Despite strides on shipping and packages side, losses continue for USPS

Fiscal second quarter earnings for the United States Postal Service (USPS) remained challenging over all, based on results issued earlier today.

USPS posted a net loss of $562 million, which represented an improvement over a $2 billion net loss for the same quarter last year. Quarterly operating revenue, at $17.2 billion, fell $474 million, or 2 percent, annually, and total operating expenses decreased by around $2 billion to $17.8 billion. Controllable income for the quarter came in at $12 million, which was significantly less than the $576 million recorded during the last year’s fiscal second quarter.

USPS’s financial health remains in a precarious situation, due to its having defaulted on $33.9 billion in the Postal Service Retiree Health Benefits Fund (PSRHBF) and mandated certain obligations for paying the normal costs and prefunding of retiree health benefits, as per the Postal Accountability and Enhancement Act, which was signed into law in 2006.

This situation has significantly hindered its financial position, which has led the USPS to call for “legislative and regulatory change,” as it has incurred cumulative net losses of $61.5 billion from 2007 through March 31, 2017, with net losses expected to continue

“As a result of these losses and its liquidity concerns, the Postal Service will unlikely have sufficient liquidity absent legislative and regulatory change to meet all of its existing legal obligations, when due, to pay down its debt and make the critical infrastructure investments that have been deferred in recent years,” stated a USPS 10-Q form.

While the financial outlook remains dim, there may be some help on the way, with the U.S. House Oversight and Government Reform Committee advancing H.R. 756, the Postal Service Reform Act of 2017, for consideration by the full House.

“America deserves a financially stable Postal Service that can continue to play a vital role in our economy and society,” said Postmaster General and CEO Megan J. Brennan in a statement.  “The path forward depends on continued innovation and aggressive management actions, the passage of H.R. 756 into law, combined with a favorable outcome of the PRC’s 10-year pricing system review. With these actions, the Postal Service will have the financial stability to invest in our future and continue to be an engine of growth, to be a strong business partner, and to meet the expectations of the American public.”

As has been the case going back several quarters, the USPS Shipping and Packages Group has continued to stand out, and the second quarter has been no exception, with fiscal second quarter revenue up 11.5 percent, or $486 million, to $4.7 billion. Volume for the group, at 1.37 billion packages, was up 10 percent.

Looking at volumes within the Shipping and Packages Group, Priority Mail Services rose 2 percent to 260 million, Parcel Services headed up 13 percent to 672 million, First-Class Packages increased 11 percent to 284 million, and Package Services were up 10 percent to 152 million.

USPS said the growth drivers for the groups are paced by “its successful efforts to compete in shipping services, including ‘last mile’ e-commerce fulfillment markets and Sunday delivery,” adding that “volume also experienced end-to-end growth as consumers continued to utilize online shopping, which provided a surge in package volume with a record number of packages delivered during the calendar year 2016 holiday season,” which led to the USPS increasing Sunday delivery service for some U.S. customers in limited markets to accommodate the uptick in volume and avoid holiday season service disruptions.

First Class Mail, however, saw revenue off $606 million, with volume off 4.2 percent, and. The USPS cited the expiration of its exigent surcharge, coupled with lower volumes, as the main reasons for the declines.

As in the past, USPS pointed to the “continuing migration from mail toward electronic communication and transaction alternatives” as the main reason for the ongoing declines. And on a separate but related note, it said that the expiration of the exigent surcharge was felt, as the surcharge accounted for incremental revenue of $299 million and $621 million, respectively, for the three and six months ending March 31, 2016.

Despite its financial challenges, the USPS is in better shape than what the general consensus is, according to industry observers.

The reason being that it has a good value product and is critical to the e-commerce supply chain. 

“They just need to work out their pension issues and raise the stamp price a bit, and they’ll be fine,” Stifel analyst Dave Ross said.

And according to Rob Martinez, president & CEO, Shipware Systems Corp., with the continued growth in e-commerce, the Postal Service is well positioned to flourish in the years ahead.

“I don't think shippers have anything to worry about, especially if the Post is able to achieve legislative relief on the onerous prefunding obligations,” he explained.