USPS reports $354 million first quarter loss
February 11, 2014
Last week, the United States Postal Service (USPS) said it incurred a net loss of $354 million. This is the 19th time in the last 21 quarters the USPS has reported a loss and follows a fiscal year 2013 loss of $5 billion.
USPS officials said that this most recent quarterly loss comes at a time when the USPS has grown revenue “capitalizing on opportunities” in its Shipping and Packaging Services group, coupled with reducing operating costs, although it remains hamstrung, due to the ongoing decline in First Class Mail, federally mandated payment obligations, and an inflexible business model, among other issues.
“The Postal Service is doing its part within the bounds of law to right size the organization, and I am very proud of the achievements we have made to reduce costs while significantly growing our package business,” said Postmaster General and CEO Patrick Donahoe in a statement. “We cannot return the organization to long-term financial stability without passage of comprehensive postal reform legislation. We appreciate the efforts of the House and Senate oversight committees to make this happen as soon as possible.”
USPS said that total mail volume of 42.0 billion pieces in the fiscal first quarter was down 3.5 percent annually, with First Class volume down 4.6 percent or 817 million pieces and Standard Mail volume down 2.8 percent. Operating revenue—at $18 billion—was up $334 million—or 1.9 percent.
Traditionally, its most profitable offering, First Class Mail revenue dropped $209 million—or 2.8 percent—annually. USPS said this decline was due 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.
The Shipping and Package group, whose services are comprised of Priority Mail, Express Mail, Parcel Select and Parcel Return services, saw a $479 million—or 14.1 percent—annual increase, due largely to gains in e-commerce, limited Sunday deliveries in certain U.S. locales and success in its last-mile service, which saw a 34.3 percent revenue increase from its Parcel Return and Parcel Select service.
What’s more, Priority Mail, which represented 55.7 percent of total Shipping and Package revenue, increased $199 million or 10.1 percent annually, and Parcel Services revenue was $758 million, with Parcel Select at $706 million, Parcel Returns at $34 million, and Market-Dominant Standard Mail Parcels at $18 million. USPS said the Parcel Services segment saw a 14.0 percent volume increase but also noted that these “packages represent one of our lowest available priced services, and as a result they provide a relatively lower level of profitability than many of our other services.”
Looking ahead, the USPS expects its financial issues to remain intact, barring aid in the form of long called for legislation to help regain its financial footing. And it explained that without legislative change, it would again be forced to default on another $5.7 billion retiree health benefits prefunding payment that is due on September 30, due to insufficient cash and not being able to borrow additional funds at that time.
As previously reported, the USPS expects these sizable losses to continue until key provisions of the USPS five-year business plan, including removing Saturday mail delivery, move forward.
The objective of the five-year plan is to reduce annual costs by at least $20 billion by
2015. And along with its goal of $20 billion in annual reductions by 2015, the USPS would like to see annual savings rise to $22 billion by 2016. The plan’s goals include:
-eliminating the fund to pay future retiree health benefit premiums and is proposing to provide employee health benefits independent of federal programs, which it said would save the USPS $7.1 billion annually;
- moving from six days per week delivery to five days per week, which would result in an annual cost reduction of $2.7 billion; and
- pursuing the realignment of its mail processing, retail, and delivery operations, which would result in a savings of $8.1 billion annually and also seek other significant cost reductions to grow or retain revenues within its current business model.
Jerry Hemsptead, president of Orlando, Fla.-based parcel consultancy Hempstead Consulting, said that the USPS’s operating improvement is coming from parcels.
“Packages from Parcel Select were up 14 percent but the revenue from this category was up 31 percent, and the USPS just instituted a large price increase in this category on Jan 26,” he said. “So this years results should be significantly better because the USPS has no incremental cost associated with this incremental price increase. It all should fall to the bottom line (albeit the big guys like FedEx Smartpost, UPS Sure Post, DHL Globalmail, & Amazon most likely have Negotiated Service Agreements that may mitigate for them some of the pain). Parcel Revenue and units handled were up where as the traditional 1st and 3rd class declined. So on the one hand the advent of the Internet may have hurt the USPS and on the other hand e-commerce generating packages is helping the USPS, they are just learning to adapt to the change. The USPS has a daunting challenge ahead of it attempting to get legislative relief so that it can improve its financial position, however this is an election year and I suspect neither side of the aisle on the hill wants to alienate anyone with any changes to the current model. It’s my view that nothing is going to happen on The Hill to help the USPS this year.”
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