Postal Updates

By Bill McAllister, Washington Correspondent

USPS revenues from package mail continue to grow, along with costs

August 16, 2016 12:05 PM

  • The third quarter financial report from the United States Postal Service reveals that revenue growth from package mail remained strong. The report also states an obvious fact: the costs of delivering packages are “substantially higher” than transporting letters.

By Bill McAllister, Washington Correspondent

Of all the numbers in the recent third quarter report from the United States Postal Service, there was one number that seems to sum up the Postal Service’s continuing financial woes.

That number is 260 percent.

That’s how much package revenues would have had to increase in fiscal 2015 to make up for the lost first-class mail revenues that year.

Given that package revenues have been one bright spot in the otherwise gloomy numbers coming out of USPS headquarters at L’Enfant Plaza in Washington, D.C., the 260 percent figure is a sobering statistic.

The financial report noted that while the USPS continued to experience strong growth in package mail revenue in the quarter ended June 30, “it represented only 24 percent of our revenues” compared to first-class mail, which produced 37 percent of the Postal Service’s revenues despite declines in first-class mail volumes.

The report also states an obvious fact: the costs of delivering packages are “substantially higher” than transporting letters.

And the entire USPS network of processing plants was created to handle letters and relatively few packages.

While the USPS remains committed to growing its package business, the latest financial report makes clear that the package growth carries a price.

“An increase in labor hours, used to support higher package volumes,” is one of the factors driving up the Postal Service’s costs, the report says.

Comments by senior postal officials and a recent paper from the Postal Service’s Office of Inspector General make clear that the Postal Service believes its future is wedded to packages.

“Because it visits nearly every address in the country 6 days a week, the Postal Service has been the dominant last-mile delivery provider,” said the inspector general in an Aug. 15 blog posting on “Logistics 2.0 - An Ongoing Revolution.”

“No competitor can deliver small, low-revenue packages at such a low cost,” the inspector general says.

But it also notes that “competition for last-mile delivery is intensifying in urban areas, as nimble crowdsourced delivery companies and regional carriers enter the market.”

“The Postal Service could find itself relegated to serving rural and suburban areas that are less dense and more costly,” the inspector general warns.

What seems clear is that Postmaster General Megan Brennan is a believer in a package future for the USPS.

Her plan for a new generation of delivery trucks is largely being driven by a demand to have letter carriers take more parcels to the homes along their routes.

Brennan is hoping that the USPS can move beyond delivering Amazon packages on Sunday and increase the number of online merchants willing to ship via the Postal Service.

Grocery deliveries is another a growing market the Postal Service is testing.

At the same time, the pressures Brennan is getting from Congress are not so much about packages as they are about letter deliveries.

Ending the overnight deliveries of first-class mail in urban areas to save costs has not been a popular solution to the USPS’s money woes.

Congress has not been willing to do what lawmakers used to do with ease: give the USPS the money it needs to put speed back into first-class mail.

That refusal to spend tax dollars and the 260 percent figure suggest that letter mail is going to remain a major component of the USPS’s business for some time.

Big mailing organizations have not objected to the emphasis the USPS is putting on packages, but some have questioned how the Postal Service is accounting for the costs of growing package mail volume.

Stephen Kearney, executive director of the Alliance of Nonprofit Mailers, told Linn’s: “I think mailers want USPS to be successful so that it can continue to do a great job delivering mail at reasonable rates. So we do want the USPS package business to be successful.”

But he allowed that “there is some uneasiness about the new costs the Postal Service is incurring to expand the package business, such as increased staffing, sorting equipment and larger vehicles.”

“There needs to be a careful separation of mailing and shipping costs so that one side [class of mail] is not subsidizing the other,” said Kearney, who was once one of the Postal Service’s top financial officers.

It’s not always clear from the USPS’s financial reports what costs are being charged to what program, making “it hard for mailers to clearly see what costs are for what,” he said.

“So we have a trend of increasing staffing with decreasing mail volume that is difficult to sort out.”

“Finally,” Kearney said, “mailers have some concerns that USPS management is focusing time, attention and resources on a very competitive and risky package business with not only longstanding private sector competitors but also many up and coming new entrants.”

“We hope that this investment will pay off now and in the future so that the core responsibility of ‘binding the nation together’ will continue for a long time,” he said.