The sinkhole called the U.S. Postal Service (USPS) lost another $1.3 billion in the first quarter. Not only is the operation being overwhelmed by competition from United Parcel Service Inc. (NYSE: UPS) and FedEx Corp. (NYSE: FDX), but the rise of email and texting continues to make much of what the USPS does irrelevant. However, all those problems have existed for years. As they continue into the decades ahead, the USPS needs to begin cutting costs aggressively now.
The U.S. Postal Service ended the second quarter of fiscal 2015 (Jan. 1, 2015 – March 31, 2015) with an operating revenue increase of $223 million, or 1.3 percent, over the same period last year, and a net loss of $1.5 billion. The increase in operating revenue was driven by a 14.4 percent growth in shipping and package volume. The net loss for the quarter was $1.5 billion compared to a net loss of $1.9 billion for the same period last year. Excluding a retiree health benefit prefunding expense, the net losses would have been $44 million and $447 million, respectively, for the quarters ended 2015 and 2014.
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“Health benefit prefunding expenses” are regularly given for the USPS’s problems, but these do not entirely explain the ongoing shortfall. However, management has tried to offset this huge expense, without much progress:
“We’re pleased with the increase in our controllable net income compared to the same period last year, which demonstrates that our cost containment and revenue strategies are delivering results,” said Postmaster General and Chief Executive Officer Megan Brennan. “We also took significant steps during the quarter to improve our long-term operating model, which will help drive greater long-term efficiencies throughout our network.”
The USPS’s description of its own operations speaks volumes. It has 31,662 Postal Service-managed retail offices. In addition, its operations include 486,822 career employees and 130,432 non-career employees. Its payroll and benefits payments every two weeks are $1.8 billion.
The future of the USPS is a political football. No member of Congress wants to face the closure of a large number of offices in his or her district. It is assumed that if delivery were cut to four or five days, most Americans would object. But, daily mail delivery is not as important as it was just two decades ago.
The solutions to the USPS’s problems are the same as they were two decades ago — layoffs and office shuttering.
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