April Results Show COVID Impact

As the economic impact of the COVID pandemic came into full force, the consequences for mail volume, and Postal Service revenue, were reflected in the agency’s April financial results. Overlaid on this was the burden of various prefunding obligations and the usual fluctuating valuation of the Postal Service’s workers’ compensation liability.

Volume and revenue

Starkly contrasting to March’s uptick in First-Class Mail (attributable to census mailings), volume and revenue for the class fell sharply in April, led by a plunge in single-piece (retail) First-Class Mail. Even more distressing was the precipitous falloff in Marketing Mail as retail and service businesses closed and advertisers pulled back campaigns. Overall, the volume of market-dominant mail dropped 29.4% in April (compared to April 2019) and 22.1% from March 2020.

By contrast, homebound shoppers turned to online retail sites, resulting in a surge in parcel volume, part of which flowed to the USPS. For the month, the volume of competitive products (comprised of various parcel categories), jumped nearly 35%.

The onset of stay-at-home orders saw a surge in parcel volume for the USPS.

However, greater parcel volume did not offset the much larger loss of market-dominant mail, resulting in total USPS volume in April falling to 8.65 billion pieces, over 27% less than last April and 40% less than volume in April 2010.

Mail volume for the month compared to SPLY and YTD:

• First-Class Mail: 4.12 bln pcs, -8.9%; 32.65 bln pcs, -3.0% YTD.
• Marketing Mail: 3.49 bln pcs, -45.0%; 40.86 bln pcs, -11.3% YTD.
• Periodicals: 342.1 mln pcs, -17.7%; 2.47 bln pcs, -11.0% YTD.
• Total Market Dom: 8.03 bln pcs, -29.4%; 76.51 bln pcs, -7.9% YTD.
• Total Competitive: 598.1 mln pcs, +34.9%; 3.50 bln pcs, +3.5% YTD.
• Total USPS: 8.650 bln pcs, -27.2%; 80.464 bln pcs, -7.5% YTD.

Revenue fell largely in tandem with volume, with First-Class Mail declining by over 8% and Marketing Mail sinking by 45.7%. In all, revenue from the market-dominant classes was 22.4% lower than the same period last year, and 20.1% lower than March.

As with volume, the sole bright spot for revenue resulted from sharply increased parcel volume; revenue from the competitive products was up 36.9% from SPLY. But again, the added income from parcels wasn’t enough to make up for losses from market-dominant mail, resulting in total monthly USPS revenue of $5.686 billion. (By contrast, April 2010 revenue was $5.66 billion, which would be $6.74 billion in 2020 dollars.)

Revenue results for the month compared to SPLY and YTD:

• First-Class Mail: $1.87 bln, -8.1%; $14.72 bln, -1.6% YTD.
• Marketing Mail: $0.75 bln, -45.7%; $8.93 bln, -9.9% YTD.
• Periodicals: $87.97 mln, -18.4%; $640.2 mln, -10.6% YTD.
• Total Market Dominant: $2.96 bln, -22.4%; $26.28 bln, -5.2% YTD.
• Total Competitive: $2.62 bln, +36.9%; $15.18 bln +9.2% YTD.
• Total USPS: $5.69 bln, -3.8%; $42.88 bln -0.5% YTD.

Reflecting the opposite trends and shifting proportions of market-dominant (primarily letter and flat) mail and competitive products (primarily parcel) mail, gross average revenue per piece grew from $0.554 per in piece March to $0.657 per piece in April.

Expenses and workhours

Variation in expenses was not as dramatic as the changes in volume and revenue, nor did costs drop as did revenue. Total controllable compensation and benefit costs ($4.766 billion) were still 3.4% over plan for the month and 2.9% higher than last April (and 0.1% under plan but 0.6% over SPLY for the year-to-date).

 A more detailed chart with USPS Preliminary Information (unaudited) for April 2020 is available in the June 8 Mailers Hub News

 Despite lower volume, compensation for mail processing jumped 5.8% and 5.1% for city delivery. Expenses for customer service and rural delivery increased also, by 4.0% and 2.1%, respectively. Though ratepayers may find these cost increases unusual in light of decreased volume, postal officials explain the higher labor costs as being driven by higher parcel volume.

Non-personnel expenses ($1.559 billion) were 4.1% higher than SPLY, and total expenses for the month ($6.891 billion) were 6.6% over plan and 10.1% higher than SPLY, and 5.4% over plan and 4.8% over SPLY for the YTD.

Further contributing to the red ink, required prefunding for pension and health costs also were higher, and the valuation of the workers’ comp liability swung adversely by $393 million, from a credit in April 2019 to a $215 million charge in April 2020.

Workhour usage was under plan for the month for city delivery functions but over plan for rural delivery, and below plan for the mail processing and customer service functions. All except rural delivery remain lower compared to SPLY.

Another unexpected figure was complement which, though down slightly from last April, was up from March, despite the month-over-month loss of volume. Most was the 2.3% increase was in non-career positions, which USPS officials explain was necessary to offset COVID-related absenteeism and provide additional workers to handle parcel volume.

However, labor contracts both restrict the proportion of non-career personnel and require that some be converted to career status if workhour thresholds are exceeded. As a result, any jump in the non-career complement has the potential to result in adding career workers at a time when plunging mail volume trends might urge the opposite.

• Total work hours: 0.6% under plan, and 3.4% under SPLY, for the month; 0.4% over plan, but 1.4% under SPLY for the YTD.
• Month’s end complement: 628,677 employees (496,280 career, 132,397 non-career) -1.46% compared to last April (637,979 employees: 497,848 career, 140,131 non-career), but 0.31% fewer career workers than a year ago.

The literal bottom line for April was a monthly loss of $1.201 billion, over three times what was planned and three-and-a-half times last April’s loss. Similarly, the loss for the year-to-date was twice what was planned and nearly twice the loss at the end of April 2019.

How the month’s trends will be reflected in the results for May remain to be seen, but odds are the impact of COVID will continue, in May and beyond. Whether monthly competitive products volume will continue to grow is another matter, as is whether market-dominant volume will recover to anything near pre-COVID levels.

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