The United States Postal Service (USPS) reported an adjusted loss of $459 million in the third quarter of 2022 due largely to rising inflation. This is compared to an adjusted loss of $41 million for the same quarter last year, an increase of 1,020%.
However, the USPS received a one time non-cash benefit of $59.6 billion thanks to the Postal Service Reform Act (PSRA) which was recently signed into law. Among other things, the new law removes the pre-funding requirement for retiree benefits.
According to USPS, with this one time financial benefit, the agency had net income of $59.7 billion for the third quarter in 2022 compared to a net loss of $3 billion for the same quarter last year which was “due almost exclusively to the non-cash impact of the PSRA.”
USPS said that the adjusted loss it reported “excludes the impact of the PSRA, retiree health benefits expense, non-cash workers’ compensation adjustments for the impacts of actuarial revaluation and discount rate changes, which are outside of management’s control, and amortization expenses for the Civil Service Retirement System (CSRS) and the Federal Employee Retirement System (FERS) unfunded liabilities.”
In other words, take away the one time benefit from the new law and the losses are really there. It will be interesting to see how the agency’s financials play out going forward under the new law.
According to Postmaster General and CEO Louis DeJoy, “The one-time, non-cash benefit we recorded due to the enactment of postal reform legislation was significant, but also distortive. The fact of the matter is that we have a long road and a lot of hard work ahead in our 10-year transformation to ensure the long-term financial sustainability of the Postal Service, but we are confident that we will achieve what we have set out to accomplish.”
So what drove the losses? According to USPS, inflation is mostly to blame.
“The enactment of the PSRA is a key component of restoring the Postal Service to financial stability,” said Chief Financial Officer Joseph Corbett, “but the one-time, non-cash impact this quarter of the statute is not reflective of our true financial condition. Net income for the quarter reflects the accounting impact of this legislation, and while we saw revenue growth of $257 million during the quarter, rising costs associated with inflationary pressures present significant challenges. We continue to strategically manage our business and aggressively control our expenses and kept them below the level of inflation thus far in fiscal year 2022.”
In particular, inflation impacted USPS operations in several areas, namely increased benefits expenses and fuel costs. Compensation and benefits expenses increased $198 million (1.6%) primarily due to wage increases in labor agreements tied to inflation, and in particular the impacts of cost of living adjustments. Highway transportation expenses increased $131 million (10.1%) primarily due to rising costs of diesel fuel. Other operating expenses increased $373 million (14.9%) as inflationary pressures have led to higher average fuel prices for delivery vehicles and an increase in rent and utilities.
2022 Inflation Continues to Drive Up Energy and Fuel Costs
According to the Bureau of Labor Statistics, rising 2022 inflation cooled somewhat in July, but the Consumer Price Index for All Urban Consumers (CPI-U) for all items was still up 8.5% over the last 12 months.
However, inflation is much higher in some categories, notably for gasoline and energy costs, which USPS cited as big factors in its financial woes. Over the last 12 months, gasoline prices are up 44% and fuel oil is up 75.6%.
The average cost of a gallon of gas fell in July, but this was largely due to the fact that Americans are driving less because of higher fuel prices. A recent AAA survey found that 64% of Americans have changed their driving habits since March and another 23% had made “major changes” because of pressure from inflation.