USPS reports slight fiscal third quarter operating revenue decline

Fiscal year 2023 second quarter earnings results, for the United States Postal Service (USPS), which were issued earlier this week, saw a 0.9% decrease, or $168 million, in operating revenue, to $18.6 billion, while total volume was off 11.4% annually. USPS also reported a quarterly net loss of $1.7 billion compared to a $59.7 billion net income a year ago, which it said was due almost exclusively to the non-cash impact of the Postal Service Reform Act (PSRA) in April 2022.

“In alignment with our Delivering for America transformation plan, we are making positive strides in improving the service we provide the American public—including the introduction of new products like USPS Ground Advantage, which provide excellent value to our customers,” said Postmaster General Louis DeJoy in a statement. “Concurrently, our team is working hard to reduce our cost of performance which is helping to off-set still sizeable inflationary and economic pressures. We are setting the stage for long-term financial sustainability as we continue to modernize our processing, transportation, retail and delivery networks.”

In its Form 10-Q statement, USPS explained that the U.S. and global economies continue to experience significant volatility due to the pandemic and geopolitical conditions, adding that while inflation has begun to moderate in recent months, inflationary impacts still remain unpredictable and continue to have a significant impact on its results of operations for the three and nine months ended June 30, 2023.

“Regulatory constraints cause delays in our ability to generate revenue to keep pace with inflation,” it said. “Our Market Dominant services are subject to a price cap system that is generally limited by the CPI-U, with some additional pricing flexibility and authority granted by the PRC. While we continue to judiciously implement our pricing authority, our price cap system restricts our ability to timely adjust prices in line with inflation. Meanwhile, our costs are highly sensitive to inflationary pressures. We have experienced higher compensation costs, higher retirement benefits costs, higher transportation costs, and higher fuel costs as a result of the inflationary environment, though some of those pressures have begun to subside in transportation and fuel in the most recent quarter.

Other major factors impacting operating results cited by the USPS include: overall customer demand; the mix of postal services and the pricing and contribution associated with those services; the volume of mail and packages processed through its network; its ability to manage its cost structure in line with secularly declining levels of mail volume; increased competition in the more labor-intensive Shipping and Packages business; and an increasing number of delivery points.

In its Shipping and Packages group, revenue was essentially flat, at $7.517 billion, compared to $7.520 billion a year ago, with volume also flat, at 1.700 billion pieces, down 41 million pieces, or 2.4%, annually.

Priority Mail Services revenue was down 6.8%, to $3.010 billion, with volume down 11%, to 274 billion pieces, and Parcel Services revenue increased 11%, to $2.53 billion, with volume up 5.1%, to 5.422 billion. First-Class Package Services revenue—at $1.850 billion—was down 12%, with volume down 16.5%, to 520 million pieces, and Package Services revenue—at $232 million—up 4.7%, and volume down 9.6%, to 113 million pieces.

Priority Mail Services revenue was down 6.7%, to $2.876 billion, with volume down 6.6%, to 270 million pieces, and Parcel Services revenue increasing 12.8%, to $2.679 billion, with volume up 5.1%, to 921 million. First-Class Package Services revenue—at $1.764 billion—was down 8%, with volume down 13%, to 415 million pieces, and Package Services revenue—at $198 million—up 6%, and volume down 5%, to 94 million pieces.

USPS officials said that the Shipping and Packages business is subject to intense competition, adding that its major customers continue to increase their delivery densities across a greater geography, with in-sourcing from its major customers, major e-commerce retailers, and other competitors continuing to grow.

“The results for our Shipping and Packages category…generally reflect our successful efforts to compete in shipping services, including ‘last-mile’ e-commerce fulfillment markets and Sunday delivery, as well as end-to-end markets, driven by consumers' continued use of online shopping,” said USPS. “While volumes are slightly down in the three and nine months ended June 30, 2023, compared to the same periods last year, they remain above the pre-pandemic levels. We continue to focus on responding to customers' needs by implementing marketing campaigns and maintaining strategic business partnerships that help us capitalize on the e-commerce business. We believe the pandemic has had a lasting impact on our Shipping and Packages category as consumer behavior has evolved from the nation’s increased reliance on the safety and convenience of e-commerce. While the e-commerce market has retracted from the pandemic level surge, consumer demand for online shopping remains strong. Consistent with this market trend, our Shipping and Packages volumes have experienced recent fluctuations but are not expected to return to the lower pre-pandemic levels.”

First-Class Mail and Marketing Mail revenue came in at $5.801 billion (up 3.8% annually) and $3.440 billion (down 8.9% annually), respectively, with volumes down 5.9%, for First-Class Mail and 16.0%, for Marketing Mail.

USPS Chief Financial Officer Joseph Corbett said that the organization continues to be challenged by continued rising costs in several areas of its business.

“We continue to manage the costs within our control, such as by reducing work hours by 6 million hours compared to the same quarter last year and by focusing on transportation and other operating costs,” he said.  

Despite its financial challenges, USPS has definitely made strides as a carrier, said Rick Watson, Founder and CEO of New York-based RMW Commerce Consulting, in a previous interview.

“The 10-year plan contains everything you think it should: modernizing the company, rationalizing the workforce, and matching the supply and infrastructure to the current needs of consumers and demand,” he said. “Of course, having a plan is one thing and executing it is quite another. The entity is saddled with almost impossible demands on its service from consumers, as well as the workforce itself, so the organization continues to have an uphill climb.”