February 8, 2019

U.S. Postal Service reports $1.5 billion quarterly loss

U.S. Postal Service reports $1.5 billion quarterly loss

Agency blames high transportation and wage costs as consumers switch from letters to parcels.

By DC Velocity Staff

The U.S. Postal Service (USPS) rang up a net loss of $1.5 billion during the first quarter of its 2019 fiscal year, blaming rising wage and transportation costs as it continued to exchange slumping first class mail revenues for rising parcel volumes.

The USPS said its revenue of $19.7 billion was up 2.9 percent over the same quarter last year, but that increase failed to keep up with rising operating expenses, which jumped 7.9 percent to $21.2 billion for the quarter.

USPS' rising costs came from three main sources, including increases of: $657 million in compensation and benefits, $621 million in workers' compensation due to changes in interest rates, and $207 million in transportation costs ascribed to higher fuel costs and highway contract rate inflation, the service said.

The agency's fiscal first quarter runs from October 1 to December 31, a period that was marked in 2018 by a tight capacity trucking market that sparked rising transportation costs for many shippers. Some reports have shown that trucking capacity may begin to ease in 2019, but the USPS will continue to suffer from the rising costs of handling parcels instead of letters. In past quarterly earnings reports, the USPS has pointed to that transition as one of the main causes of its financial woes.

While USPS revenue rose slightly over its most recent period, the components of that revenue continue to change swiftly as U.S. consumers transition from buying postage stamps to hitting "send" on digital emails, and follow the red-hot e-commerce trend of ordering parcels for home delivery.

"We continued to drive growth in our package business and expanded use of the marketing mail channel during the quarter. Nevertheless, we face ongoing financial challenges," Postmaster General and CEO Megan J. Brennan said in a release. "We remain focused on aggressive management of the business, legislative reform, and pricing system reform, all of which are necessary to put the Postal Service on firm financial footing."

Handling packages costs the USPS more than processing letters, eating into its profit margins despite the rising volumes. Over its first quarter, USPS first-class mail revenue declined by $81 million, or 1.2 percent, compared to the same period last year, while marketing mail revenue increased by $218 million, or 4.9 percent, and shipping and packages revenue increased by $516 million, or 8.7 percent.

By volume, the USPS handled 428 million pieces of first-class mail, 1.0 billion pieces of marketing mail, and 93 million packages in the quarter, the service said.

"Overall volumes increased this quarter driven primarily by growth in marketing mail and our package business, which resulted in total revenue growth of $553 million," USPS Chief Financial Officer and Executive Vice President Joseph Corbett said in a release. "This growth was offset by increased work hours and related salaries and benefits, increases in transportation costs due to these higher volumes and the continued focus on meeting customers' needs."

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