USPS posts $1.3B loss in second quarter amid ‘serious business model challenge’

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The Postal Service posted a $1.3 billion loss for the second quarter of fiscal 2018, more than double the loss it reported for the same period last year.

USPS reported its second quarter loss a month after President Donald Trump, claiming the agency is “on an unsustainable path,” set up a postal task force to review the agency’s business model.

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Despite the big loss, the Postal Service reported $17.5 billion in total revenue for the quarter, a $235 million, or 1.4  percent, increase compared to the same quarter last year.

First-class mail, one of the Postal Service’s most profitable products, and marketing mail revenue fell by $181 million this quarter.

USPS claims increased transportation costs, and workers salaries and benefits led to a hike in operating expenses this quarter.

The Postal Service ended its first quarter of the fiscal year with a $540 million  loss. Because it includes the boom in both mail and packages around the holidays, the first quarter is supposed to be the Postal Service’s strongest quarter.

The Postal Service has reported 11 straight years of financial losses.

Continued growth in the Postal Service’s package business remains a bright spot in its quarterly results. Its shipping and package sector increased by $445 million, or nearly 10 percent, compared to the same period last year.

While packages are more expensive to deliver than letters, Postmaster General Megan Brennan said postal workers are becoming more efficient.

“When we look at our deliveries per hour, we actually improved them over the prior year, so it’s a matter of looking at technology solutions we can deploy to improve dynamic routing [and] to improve the high-density delivery,” Brennan said Friday during a call with reporters.

The Postal Service also looks to become more efficient with its mail delivery by reducing door-to-door delivery to new addresses. It recently revised its Postal Operations Manual to clarify its existing policy of “cluster box” delivery as the preferred delivery method for new addresses and developments except in “rare exceptions.”

USPS serves roughly 156 million addresses six days a week. The new policy would affect approximately 1 million new addresses created in the U.S. every year.

USPS ‘welcomes’ Trump’s postal task force

In April, President Trump signed an executive order standing up a postal task force.

The task force, chaired by Treasury Secretary Steve Mnuchin, will look at how USPS sets prices for package delivery services.

Brennan said the Postal Service has been “fully cooperating” with the postal task force.

“The Postal Service welcomes the task force study because we believe that it deserves to be studied, and that the larger public policy issues need to be addressed,” she said.

The White House task force will also look at the root causes of the decline in mail volume, and whether the Postal Service should keep its monopoly on letter delivery.

Brennan said USPS isn’t prepared to let go of its letter business anytime soon.

“That’s one of the few tools we have to help support the universal service obligation. We’re required to maintain an expansive transportation retail and delivery network to serve every address six days a week,” she said.

President Trump has long maintained that Amazon doesn’t pay its fair share for the Postal Service to deliver its packages.

Just weeks before creating the task force, Trump tweeted that the Postal Service is losing “a fortune” to Amazon. But the Postal Regulatory Commission, which reviews the Postal Service’s agreements with companies like Amazon, said terms of its contract with the e-commerce giant are fair.

USPS expects

The Postal Service is calling on the PRC to allow it to raise its stamp prices beyond the rate of inflation, which would be the biggest change in postal prices in nearly 50 years.

The statutory price cap applies to USPS’ market-dominant mail products that generate roughly 70 percent of its total revenue.

Brennan said it’s about time the PRC modernizes USPS’ pricing structure.

“The concern we have, you’ve got reduced mail volume and the constraints of a statutory price cap. We have less revenue to pay for our required and increasingly expensive network, and other costs imposed upon us by law,” she said.

The PRC stopped receiving public comments on April 30 about the proposed rule to adjust the price cap.

In January, the Postal Service increased the price of first-class stamps by 1 cent, raising the total price to 50 cents.

Postal reform gets second wind in Congress

Last month, Sens. Tom Carper (D-Del.), Claire McCaskill (D-Mo.), Heidi Heitkamp (D-N.D.) and Jerry Moran (R-Kan.) introduced the latest in a series of postal reform bills.

The bill would require postal retirees to enroll in Medicare parts A, B and D, and would largely save the Postal Service from having to pre-fund retiree health benefits, which it says is burdensome.

By the end of fiscal 2017, the Postal Service owed the fund more than $38 billion.

Fredric Rolando, the president of the National Association of Letter Carriers, said addressing the postal retiree pre-funding issue would go a long way toward solving the Postal Service’s financial problems.

Rolando also said the PRC should bring back a 2-cent increase on postage stamps. It allowed the increase following the 2008 recession, but ended the emergency rate hike in April 2016.

Bringing back the exigent price hike and addressing the pre-funding issue, Rolando said in a statement, would allow USPS “to continue providing Americans and their businesses with the industrial world’s most affordable delivery network.”

Several postal reform bills have stalled out in Congress in recent years.

In 2017, the House Oversight and Government Reform Committee approved a postal reform bill, but the legislation never received a full House vote.

Brennan said the president’s focus on postal issues should give lawmakers a reason to pass postal reform legislation.

“We have repeatedly stressed that the Postal Service has a serious business model challenge, but that it’s solvable. That way that we’re positioning this is that in the short term, we need the financial stability through immediate legislative and regulatory reform,” Brennan said.