may 12, 2021
The official plan of the Postal Service projected a loss of $3.2 billion for the six months ending March 31, the first half of Fiscal Year 2021. (Last year, USPS lost $5.3 billion in the same six months.) The USPS projects in its ten-year plan a loss for FY21 of $9.7 billion. On May 7, the postal agency reported an actual loss of only $235 million for the first six months of FY21.
To be consistent with its “Delivering for America” plan projection for FY21, the Postal Service would have to lose $1.6 billion per month for the second half of the year. Of course, nothing close to that is going to happen.
[USPS results are often made murky by very large adjustments to workers’ compensation costs. These costs are based on projections of future obligations to injured employees. As interest rates and inflation projections bounce around, USPS adjusts the “discount rate” it uses to bring the stream of future obligations to a present value. For years, the agency has emphasized actual results including workers’ comp adjustments if they showed a larger loss. This time, in their press release they emphasized the losses without the workers’ comp adjustments: “Adjusted loss of $1.7 billion for the quarter compared to an adjusted loss of $1.9 billion a year earlier (excludes non-cash workers’ compensation adjustments).”]
USPS also reported in its March 31 10-Q that it was sitting on $25 billion in cash, which we believe is a record.
The main reason USPS is doing so well is package revenue. Shipping and packages contributed $17.2 billion of the $40.4 billion in operating revenues booked in the first half of the year. That’s 43 percent of USPS operating revenue, compared to $12.4 billion or 33 percent in the same six months last year.
In the USPS ten-year plan, both the base case and the after-plan forecasts have competitive package revenue exceeding monopoly mail revenue in FY 2027 and beyond.
Failure to take into account package revenue is a critical flaw that the Alliance and its mailer allies pointed out to the Postal Regulatory Commission in its mail density formula, that rewards USPS with higher rates for lower mail volume. On July 2, 2020, we filed a request that the PRC take into account new developments, and rethink its density reward for lower mail volume:
The density proposal is based on the notion that declining mail volume, the universal service obligation, and the CPI cap combine to create “a financial dilemma unique to the Postal Service” – one “which worsens its financial position.” See Order No. 5337 at 70. That supposition is stale. We now have two months of COVID-era data reflecting Postal Service expenses, volumes, and revenues. Those data reveal that the sky above the Postal Service’s head is not falling, as the operator would have the Commission and Congress believe: massive spikes in highly profitable package volume are offsetting volume declines in market-dominant mail.
Now, with a year’s worth of actual data, the truth has been confirmed: looking at mail in isolation is the wrong way to evaluate the future of USPS. Indeed, the USPS Delivering for America Plan delivers a major shift in focus for the agency, investing heavily in growth of competitive packages while extracting excessive mounts of private sector cash from captive mailers. The harvesting of money from mailers is aided and abetted by the regulator that insists on ignoring the growth of package revenue as it justifies massive rate hikes on monopoly mail.
The Postal Service is moving out on its shift from mail to packages with its April 27 announcement of specific actions:
USPS expense management in the first six months of FY21 doesn’t bode well. $30 billion of the $40 billion total operating expenses were personnel costs, a mind-boggling 75 percent.
Even as it shifts to the more seasonal package business, seemingly calling for more flexibility, USPS is already carrying out Postmaster General DeJoy’s promise to convert more part-time flexible positions to career jobs. The agency’s report states: “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.”