As most of the mail industry knows by now, the USPS reported revenue of $69.6 billion for fiscal year 2017, which runs from October 1, 2016 to September 30, 2017. This is a decrease of $1.8 billion compared to the prior year and can primarily be attributed to accelerated declines in First-Class and Marketing Mail volumes.
In 2017, mail volumes declined by approximately five billion pieces (3.6%), while package volumes grew by 589 million pieces (11.4%). This trend is not surprising, as mail volumes have been declining for years while package volume is on the upswing. However, while this growth in package volume is indeed encouraging, it’s important to remember that it comes nowhere close to compensating for the decline in mail pieces; overall USPS volume has declined by 4.9 billion pieces.
During a Temporary Emergency Committee of the Board of Governors meeting on November 14 (the recording of which can be listened to here), Postmaster General Megan J. Brennan touched on this decline. “We recorded double digit growth in package revenue and volume [and expect] continued package growth in 2018. No other shipper delivers as many e-commerce packages to the home. However,” she emphasized, “this growth will not offset the continuing decline in mail business. This past fiscal year mail declined by approximately five billion pieces. Mail produces approximately 70% of our revenues. The past year’s results reflect the challenges in that segment of our business. We are seeing increased pressure from other marketing and digital communication channels. We compete for every dollar every day. And marketers have a growing array of options to engage with customers. That’s why we are continually improving the experience for the sender and receiver and innovating to enhance our portfolio with products.”
Much of this innovation, of course, centers on Informed Delivery, which, as most mailers know by now, is a free service from the USPS that allows recipients to view a digital preview of the mail that is waiting for them at home. This can be especially helpful for people who are waiting for important documents, or for those who live with roommates and want to make sure that the mail doesn’t inadvertently get put aside.
The Need for Legislative Reform
But, as PMG Brennan noted, all the innovation in the world isn’t enough to solve the USPS’s financial problems if reform is not introduced. “Simply put, absent legislative and regulatory change, we cannot generate enough revenue or cut enough costs to pay all our bills,” she stated. “Our financial problems are serious, but they are solvable.”
She listed some concrete steps the USPS is taking to do its part in solving these financial problems. In addition to continuing to compete effectively for revenues and aggressively managing the business, it will continue to work with stakeholders and Congress to pass legislative reform. “We support HR 756, the Postal Reform Act of 2017. This bipartisan bill was passed with the support of postal leadership, the postal union, management associations, and a broad segment of the mailing industry. [This act] addresses our unsustainable mandates and generates 29 billion in cost savings and revenue over the next five years. [It has a] positive CBO score of 6 billion dollars,” Brennan shared.
Third, the USPS is encouraging the Postal Regulatory Commission (PRC) to establish a more rational pricing system as part of its current 10 year review. The USPS requires a pricing system for its mail products that better reflects the needs of the organization and enables it to generate sufficient revenue to pay the bills.
“The American public depends a financially stable USPS, capable of evolving and meeting changing needs,” Brennan stated before introducing Joesph Corbett, Chief Financial Officer and Executive Vice President of the USPS.
He dove a little deeper into the figures PMG Brennan shared, emphasizing that this decline in revenue will never be able to be fixed if sweeping changes aren’t made. “In 2017, we reported a loss before noncash workers compensation of 4.9 billion dollars, and in 2018 we expect that number to be 5.2 billion dollars,” he explained. “We will continue to innovate and drive efficiency, but our model is broken. We are unable to generate enough revenue to cover our costs. We are a network-centric organization with high fixed costs, and many of the more significant costs are imposed by law and are growing. We have a universal service obligation to deliver to over 155 million delivery points six days a week, and we add approximately one million delivery points and related costs to our infrastructure every year. We are prohibited by law from offering new products and services beyond a very narrow range, and for existing products and services, we operate a price cap environment where our prices for approximately 70% of our annual revenue are capped at the level of CPI increases in any given year. So prices are essentially flat, in real terms.”
In addition to this, not only did First-Class mail volumes continue to decline as they had been doing in years past, but for the first time in around four years, the relatively stable volumes of Marketing Mail declined, as well.
It's not surprising, then, that the USPS had to default on approximately 6.9 billion dollars in payments to prefund pension and healthcare benefits for postal retirees; this payment was due to the federal government on September 30. “Making these payments in full or part would have left us with insufficient cash on hand to cover operating costs, have adequate liquidity, and make necessary capital investments,” Corbett explained.
While these numbers are indeed cause for concern, Corbett mirrored the optimism that PMG Brennan shared, emphasizing that the USPS will continue to do its part with regards to innovating their products and cutting costs as much as possible. Let’s hope that legislative reform meets the Postal Service halfway.