Postal Service: ‘Flawed business model’ to blame for first-quarter loss

The U.S. Postal Service’s first quarter results are usually its strongest, due to the peak in business it receives during the holiday season. However, USPS reported a $540 million loss for the first quarter of fiscal 2018, compared to a $1.4 billion net profit the year before.

Despite continued growth in its shipping and package business, USPS cited accelerating declines in first-class mail and marketing mail volume, as well as double-digit growth in its operating expenses, as reasons for ending the quarter in the negative.

First-class mail revenue decreased by $309 million in the first quarter of FY 2018 — a decline of about 2 billion pieces of mail, or 4.4 percent, in volume. Marketing mail revenue fell by $248 million, or 5.2 percent. In total, the Postal Service’s quarterly revenue of $19.2 billion remained nearly unchanged compared to last year.

Revenue from its shipping and package business increased by $505 million, or 9.3 percent, during the quarter. USPS has averaged double-digit growth in package growth over the last three years.

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“Although we continue to win customers and grow our package business, these gains are not sufficient to offset continuing declines in our mail business,” Postmaster General Megan Brennan said during a conference call Friday announcing the quarterly finances.

USPS reported a $2 billion, or 11 percent, increase in its operating expenses for the quarter, which were driven by a $1.4 billion increase in worker’s compensation brought on by rising interest rates. The rising operating costs also included a $293 million increase in unfunded retirement benefit costs and a $210 million increase retiree health benefits costs.

“We have not ignored the economic realities facing our business. To the contrary, we’ve dealt with our challenges head-on. Where we have the authority, we have taken actions to proactively adapt to changing market forces,” Brennan said.

Given the decline in mail, Brennan said USPS reduced the size of its workforce by 152,000 workers and reduced its overall real estate footprint by consolidating operations at more than 350 facilities, or 56 percent of its total real estate holdings.

David Partenheimer, a USPS spokesman, told Federal News Radio following the quarterly call that the workforce reductions were the result of ongoing attrition at the organization.

Chief Financial Officer Joe Corbett said Postal Service cut more than 50 million work hours in the first quarter.

“At the start of 2018, we set the stage for further efficiencies by offering certain employees a voluntary early retirement to facilitate a reduction in employees in places impacted by declining mail volumes,” Corbett said.

In January, USPS made early retirement offers to more than 26,000 mail handlers and postal clerks.

Corbett said the Postal Service has made recent upgrades to its sorting equipment at mail processing plants and at regional last-mile delivery facilities

USPS awaits action from Congress, PRC

While the Postal Service has made attempts to right-size its organization, Brennan also called for oversight action from Congress and the Postal Regulatory Commission.

Brennan said she expects the Senate will confirm President Donald Trump’s three nominees for the nine-member Postal Board of Governors before the next financial quarter call in April. The last appointed member stepped down in December 2016 after his term expired. The board needs a quorum to make major business decisions like approving postal rate increases.

She also called on Congress to pass its Postal Service Reform Act, which would require postal retirees in the Federal Employees Health Benefits Program to enroll in Medicare parts A and B, and would largely reduce the burden USPS currently has prefunding health benefits for future retirees.

“The root cause of our financial instability is a flawed business model, which cannot be fixed without congressional action. Under current law, a large percentage of our costs are imposed on us, and these costs are growing,” Brennan said.

The bill passed the House Oversight and Government Reform Committee last February, but has yet to receive a House floor vote.

Despite a year of inactivity on the legislation, Brennan remains optimistic on the chances of postal reform legislation getting passed by Congress.

“The process is moving forward, it can be a protracted timeline, just given some of the process steps, but we’re encouraged that in talking to some of our key public officials, that they understand the urgency of this,” she said.

Meanwhile, the Postal Regulatory Commission is nearing the March 1 deadline for comments for its proposed rule, which would allow the Postal Service to raise the price of first-class stamps each year for the next five years. Under current law, the price is capped under the Consumer Price Index (CPI).

Fredric Rolando, president of the National Association of Letter Carriers, called on the PRC to consider a more appropriate approach to decide if and when to increase prices.

“At present, USPS is constricted in its ability to adjust rates by no more than the Consumer Price Index, but the CPI is an economy-wide measurement of consumer goods and services that doesn’t fit a transportation and delivery provider. The PRC has the ability to correct this mismatch and relieve the resulting financial pressure,” Rolando said.