USPS faces double-edged sword as it posts strong fiscal third-quarter gains in package revenue

The U.S. Postal Service must generate $2.50 in shipping and package revenue for every $1 it loses in first-class mail business because the costs of transporting and delivering packages are significantly higher than delivering letters, USPS said today in releasing its fiscal third-quarter and nine-month results.

USPS said its systemwide cost challenges are compounded by an increase in the delivery points where postal carriers are required to stop, and by the continued and irreversible declines in first-class mail volumes, its most profitable segment. In 2014, USPS delivered, on average, 3.8 pieces to each delivery point per day, a 30.9-percent decline from 2007 levels.

The relatively high cost of delivering parcels puts the quasigovernmental agency in a cost hole of sorts, because shipping and package volumes and revenues are on the rise. In its fiscal third quarter ending June 30, shipping and packages volume rose 13.4 percent from the year-earlier period, to 1.07 billion pieces. Revenue rose 10.6 percent, to $11.3 billion.

For the first nine months of its fiscal year ending June 30, USPS moved 3.4 billion pieces, up 14 percent from 2.99 billion pieces in the year-earlier period. Revenue rose about 11 percent to $11.37 billion. The period included the peak holiday shipping season, during which time USPS broke package delivery records.

Priority Mail, USPS' two- to three-day delivery product, accounted for more than half of the shipping and packages unit's quarterly and nine-month revenue, at $1.82 billion and $5.9 billion, respectively. It accounted for about 20 percent of the volumes during both reporting periods. The unit's parcel traffic, which includes its "Parcel Select" product, where it handles last-mile deliveries to residences for parcel carriers and parcel consolidators, accounted for about 40 percent of the unit's volumes over both periods.

In the third quarter, USPS reported operating revenue of $16.5 billion, virtually unchanged from the year-earlier period. It posted a net loss of $586 million, a drop of $1.4 billion from the same period last year. First-class and standard mail, USPS' two bulwarks, reported volume declines of 2.6 and 2.1 percent, respectively.

Operating revenue for the nine-month period was $52.2 billion, a 2-percent increase over the year-earlier period. The revenue increase was primarily due to the increase in shipping and packages volume, USPS said. Net losses were $2.8 billion, a $1.4-billion decline from year-earlier levels.

The decline in net losses for the fiscal third-quarter and nine-month period was attributed to more favorable interest-rate changes associated with workers' compensation expenses, USPS said. Backing out those trends, operating expenses actually increased by $256 million due to higher compensation and benefits costs, and additional work hours generally attributed to the labor-intensive package business, according to the agency.