Net losses at the crisis-hit US Postal Service more than doubled to US$4.5 billion between January and March 2020 and are set to get even worse for the rest of this year as the COVID-19 pandemic hits mail volumes, generates only a temporary e-commerce surge and drives up costs.
The pandemic did not have a major impact on the 2019/20 second quarter figures as it only really started to hit mail volumes in mid-March but its impact has intensified since then, according to the agency. USPS now expects its operating losses to escalate dramatically over the next 18 months, threatening its fundamental ability to operate.
"Although the pandemic did not have significant impact on our financial condition in our second quarter, we anticipate that our business will suffer potentially dire consequences for the remainder of the year, and we are already feeling those impacts during the last half of March,” declared Postmaster General and CEO Megan J. Brennan.
“At a time when America needs the Postal Service more than ever, the pandemic is starting to have a significant effect on our business with mail volumes plummeting as a result of the pandemic.”
Brennan, who will retire next month, continued: "We are grateful for the heroism and commitment of our 630,000 postal employees who continue to serve the American public during this pandemic, and we look forward to working with policymakers on ensuring the solvency of the Postal Service.”
She emphasized: "As Congress and the Administration take steps to support businesses and industries around the country, it is imperative that they also take action to shore up the finances of the Postal Service, and enable us to continue to fulfill our indispensable role during the pandemic, and to play an effective role in the nation’s economic recovery."
Package revenues up over 7% as Amazon switches back volumes
In the January – March quarter, the world’s biggest postal operator managed to increase revenues by 2% to $17.8 billion thanks to higher revenues from packages and first-class mail. But operating costs soared by 14%, largely due to higher pay, and the net loss multiplied to $4.5 billion from $2.1 billion in the first three months of last year.
On the revenue side, First-Class Mail revenue increased by 1.4% to $6.4 billion on a fractional 0.2% volume rise. However, this growth was due to one-time mailings associated with the 2020 U.S. Census, without which First-Class Mail revenue and volume would have each declined. Marketing Mail revenue dropped by 2.5% to $3.7 billion on a 3.4% volume decline.
Most positively, Shipping and Packages revenue increased by 7.1% to just over $5.8 billion following price increases at the start of the year and even though volumes rose by only 0.8% to 1.48 billion items during the three months.
“The volume increased due to a temporary surge in ecommerce in late March 2020 resulting from the COVID-19 pandemic, and revenue outpaced volume increases due to the January 2020 price increases associated with certain Competitive services,” USPS wrote in its quarterly report.
Discussing volume trends, it noted: “Certain major customers (a reference to Amazon) continue to divert volume from our network by in-sourcing the last-mile delivery into their own networks. These customers are also aggressively pricing their products and services in order to fill their networks and grow package density.
“However, as a result of the temporary surge in e-commerce growth driven by the COVID-19 pandemic, some of these customers increased their volume to our network during March 2020 due to their delivery capacity constraints.”
Downbeat outlook for package growth
Looking ahead, however, USPS played down hopes of a long-term increase in its package volumes or that package revenue growth could offset the declining mail business.
“In the near term the Postal Service anticipates that these trends will accelerate as the nation experiences a surge in e-commerce as a result of quarantines, shelter-in-place orders and travel and logistics restrictions in connection with the COVID-19 pandemic."
But the agency continued: “Although the future is uncertain, we believe that the nation’s increased use of e-commerce is likely to plateau in the short term as the effects of the pandemic begin to subside, followed by a longer-term regression of e-commerce caused by a weakened U.S. economy.”
On the overall financial outlook, Chief Financial Officer Joseph Corbett said: “We are unable to predict the duration of COVID-19 business closures and the duration of the recession we are currently experiencing; however, this situation will materially damage our financial condition.
“While we continue to conserve capital and reduce expenses in areas where volumes are declining, our ability to continue to serve the nation will require substantial funding from the federal government or other sources,” he underlined.
