Tough times continue for USPS

In the unlikely event, you have not heard it before, we will repeat it again: the United States Postal Service (USPS) lost money last quarter.

Just to clarify, that is in regards to the fiscal third quarter of this year, but it also applies to 21 of the last 23 quarters in which the USPS has recorded a loss, stretching a span of nearly six years of mostly dark times.

Looking at the financials, the USPS had a net loss of $2.0 billion for the quarter, compared to a $740 million net loss for the fiscal third quarter of 2013. Quarterly operating revenue saw a gain, though, at $16.5 billion, up 2 percent annually.

Even with the slight increase in operating revenue, things remain muddled for the USPS. It remains hamstrung by its retiree health benefits prefunding payments, which it has been unable to meet, due to a lack of capital. What’s more, it continues to ring the bell for Congress to draft and sign legislation into law to not only reduce the payments, which it has been unable to meet, but also includes a smarter delivery schedule, greater control over its personnel and benefit costs, and more flexibility in pricing and products to provide the necessary cash flows, USPS CFO and EVP Joseph Corbett said earlier this year. The USPS, once again, will not be able to meet the required $5.7 billion retiree health benefit prefunding payment to the U.S. Treasury by September 30.

While top-level revenue at the USPS continues to drag, revenue for its Shipping and Package group continues to impress, up 6.6. percent, and revenue for Standard Mail was up 5.1 percent, due to a 0.9 percent volume increase for the quarter and last January’s price increase, which aided the 1.4 percent decline in First-Class Mail and led to a 3.2 percent revenue gain.

USPS Postmaster General and CEO Patrick Donahoe said in the earnings release that the USPS is seeing momentum in its package business, as well as the use of direct mail as an advertising medium. And he also observed that the USPS has been effective in developing and marketing its products, coupled with improving how it leverages data and technology.

While that is encouraging, it still is not nearly enough to stop the bleeding, given how quarterly operating expenses were up $1.5 billion at $18.4 billion, which the USPS was mostly due to the Workers’ Compensation fair value adjustment, while compensation and benefits expenses rose $15 million or 0.1 percent annually. 

The ongoing travails of the USPS is akin to a kayaker without a paddle, it seems.

Jerry Hempstead, president of Hempstead Consulting, told me that the situation could be even worse for the USPS were it not for the business it has from the duopoly of UPS and FedEx, which are providing a major boost on for the USPS’s Shipping and Packages group.

Hempstead pointed out that UPS’s SurePost, an economy ground service for delivery to residential locations that uses the USPS for final delivery, was up 60 percent year-to-date through the second quarter, with the USPS getting all packages under ten pounds, which Hempstead said is the “vast majority” of packages.

And it is not just business from UPS. It is also business from Amazon, who is having amazing annual package growth, he said, as well as FedEx SmartPost, which is similar to SurePost from UPS, which saw a decline for the fiscal second quarter, which Hempstead said is the result of Amazon going to the USPS directly and diverting a good deal of business away from FedEx.

“Granted the USPS has a very effective 2 to 3 day Priority Mail service that is extremely competitive in the low weights and includes free packaging and flat rate options,” Hempstead said. “As long as e-commerce is hot, the parcel business will continue to outpace the other mail products in growth as long as the USPS does not do something to encourage the private carriers (and Amazon) to do their own home deliveries.”

That is encouraging enough, but at the same time does not solve the many problems still facing the USPS.

So, how about some form of comprehensive legislation to help the USPS then, Mr. Hempstead?

Here comes the reply: “My observation of what’s going on in DC (or frankly what’s not going on) is that there is no chance of any meaningful postal reform legislation this year. It’s all too political. The letter carriers have 500,000 card carrying members. So any talk of eliminating Saturday Delivery is off the table. There will be a major push starting after the election to close plants, but these are plants that don’t have a huge number of people and was long announced and the closures long overdue. The talks of recalculating the payment plan for retiree health, recalculating the workman’s comp payments, the return of some of the overpayment to the pension program (oops Congress already spent that cash on other stuff) does not get any elected official any real votes at home, but may present a landmine as it may add to the country’s debt. So nobody wants to walk on a potential field of landmines if it can be avoided. And issues of the USPS are easily put aside except for delivering all that election year third class stuff that floods your mailbox right now.”

Given these issues, it may be worth forgetting about the paddle and looking for a lifejacket. The ongoing issues the USPS faces represent a difficult challenge to overcome, with somewhat limited ways to ease the pain or come up for air. E-commerce growth on the shipping and packages side helps to be sure, but is not enough for smooth sailing, or paddling for that matter.