Financial issues remain, but USPS shows improved fiscal second quarter results

While still facing a significant uphill financial battle, fiscal second quarter earnings issued by the United States Postal Service (USPS) late last week showed some promising signs.

USPS had a net loss of $82 million for the quarter, down significantly from a net loss of around $4.5 billion a year ago at this time, with the USPS saying that a pandemic surge in demand did not offset increased operating costs and a decline in mail services revenue, its largest category. And total quarterly revenue—at around $18.9 billion—headed up roughly 1.1%, or 6%, annually.

USPS saw ongoing declines in Mail Services, which saw Marketing Mail revenue decline $511 million, or 13.7%, annually, with volume off around 2.3 million pieces, or 13.5% annually, while First-Class Mail revenue was down $390 million, or 6.1%, as volume was off around 1.1 billion pieces, or 7.9%.

But, as has been the case for several quarters, USPS saw another strong quarter for its Shipping and Packages Group, as revenue increased $2.0 billion, or 33.6%, to around $7.8 billion, with volume up 376 million pieces, or 25.3%, to 1.861 billion. USPS attributed these gains to an ongoing “surge in e-commerce associated with the COVID-19 pandemic,” coming with the caveat that this group produces a lower margin revenue per dollar related to higher associated labor and transportation expenses.

“While the Postal Service believes that consumer behavior has evolved during the pandemic as the nation has increasingly relied on the safety and convenience of e-commerce, the Postal Service still expects this surge to partially abate as the economy continues to open, at which time we expect that certain major customers will return to diverting their volume from our network and aggressively pricing  their products and service in order to fill their networks and grow package density,” USPS said. “This diversion would decrease our revenue and volumes from these customers, as well as increase competition in the overall market.”

USPS CFO Joseph Corbett said in a statement that the financial results for the quarter and the ongoing trend of declining mail volume and increasing package volume highlights why its Delivering for America 10-year plan needs to be fully implemented.

“The plan delivers the framework for us to better innovate to grow revenue, work more efficiently and achieve financial sustainability to fulfil our universal service mission,” said Corbett. “If the plan is implemented in its totality, we expect to achieve break-even operating performance over the ten-year period and positive net income by FY2023 or FY2024, reversing $160 billion in projected losses over the next decade."

In late March, the USPS released its 10-year plan focused on being financially sustainable and also provide top-level service.

The plan takes an ambitious approach focused on helping the USPS get on solid financial footing, as the organization has been in the red over the last 14 years and incurred a net loss of $9.2 billion in the last fiscal year.

The plan calls for the USPS to continue its universal six-day mail delivery, as well as expanding seven-day package delivery, with the latter being a major revenue source for the organization. And a key part of the plan stated that the USPS will generate $24 billion in net revenue, partly from enhanced package delivery services for business customers, including same-day, one-day, and two-day delivery offerings.   

Other key objectives outlined in the plan include:

• improving cash flow for the investment of $40 billion in workforce, new vehicles, improved Post Offices, technology improvements, and infrastructure upgrades;
• a move to an electric vehicle delivery fleet with Congressional support;
• adjusting select delivery standards to improve efficiency and reliability;
• enhancing customer experience through a new suite of consumer and small business tools;
• stabilizing the workforce with a goal of cutting non-career employee turnover in half, and creating more opportunity for growth, including more predictable progression into career workforce;
• align pricing to reflect market dynamics; and
• ask for bipartisan legislation in Congress to repeal retiree health benefit pre-funding mandate and to maximize future retiree participation in Medicare

USPS officials said that this plan represents a combination of technology investments, training, Post Offices and a new vehicle fleet, modernizing the USPS processing network, adopting best-in-class logistics across delivery and transportation operations, creating new revenue-generating offerings in the “rapidly expanding e-commerce marketplace and pricing changes as authorized by the Postal Regulatory Commission (PRC), an independent Federal agency that provides transparency and accountability of all USPS operations.

Gordon Glazer, senior consultant for San Diego-based parcel consultancy Shipware LLC, recently told LM there is much to like in the USPS’s 10-year plan, with the caveat that the devil is in the details.

“However, I’m concerned this blueprint will be halted in its tracks and put on hold until President Biden’s nominations to fill empty seats to complete the Board of Governors are confirmed,” he said. “It’s even possible that the new Board of Governors votes to elect a new Postmaster General.  Once this process plays itself out, the new leadership can review the 10-year plan and selectively decide which aspects are cut, which are maintained, and what gets added. In my opinion, the USPS is the most trusted government organization ever, routinely beating all others by a wide margin.  We believe in the USPS, we value our Postal system. We recognize and are proud of having the most efficient and respected Post Office in the world.  We love how our Postal system creates an equality of sorts, that Americans can receive Universal Service at fair prices regardless of where we live.  This was the vision of the Post’s founding fathers.”