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USPS limps away from FY 2020

Post Office posts $9 billion loss as declining mail volumes, higher costs offset the surge in package revenue

A rough cycle comes to an end. (Photo: USPS)

The U.S. Postal Service (USPS) reported Friday strong fiscal year 2020 increases in shipping and package volumes but said any lasting gains in the segment are unlikely to ever offset the top-line damage the COVID-19 pandemic has wreaked on demand for its first-class and marketing mail products.

In a reflection of the extraordinary events that have turned the package-delivery business upside down, USPS’ shipping and package revenue of $28.5 billion exceeded first-class mail revenue for the first full-year period in its history. 

USPS’ shipping and package revenue soared 28.3% year-over-year as the pandemic drove e-commerce demand, and the deliveries supporting it, to unprecedented heights. By contrast, first-class mail revenue fell by $600 million to $23.7 billion, while marketing mail revenue fell by a staggering $2.4 billion to $13.9 billion. Package volume grew 18.2% to 7.3 billion pieces. First-class mail volume fell by more than 2.3 billion pieces, while marketing mail volumes dove by more than 11.4 billion.

USPS posted a $9.1 billion net loss in its fiscal year, which runs Oct. 1 to the following Sept. 30. It lost $8.8 billion in FY 2019.

Louis DeJoy, just into his fifth full month as postmaster general, said in a statement Friday that the pandemic will have a long-lasting negative impact on USPS’ finances. DeJoy vowed to address the crisis through legislative and regulatory reform initiatives. Elections have consequences, however, and some may wonder how comfortable DeJoy, an avid Trump loyalist, would be working in a Biden administration.

Joseph Corbett, USPS’ chief financial officer, said in a statement that mail volumes are likely to downshift further, and warned that they may never return to pre-pandemic levels.

USPS’ so-called controllable losses totaled $3.8 billion, up $334 million from the year before. One major uncontrollable cost is the congressional mandate that it annually pre-fund retiree health benefits. Over the past 12 years, the annual cost of compliance has ranged between $1.2 billion and $5.5 billion, according to a May 2019 story in the National Association of Letter Carriers’ publication The Postal Record. The article estimated at the time that USPS had set aside $47.5 billion to meet those obligations.

Operating revenue rose a bit more than $2 billion to $73.1 billion, with the strong gains from the package segment neutralizing the drops in traditional mail delivery revenue. Total operating expenses rose to $82.1 billion from $79.9 billion. Transport expenses alone rose $630 million year-on-year as the massive downturn in international passenger flights deprived USPS of access to the lower-hold compartments that carry large volumes of mail at relatively cheap rates. USPS instead had to opt for higher-cost forms of expedited international transport such as air cargo charters.

Compensation and benefits costs rose $1.2 billion as the agency increased manpower to handle spikes in parcel volumes. Even in normal times, parcel-handling is more time and labor-intensive than mail processing, which is highly automated and very efficient. Few people envision a day when parcel volumes, no matter how robust the demand, will ever be as profitable as first-class mail.

USPS’ first-quarter narrative was no different than reported in many quarters that have preceded them. Mail volumes continued their secular decline, and USPS was pushing for new ways to fill its network with parcels amid moves by Inc. (NASDAQ:AMZN) and FedEx Corp. (NYSE:FDX) to shift much, if not all, of their last-mile delivery operations in house. 

The start of the second quarter triggered monumental upheaval. The COVID-19 pandemic took hold, changing the delivery world for all carriers, especially USPS, which saw domestic volumes spike almost vertically even as international demand declined due to the dearth of international belly lift.

COVID-19 ushered in a wholesale and immediate change in how Americans voted, pushing against USPS’ delivery network during, as the fates would have it, the most pivotal general election in generations. Almost immediately into his tenure, DeJoy found himself in political hot water after downsizing some of USPS’ processing and delivery apparatus a few months before Election Day. From an operations standpoint, the changes were insignificant. However, the political timing was terrible, and DeJoy was soon forced to rescind his order. 

The year was also marked by Congress’ seeming inability to convince the Trump administration that USPS, an essential business faced with rising pandemic-related costs, was deserving of appropriations from the $2.2 trillion Cares Act. Early in the pandemic, President Trump, who unsuccessfully demanded that USPS quadruple its parcel-delivery rates, initially warned he would not sign any legislation that contained financial relief for USPS. Trump’s idea faded away as the year progressed, and USPS received up to a $10 billion loan with strings attached by the U.S. Treasury. Congressional Democrats continue to seek billions of dollars of pandemic-related aid for USPS.

Over the summer, DeJoy told Congress that USPS, which processes 413 million pieces a day, could easily absorb the influx of mail-in ballots due to the pandemic. Ten days beyond Election Day, there have yet to be any substantiated complaints about USPS’ performance. Ironically, mail volumes rose at the back end of the fiscal year due to a temporary, and likely non-repeatable, surge in ballot deliveries. 

To complete probably the most consequential year in its history, USPS now girds for a frenzied peak shipping season with the virus surging to record levels virtually across the country.

Trump’s demand that USPS increase its parcel rates four-fold has been seen by many as an indirect attack on Amazon — founder Jeff Bezos also owns The Washington Post, which has covered Trump aggressively and has earned his enmity. According to several experts, a move of that magnitude would have cost USPS much of its remaining traffic from Amazon. It would have also been very costly to small merchants who depend heavily on USPS’ low-cost shipping model, especially in a world where much of the shipping has to be free or orders won’t be placed.

Mark Solomon

Formerly the Executive Editor at DC Velocity, Mark Solomon joined FreightWaves as Managing Editor of Freight Markets. Solomon began his journalistic career in 1982 at Traffic World magazine, ran his own public relations firm (Media Based Solutions) from 1994 to 2008, and has been at DC Velocity since then. Over the course of his career, Solomon has covered nearly the whole gamut of the transportation and logistics industry, including trucking, railroads, maritime, 3PLs, and regulatory issues. Solomon witnessed and narrated the rise of Amazon and XPO Logistics and the shift of the U.S. Postal Service from a mail-focused service to parcel, as well as the exponential, e-commerce-driven growth of warehouse square footage and omnichannel fulfillment.