be made permanent. Obviously that revenue is sorely needed but these financial results prove that it was still insufficient.

Hempstead added that the UPS should be allowed to raise its prices to cover its costs, explaining that is as the core of its financial struggles, with volume not the real issue.

“My mailbox has stuff every single day; the USPS is just not charging enough,” he concluded.

Until things get rectified in a meaningful way, these ongoing losses and struggles are unlikely to fade away anytime soon for the USPS. While it is showing nice gains on the Shipping and Packages side, it is not nearly enough of a rising tide to lift it out of the difficult to navigate and deep financial waters.