USPS Losses Mount as Calls for Reorganization Grow

November 15, 2018


Fiscal year 2018 continued its nightmarish trend for the U.S. Postal Service (USPS) with losses climbing to $4 billion despite a ten percent increase in its shipping and packages business. For the reporting year ending September 30, operating revenue was $70.6 billion. However, its net loss mushroomed compared to its loss of $1.2 billion in 2017, impacted by rising pay and benefits and higher transport costs.

“The flawed business model imposed by law continues to be the root cause of our financial instability,” said Postmaster General Megan Brennan.

USPS’ self-described flawed business model has been a major talking point for president Trump who squarely blamed Amazon for taking advantage of the postal organization. However, according to the USPS, it notes in its annual filing that combined revenue from its three largest customers (excluding mail service providers), represented 8.3%, 7.6% and 5.8% of operating revenue respectively. “The growth in our Competitive service revenues over the past five years is largely attributable to these three customers. Each of these customers is building delivery capability that would enable them to divert volume away from us over time.”

It is believed these three customers are Amazon, Walmart and Target, respectively as further noted in USPS’ annual filing – “The primary competitors of our Shipping and Packages services are FedEx Corporation and United Parcel Service, Inc., as well as other national, regional and local delivery companies and crowdsourced carriers. We see additional competition coming from existing customers who are testing and in some cases implementing “last-mile” services. These companies include Amazon.com, Inc.; WalMart, Inc. and Target Corporation.”

By segment:

By volumes:

Clearly the USPS is struggling despite overall total revenue increasing for the fiscal year. The only segments to report positive revenue gains was its Shipping & Packages and International. In terms of volumes, Shipping & Packages was the only segment to report positive growth.

Last month, the USPS announced record increases in rates effective for 2019. Will it be enough to pull up the beleaguered organization? No. Quite simply, it needs a major overhaul in order to successfully compete an increasing number of competitors.

Indeed, in April of this year, President Trump issued an executive order to set up a task force to study the United States Postal Service and recommend reforms. The results of the task force were presented along with recommendations to Trump in August. However, it has not been made public yet but many analysts suspect that among the recommendations may be privatization.

Privatization is a sticky issue for politicians as well as others. A newly formed group, the Package Coalition, which counts Amazon, Pitney Bowes and NRF among its members, launched in July to push back on any efforts to privatize the Postal Service or target the package industry as the primary source for boosting revenue.

Lots of questions continue to surround the future of USPS as it prepares for what’s expected to be a record holiday season. For 2019, USPS’ approved rate increases will take effect on January 27 while FedEx’s 2019 rate increases goes into effect January 7. As of today, UPS has not announced their 2019 increases but regardless, shippers will be paying more for shipping in 2019, including from the USPS. But will simply raising rates help the USPS from its predicament?

Source: USPS Form 10-K

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USPS Losses Mount as Calls for Reorganization Grow

November 15, 2018


Fiscal year 2018 continued its nightmarish trend for the U.S. Postal Service (USPS) with losses climbing to $4 billion despite a ten percent increase in its shipping and packages business. For the reporting year ending September 30, operating revenue was $70.6 billion. However, its net loss mushroomed compared to its loss of $1.2 billion in 2017, impacted by rising pay and benefits and higher transport costs. “The flawed business model imposed by law continues to be the root cause of our financial instability,” said Postmaster General Megan Brennan. USPS’ self-described flawed business model has been a major talking point for president Trump who squarely blamed Amazon for taking advantage of the postal organization. However, according to the USPS, it notes in its annual filing that combined revenue from its three largest customers (excluding mail service providers), represented 8.3%, 7.6% and 5.8% of operating revenue respectively. “The growth in our Competitive service revenues over the past five years is largely attributable to these three customers. Each of these customers is building delivery capability that would enable them to divert volume away from us over time.” It is believed these three customers are Amazon, Walmart and Target, respectively as further noted in USPS’ annual filing – “The primary competitors of our Shipping and Packages services are FedEx Corporation and United Parcel Service, Inc., as well as other national, regional and local delivery companies and crowdsourced carriers. We see additional competition coming from existing customers who are testing and in some cases implementing “last-mile” services. These companies include Amazon.com, Inc.; WalMart, Inc. and Target Corporation.” By segment: By volumes: Clearly the USPS is struggling despite overall total revenue increasing for the fiscal year. The only segments to report positive revenue gains was its Shipping & Packages and International. In terms of volumes, Shipping & Packages was the only segment to report positive growth. Last month, the USPS announced record increases in rates effective for 2019. Will it be enough to pull up the beleaguered organization? No. Quite simply, it needs a major overhaul in order to successfully compete an increasing number of competitors. Indeed, in April of this year, President Trump issued an executive order to set up a task force to study the United States Postal Service and recommend reforms. The results of the task force were presented along with recommendations to Trump in August. However, it has not been made public yet but many analysts suspect that among the recommendations may be privatization. Privatization is a sticky issue for politicians as well as others. A newly formed group, the Package Coalition, which counts Amazon, Pitney Bowes and NRF among its members, launched in July to push back on any efforts to privatize the Postal Service or target the package industry as the primary source for boosting revenue. Lots of questions continue to surround the future of USPS as it prepares for what’s expected to be a record holiday season. For 2019, USPS’ approved rate increases will take effect on January 27 while FedEx’s 2019 rate increases goes into effect January 7. As of today, UPS has not announced their 2019 increases but regardless, shippers will be paying more for shipping in 2019, including from the USPS. But will simply raising rates help the USPS from its predicament? Source: USPS Form 10-K

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