‘Systemic financial challenges’ overshadow successful 2016 for USPS

The U.S. Postal Service did everything right in 2016. It focused on growing its biggest areas of business while still making improvements across the board. It used data and technology to improve processes and make them more efficient. It improved service in all categories.

And it still lost money.

“Despite the overall revenue growth, the positive controllable income, and aggressive management of the business, the postal service cannot overcome our systemic financial challenges without legislative reform and changes to our pricing system,” Megan Brennan, postmaster general, said during a presentation in November.

Joe Corbett, the chief financial officer, went into a bit more detail of what those challenges are.

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“We have a unique funding requirement of $5.8 billion that, to the best of our knowledge, no other commercial organization has,” he said.

Corbett was referring to the fact that in 2007, Congress made USPS responsible for pre-funding its retiree health care benefits. Lawmakers were concerned that if USPS didn’t begin saving now, it wouldn’t be able to afford health benefits for its retirees. That costs USPS about $5.8 billion per year. It is the only U.S. organization that functions under such a requirement.

“We also had a rollback this April which affected the second half of the year, reduced our revenue by $1 billion from what it otherwise would have been,” Corbett said.

In April, the Postal Regulatory Commission rolled back the exigent surcharge that had been in place since 2008. It reduced the price on most USPS products by an average 4.3 percent, including reducing the price of a stamp from 49 cents to 47 cents. USPS estimated at the time that this would cost the agency $2 billion per year.

After making other adjustments to ensure that no anomalies led to under- or over-reporting, Corbett determined that USPS’ net revenues in 2016 were $70.5 billion, a $1.6 billion increase over 2015. Without the rollback, he said it would have been a $2.6 billion increase.

“Most of the growth is in areas where we have the most control over our organization – that is in our package business and in our marketing mail where we compete with other advertisers,” Corbett said.

That includes a 15.8 percent increase in shipping and packaging thanks to e-commerce delivery. He said numerous other products reached record levels as well.

In fact, David Williams, chief operating officer for USPS, presented a rundown of exactly how much the numbers improved, breaking down percentages that showed that all service categories showed improvements.

“The bottom line is that under generally accepted accounting principles, and after accounting for the $5.8 billion retiree health benefit prepayment, we lost $5.6 billion in 2016,” Corbett said. “We’ll continue to face losses because of mandated costs such as an unaffordable retiree health benefits program that is not fully integrated with Medicare.”