The US Postal Service is outgrowing the country’s parcel market with a double-digit revenue increase driven by e-commerce volumes and cut its overall net loss for the April – June 2015 third quarter substantially to $586 million.
The US postal operator achieved stable Q3 revenues of $16.5 billion. Mail revenues dropped to just under $11 billion as price increases for some mail products on May 31 offset declining volumes, with First-Class Mail and Standard Mail down 2.6% and 2.1%, respectively.
But shipping and package revenue increased by a strong 10.6% to $3.6 billion while volumes soared by 13.4% to 1.1 billion pieces. The parcels business, which now accounts for nearly 22% of USPS revenues, grew “as a result of our successful efforts to compete in ground shipping services and the last mile e-commerce fulfilment markets, which include Sunday delivery growth”, USPS said in its Q3 report.
The ‘day-definite’ Priority Mail service grew by 8.3% to revenues of $1.8 billion on higher volumes, while the slower Parcel Services products (Parcel Select/Standard Parcels) grew rapidly by 26% to revenues of $827 million thanks to a strong rise in e-commerce volumes, the Q3 report showed.
"The continued growth of our shipping and package services is a direct result of the Postal Service’s continued efforts to offer consumers more choice, excellent value and reliable service in a growing and competitive marketplace," said Postmaster General and Chief Executive Officer Megan Brennan. "We are investing in our network and continually enhancing our services to best compete for America’s shipping and package delivery business.”
On the cost side, USPS saw its controllable operating expenses increase by 1.6% to $16.7 billion. This was the result of higher compensation costs primarily attributable to contractually-obligated salary escalations, increased benefits expenses and additional work hours associated with growth in the more labour-intensive shipping and package business.
As a result, the controllable loss in the third quarter was $197 million, compared to a controllable income of $10 million for the same period last year. Controllable income or loss is defined as net income excluding retiree health benefits prefunding expense and expenses for interest rate and other non-cash workers’ compensation expense, which are factors largely outside of management’s control, USPS explained.
The overall $1.4 billion reduction in the net loss to $586 million from $2 billion for the same period last year was essentially due to a saving of about the same size in workers’ compensation, referring to payments such as retiree health benefits prefunding which USPS is currently not making due to its fragile financial situation.
“The combination of growing package revenues and improved productivity gains were not sufficient to offset mail volume declines and inflationary pressure, largely due to contractual increases in operating expenses, including wages, benefits and transportation." said Chief Financial Officer and Executive Vice President Joseph Corbett. "This underscores the need for a combination of continued sales growth, productivity gains and legislation to ensure the Postal Service can return to financial health and meet its public service obligations."
USPS also highlighted the Postal Regulatory Commission's recent decision to allow it to collect an additional $1.4 billion in revenue from the exigent surcharge that has been in effect since January 2014. This extension raises the amount that can be recovered through the exigent surcharge to $4.6 billion in revenue from the $3.2 billion originally authorized, allowing the Postal Service to continue collecting the surcharge until sometime in the middle of its 2016 fiscal year.
