Citing a continuing decline in first-class mail volume and a rise in package volume, the U.S. Postal Service (USPS) reported a loss of $1.3 billion in its fiscal second quarter ended in March. Total revenue rose by $235 million (1.4%) year over year.

The year-over-year quarterly loss more than doubled from $562 million in the second fiscal quarter of 2017. For the first half of the fiscal year, the USPS posted a net loss of $1.88 billion, compared with a profit of $877 million in the first half the prior year.

Revenue from first-class mail fell by $181 million while revenue from package delivery rose by $445 million. Package volume rose by 69 million pieces to 1.458 billion, and first-class mail volume fell by 521 million pieces to 14.7 billion.

Postmaster General Megan J. Brennan said:

Despite growth in our package business, our financial results reflect systemic trends in the marketplace and the effects of an inflexible, legislatively mandated business model that limits our ability to generate sufficient revenue and imposes costs upon us that we cannot afford. … With continued aggressive management and greater legal authority to respond to changes in our marketplace and to control our costs, the Postal Service can return to financial sustainability.

On a non-GAAP basis that the USPS calls “controllable loss” and excludes pension fund contributions, workers’ comp expense, and contributions to its retirees health benefits fund, the second quarter loss totaled $656 million, compared with controllable income of $12 million in the same period a year ago. The larger loss was driven by a $236 million increase in the amount the USPS contributes to its retirees health benefits fund and a $364 million increase in compensation expenses to support the “labor-intensive package business.”

Unrestricted cash and cash equivalents totaled $11.4 billion at the end of the quarter, up from $10.5 billion at the same time last year.

Between 2007 and the end of the 2017 fiscal year last September, the USPS has defaulted on nearly $41 billion in payments to the retiree health benefits fund and other unfunded liabilities: “The Postal Service did not make these payments in order to preserve liquidity and to ensure that its ability to fulfill its primary universal service mission was not placed at undue risk.”

As long as Congress controls the prices the USPS can charge customers and limits the Postal Service’s ability to control costs by, among other things, closing post offices and reducing the requirements for unfunded liabilities like pension costs and retirees health benefits, the USPS will continue to struggle and lose money.

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