USPS Reports Small Net Loss for PQII

In its Form 10-Q released May 7, the Postal Service reported an $82 million net loss for the second quarter of its 2021 fiscal year (January-March).  Adding its $318 million net income for PQI, the USPS is $236 million in the black halfway through FY 2021, nearly $3 billion better than it had planned and over $5 billion ahead of where it was in the middle of FY 2020.

As data provided by the Postal Service clearly showed, package revenue has made the difference between modest income and major loss throughout the fiscal year.

Though Shipping and Packages represents just under 6% of total USPS volume so far in FY 2021, it’s supplied nearly 45% of total Postal Service revenue over the period, up from 4.5% and 33.4%, respectively, in the first half of FY 2020.

While package volume and revenue are valuable, and are a cornerstone of USPS plans for improved financial stability (as evidenced in its 10-year Plan released March 23), they’re also subject to diversion by competitors using lower prices and faster service to draw away Postal Service customers.  In addition, as package volume increases overall, the higher density in some areas has enabled other carriers, such as UPS, and shippers, like Amazon, to find it less expensive to deliver themselves volume that previously had been given to the USPS for last-mile handling and delivery.

Despite the leading role the agency’s Plan has given to packages, a comment deep in the PQ II Form 10-Q acknowledged the reality that package volume can prove fickle:

“While we benefited significantly from the growth in Shipping and Packages, this revenue category is subject to intense competition from both national and local competitors.  Although we believe consumer behavior has evolved during the pandemic as the nation has increasingly relied on the safety and convenience of ecommerce, we still expect this surge to partially abate as the economy continues to open, at which time, we expect certain major customers will return to diverting their volume from our network and aggressively pricing their products and service in order to fill their networks and grow package density.  This diversion would decrease our revenue and volumes from these customers, as well as increase competition in the overall market.”

Expenses

Meanwhile, operating expenses continue to climb; personnel costs (salaries and benefits and retiree pension and health benefits) represent 74.9% of total expenses in FY 2021 YTD.

The USPS repeated a familiar claim that it continues “to aggressively manage operating expenses under management’s control,” but some of its measures regarding compensation, workhours, and complement might need strengthening:

“Overall, our compensation and benefits expenses increased 4.4% and 5.3% for the three and six months ended March 31, 2021, respectively, compared to the same periods last year, driven by increased work hours, contractual wage increases, and increased paid leave hours.  Increased paid leave hours included regular sick leave [and] newly negotiated sick leave provided to our bargaining-unit employees ... 

Concurrently, as traditional mail volume continues to ebb and despite the uncertainty of package volume, the agency is committing to more career employees, rather than seeking a more flexible, non-career workforce, to handle the “surge” in package volume and compensate for pandemic-related absenteeism.

“The number of career employees at March 31, 2021 was approximately 502,000, an increase of nearly 6,000 employees, or 1.2%, compared to the same date a year ago.  The increase is the result of more conversions from non-career to career status than departures through normal attrition.  The number of non-career employees at March 31, 2021, was approximately 142,000, an increase of nearly 12,500 employees, or 9.7%, compared to the same date a year ago, despite the higher conversions of noncareer to career status.

The USPS reported that:

“In order to reduce our career complement to better match workload and reduce costs, we received Voluntary Early Retirement Authority from OPM, allowing us to offer early retirement to eligible employees.”

However, the early retirement offer was directed as non-bargaining personnel, such as supervisors, postmasters, and administrative staff, not craft employees.

Not surprising was the Postal Service’s coordination of comments about financial performance with others about the 10-year Plan that, the agency clearly asserts, is the singular solution to its challenges:

“We can accomplish these goals [in the Plan] with legislative and regulatory changes, effective use of newly acquired and existing pricing authorities, operating more precisely and efficiently across our enterprise, and by driving revenue growth through innovative customer solutions.

“However, we cannot delay implementation of core elements without impairing our ability to meet our financial targets.  Our plan’s strategies for revenue growth, cost savings and investment, combined with legislative and administrative actions, will enable us to operate in a financially self-sustaining manner while fulfilling our universal service mission. ...

“While our recently published ten-year plan provides our vision and a framework for achieving service excellence and financial sustainability, absent legislative and regulatory change, we project continuing annual net losses in the future.

Forecasts

Among the more contended elements of the Postal Service’s 10-year Plan are the estimates for losses over the period and for package volume growth.

Accordingly, many observers have questioned – even before the PQ II figures were published officially – why the Postal Service believes a planned mid-year rate increase is essential if its financial circumstances are so much better than forecast.  To some outside the USPS, being $3 billion ahead of plan would seem to warrant revising projected losses.  The reply to such suggestions is essentially that the agency remains convinced of its forecast for $160 billion in losses over the next decade and, therefore, it needs to get additional revenue while it can.  Using the additional pricing authority it was allowed by a Postal Regulatory Commission decision last November 30 remains an irresistible fixation for the USPS.

At the same time, the Postal Service seems to be doubling down on its expectations for package business, recently announcing revisions to its processing network, leases for 45 annexes, and the purchase of 138 parcel sorting machines to accommodate the anticipated volume.  Ironically, but without altering the forecast in its Plan, the agency also warned of competitive risks to its package business, as noted above.

Responses to questions on these matters – especially from the Postmaster General – indicate no interest in revising the Plan’s estimates.  This position was reflected in the Postal Service’s press release announcing the PQ II results.  In a scripted quote, the USPS CFO stated “The financial results for the quarter and the ongoing trend of declining mail volume and increasing package volume highlights why our Delivering for America 10-year plan needs to be fully implemented.”

 

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