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Coronavirus Weighs on Postal Service as it Reports Another Quarterly Loss

The coronavirus pandemic continues to weigh heavily on the Postal Service, a fact reflected in its FY 2020 third quarter financial results.

The Postal Service reported its third quarter financial results for FY 2020 in which it posted a net loss of $2.2 billion on total revenue of $17.6 billion.

However, the total revenue was 3.2% higher than the same time period last year, thanks largely to a sharp increase in demand for delivering packages to customers shopping online.

By its own admission, the Postal Service said that it suffers from a “broken business model” and that the $10 billion recently made available for the agency to borrow under the CARES Act only temporarily delays the inevitable. “It merely postpones the impending liquidity crisis and the borrowings must be repaid in a period where cash shortages are forecasted,” read the USPS press release on the latest financial results.

“Significant declines in our mail volumes as the result of the pandemic were largely offset by corresponding growth in our package business, but the reality remains that the Postal Service is in a financially unsustainable position absent significant fundamental change,” said Postmaster General and Chief Executive Officer Louis DeJoy. “As we work on a plan to ensure our future, we will continue to focus on efficiency and revenue growth opportunities while delivering vital services for the country, and our dedicated employees on the front line continue to provide trusted, safe and secure service. Despite our very significant challenges, I remain optimistic about the future of the Postal Service, but we need to get moving to effect change immediately.”

Despite some of the doom and gloom in its press release, the news on its latest earnings was not all bad.

The Postal Service saw a significant increase in revenue in its Shipping and Packages operation thanks to the e-commerce boom associated with people shopping online while staying at home as they hide out from the COVID-19 coronavirus. The Postal Service said that revenue in this division increased by $2.9 billion, or 53.6%, on a volume increase of 708 million pieces, or 49.9%, compared to the same quarter last year.

Growth of this magnitude is not likely to continue, however. The Postal Service cautioned that this demand will gradually decline as the economy reopens and that it will not be enough to offset its other losses over the long term brought on by the coronavirus.

The explosion in demand for shipping drove labor costs higher as well. The Postal Service said that employee compensation and benefits expenses increased by $632 million, or 5.5%, primarily due to package growth, contractual wage increases and an increase in paid leave.

The agency’s costs for retiree benefits went up sharply also. Retiree health and retirement benefits expenses increased by $172 million, or 19.7%, and $233 million, or 15.8%, respectively, which the Postal Service said was “driven by revised actuarial assumptions outside of management’s control.”

“The strong growth of our package volume in the third quarter was encouraging, but there is great uncertainty about whether that growth will be sustainable,” said Chief Financial Officer Joseph Corbett. “At the same time, First-Class Mail and Marketing Mail have seen deep volume declines associated with the pandemic, and that lost volume may never return, as was the case following the Great Recession of 2007-2009. We cannot let the recent growth of our package business mask our underlying business model problems, and we are redoubling our efforts to develop a plan to ensure our viability to provide universal service to all of America.”

Lawmakers in Congress have been calling for additional “strong support” of the Postal Service, whose already ailing finances have been greatly exacerbated by the pandemic, in ongoing debates about passing additional coronavirus spending legislation. A July 31 letter to Congressional leaders from a large group of lawmakers urged “strong support for the United States Postal Service (USPS) in any final relief legislation” and also said that “Congress must ensure that USPS’ access to CARES Act borrowing authority is not impeded.”

However, in a seemingly contradictory fashion, some of the same lawmakers sent another letter to Postmaster General Louis DeJoy calling for rumored “operational changes” to be barred from taking effect that are reportedly designed to cut costs for an organization with enormous financial struggles. The lawmakers believe, however, that these changes would prove even worse for the Postal Service in the long run. They wrote in their letter that the proposed changes, if they were allowed to go through, “will erode confidence in the Postal Service and drive customers away, resulting in even worse financial conditions in the future.”

About the Author

Ian Smith is one of the co-founders of FedSmith.com. He enjoys writing about current topics that affect the federal workforce.