USPS reports $1.9 billion fiscal second quarter loss

Financial issues persist for the United States Postal Service (USPS), as evidenced by today’s fiscal second quarter earnings announcement.

Following a $1.3 billion net loss in the fiscal first quarter, the USPS said its second quarter net loss was $1.9 billion. These losses follow a fiscal year 2012 loss of $15.9 billion.

In the fiscal second quarter, USPS said that total mail volume of 38.8 billion pieces was down 1.5 percent annually, with First Class volume down 4.1 percent and revenue down 2.7 percent and Standard Mail volume up 1.0 percent and revenue up 2.4 percent.

A bright spot again for the USPS was its Shipping and Package group, which saw revenue and volume up 9.3 percent— and 16.2 percent, respectively. And for the six-month period ending March 31, revenue for this segment is up a cumulative 6.9 percent.

Quarterly operating revenue—at $16.3 billion—was up $121 million, or 0.7 percent—and operating expenses—at $18.2 billion—were down 6.2 percent. USPS officials said that the gain in operating revenue can be attributed to strong growth in its Shipping and Package business, which was supplemented by a modest increase in Standard Mail revenue, which offset ongoing declines in First Class Mail.

These declines are due in large part to an ongoing diversion from paper to electronic communications, including e-mailing business documents and online purchasing orders, as well as other electronic mailing processes.

The strength in its Shipping and Package business, said USPS, was bolstered by e-commerce growth and successful marketing campaigns, as well as its efforts to leverage the growth in shipping and packages and compete in the ground shipping services and last-mile e-commerce fulfillment markets.

Rob Martinez, president and CEO of Shipware LLC, said he expects the e-commerce growth to continue for the USPS.

“With the growth of e-commerce, the (last-mile) Parcel Select product is growing at meteoric rates,” he said. “This is also reflected through the growth of parcel consolidators like FedEx Smart Post and UPS Surepost. But priority mail and first-class parcel are also growing rapidly. The Postal Service has made strides to significantly improve its service and reliability, and is making it easier to do business with them. Tracking is starting to be more competitive and real-time like FedEx and UPS. They are deploying wireless technologies so that delivery information is uploaded real time. They expect 60 percent of mail carriers to have the wireless technology by the end of July and as much as 90 percent by year end. Shippers that don’t include the USPS in the air carrier mix are missing out on significant savings opportunities.”

In order for the USPS to return to financial solvency, the USPS said that it needs comprehensive legislation passed in order to be able to stop the losses. And it said that it needs to save $20 billion annually by 2016, with many of these savings being a direct result of legislation, which includes:
-requiring a USPS Health Care Plan (resolves the Retiree Health Plan prepayment issue);
-refunding the FERS overpayment and adjust the FERS payment schedule;
-adjusting delivery frequency (six-day package/five-day mail delivery);
-streamlining the governance model;
-allowing USPS the authority to expand products and services;
-requiring a defined contribution retirement plan for future postal employees;
-providing instructions to arbitrators to consider USPS’s financial condition in interest arbitration awards; and
-reforming workers’ compensation

“To return the Postal Service to solvency requires a comprehensive approach, which is reflected in our updated Five-Year Business Plan,” said Postmaster General and CEO Patrick Donahoe in a statement. “The plan provides an achievable roadmap to restore financial stability and preserve affordable mail service for the American public. The major elements of the plan must be pursued and executed within a short window of opportunity to avoid unsustainable losses and potentially becoming a long-term burden to the American taxpayer.”

What’s more, the USPS noted in its earnings release that it has reached its $15 billion debt limit and defaulted on $11.1 billion that is due for retiree health benefits in 2012 and is expecting to default on another $5.6 billion due on September 30. Anther pressing issue for the USPS is that it owes an estimated $17 billion on future workers compensation claims.

Part of the revenue increase touted by the USPS on the parcel side comes from a fairly hefty price increase that hit in January, according to Jerry Hempstead, president of Hempstead Consulting.

“Part of that increase was done to the reclassification of transactions under 1 pound,” he told LM. “We are talking double digit percentage increases for transactions that really can’t be migrated to FedEx or UPS because those companies have their core services begin their pricing at 1 pound. Keep in mind that companies like United Parcel migrated some of their core over 1 pound business to the USPS Parcel Select service which has been the fastest growing contributor to the USPS parcel growth. But as a result of the recent UPS contract with the Teamsters, that growth may be tempered moving forward.”