Pandemic peak in e-commerce flooded USPS with parcels in third quarter

The U.S. Postal Service (USPS) may have named a new postmaster general, but the troubled agency couldn’t change the color of the red ink in its accounting books, as the service rang up yet another multi-billion dollar loss while complaining of a “broken business model” and an “impending liquidity crisis.”

The first earnings report issued under the administration of Postmaster General Louis DeJoy has produced similar results as other recent quarters, as USPS cited spiraling costs generated by the Covid-19 pandemic for creating a $2.2 billion net loss for its most recent quarter, down slightly from the $2.3 billion it lost for the same quarter last year.

In fairness to DeJoy, he did not take the reins of the agency until June 15, just two weeks before the end of the agency’s fiscal third quarter, which ran from April 1 through June 30. But while DeJoy’s policies have not affected the current earnings period, he laid the foundation today for future change by announcing a modified organizational structure for the entire agency. “This organizational change will capture operating efficiencies by providing clarity and economies of scale that will allow us to reduce our cost base and capture new revenue,” DeJoy said.

As part of that plan, he called for a new wave of capital investments such as the purchase of new delivery vehicles. At the same time, he signaled a plan to cut spending by implementing a management hiring freeze and by requesting authority to seek future “voluntary early retirement” for non-union workers.

However, the financial and performance impacts of such changes won’t be visible for many months to come. And in the meantime, the service described the current state of its affairs. Pointing to the pandemic, USPS said that revenue from mail services, its largest sales category, had continued to significantly decline during its financial third quarter.

At the same time that its profitable mail revenues dropped, the service saw a surge in workhour and operating expenses, due to a spike in shipping and package volumes caused by escalating e-commerce activity while many Americans have been restricted by quarantines, stay-at-home orders, and travel and logistics restrictions. In addition to increased labor costs to support that parcel volume increase, the USPS also reported a rise in transportation expenses due to pandemic-induced capacity shortages and a rise in expenses needed for supplies and services, such as personal protective equipment (PPE) and paid sick leave.

Overall, the service reported total revenue of $17.6 billion for the quarter, an increase of 3.2% over the same period last year. However, total operating expenses rose nearly as fast, reaching $19.8 billion for an increase of 2.5%.

While the impact on its bottom line was much the same as other recent quarters, the coronavirus crisis caused far wider swings than usual in USPS’ various departments. A migration from paper letters to digital e-mail has been occurring for years, but the trend was exacerbated in this period as Marketing Mail revenue declined by 37.2% and First-Class Mail revenue decreased by 6.4%, both compared to the same quarter last year. At the same time, Shipping and Packages revenue increased by 53.6%, an enormous leap forward that the Postal Service anticipates will continue throughout the pandemic.

That change is not good news for USPS’ accountants, who said the service “does not expect its package revenue growth over the medium to long term to make up for its losses in mail service revenue caused by Covid-19.”

“The strong growth of our package volume in the third quarter was encouraging, but there is great uncertainty about whether that growth will be sustainable,” USPS Chief Financial Officer Joseph Corbett said in a release. “At the same time, First-Class Mail and Marketing Mail have seen deep volume declines associated with the pandemic, and that lost volume may never return, as was the case following the Great Recession of 2007-2009. We cannot let the recent growth of our package business mask our underlying business model problems, and we are redoubling our efforts to develop a plan to ensure our viability to provide universal service to all of America.”