The U.S. Postal Service’s package business spiked by more than 10 percent in the first three months of the year, as the rise in online shopping drives increases in the struggling agency’s revenues.
The USPS outlined several successes in its most recent quarterly report, including a $223 million increase in revenue over the first three months of 2014 and a $160 million decline in expenses.
{mosads}But the report also illustrated the obstacles facing the mail agency these days. The USPS racked up a $1.5 billion net loss in the most recent quarter, driven by a congressionally mandated prepayment for future retiree healthcare that the agency hasn’t paid in years.
“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,” Megan Brennan, who took over as postmaster general in February, said in a statement.
Brennan and other top postal officials have tried to strike a balanced tone in recent months, saying they’re cautiously optimistic about the spike in business driven by packages, while also insisting the agency faces plenty of long-term challenges.
The postmaster general said Friday that the $313 million the agency earned in controllable income was the best measure of its performance the first part of the year, and noted it came during a “unusually harsh winter weather period.”
But the agency also faces a long-term deficit of roughly $90 billion, which Joseph Corbett, its chief financial officer, said would take “literally decades of profitability” to wipe out.
The Postal Service also reported having just 22 days of operating cash in reserve at the end of March, far less than it says it needs. Plus, the decline in expenses in the first three months also came largely from a drop in workers’ compensation expenses, an issue largely out of the USPS’s control.
Postal brass has called on lawmakers to give the agency more power to grow revenue and cut expenses, but there’s little momentum for legislation on Capitol Hill. But they also insist that relying almost entirely on getting rid of the roughly $5.5 billion healthcare payment isn’t enough to firm up the agency’s finances, as some unions and Democratic lawmakers have suggested.
“While we’re pleased to see a small increase in controllable income, to improve our margins, we’ll need to make investments in our network infrastructure and delivery vehicles,” said Corbett.
Fredric Rolando, the president of the National Association of Letter Carriers, echoed postal officials in praising the agency’s most recent performance, while showing none of the same long-term concerns.
“The quarter’s $313 million operating profit puts black ink for the first half of the year above $1.4 billion – surpassing all of last year’s operating profit,” Rolando said.
“This three-year trend in operating profitability makes clear the need to strengthen – not degrade – the now-profitable networks,” he added.
The agency’s most recent report underscored just how much the USPS is shifting from delivering letters and cards to bigger packages.
First-class mail volume declined by just over 2 percent in the first three months of the year, while the class of mail featuring advertisements and circulars fell around 1 percent.
The 10.4 percent in the USPS’s packaging revenue came from an almost 15 percent increase in shipping volume. The USPS has intensified its efforts on packages, delivering seven days a week in some markets.
But agency officials have also made it clear that having shipping become a driver of the agency’s business comes with its own challenges. The Postal Service says it must make $3 in packaging revenue to replace just $1 in profit from first-class mail.
The Postal Service is also in the opening stages of revamping its vehicle fleet, as the agency seeks vehicles better designed for delivering packages.
This story was updated at 1:46 p.m.