USPS falling behind on financial goals for FY 2023, doubles projected losses

The Postal Service, as it moves ahead with plans to make long-deferred upgrades to its vehicle fleet and delivery network this year, is falling behind on its financial goals for the year.

USPS, in a recent filing to the Postal Regulatory Commission, reported more than a $1 billion net loss for January 2023, and a more than $2 billion total net loss since the start of fiscal 2023.

Both losses are more than twice what USPS had projected. USPS in its filing expected a $364 million net loss for January, and a $945 million net loss for the fiscal year to date.

The Postal Service’s latest financial report shows a difficult start to the calendar year, especially considering the agency just wrapped up its busy year-end holiday peak season.

“They have higher expectations during these months,” said Steve Kearney, executive director of Alliance of Nonprofit Mailers, and a former USPS treasurer and vice president of pricing.

USPS has been maximizing its authority from the Postal Regulatory Commission to set higher-than-inflation prices for its monopoly mail products.

The price of a first-class Forever stamp went up from 60 cents to 63 cents in January 2023. Prior to that increase, USPS raised the price of stamps in July 2022, from 57 cents to 60 cents.

USPS, in its Integrated Financial Plan for FY 2023, said “price increases will more than compensate for the revenue lost due to reduced volume.”

However, Mike Plunkett, a former USPS manager for pricing strategy and innovation, and manager of retail alliances, now president of the Association for Postal Commerce, said USPS revenue from higher prices isn’t keeping up with the pace of its expenses.

“Operating revenue is barely up at all, so the effectiveness or the efficacy of the rate increases seem to be dwindling,” Plunkett said. “And they’re driving down volume. So you’re applying those rate increases to fewer and fewer pieces of mail every month. That’s called a death spiral.”

USPS spokesman David Partenheimer said the agency is required to file its comprehensive financial statements quarterly, but doesn’t comment on monthly results.

USPS in its Integrated Financial Plan expects to increase revenue by $2.4 billion in FY 2023.

However, the agency also expects a $1.4 billion increase in controllable expenses. It expects the biggest contributor to those increases will be compensation and benefits driven up by high inflation.

USPS seeks to offset these increases with a planned decrease of 32 million work hours. It has cut work hours by 5.6% so far this fiscal year, compared to the same period last year.

USPS reports having a career workforce of more than 517,000 employees — a 1.8% increase compared to the same period last year. Its non-career workforce, however, has shrunk to 121,796 — a nearly 20% reduction since the same period last year.

That’s because USPS has converted more than 100,000 employees from part-time to full-time career positions since 2020. Last year alone, USPS converted 41,000 part-time positions to full-time status.

USPS so far in FY 2023 has seen a 5.2% decrease in its first-class mail volume, compared to the same period from FY 2022, but it’s seen a 1% increase in revenue from this line of its business.

“They don’t seem to be getting as much as they would like from these rate increases, so they’re in a tough position,” Kearney said.

Kearney said USPS, during his tenure, only raised postal rates about once every three years, in order to keep prices predictable and its customers satisfied.

“Basically, they’ve reversed all the efforts we used to do, of making them very predictable, reasonable and less frequent,” he said. “And we’ve got a kind of chaotic situation, where as soon as you get one rate hike, you’re bracing for the next one.”

Kearney said his association has been recently losing nonprofit members who have pulled out of direct mail entirely as part of their outreach strategy.

“The message is, ‘You better think about reducing your mail or getting out of the mail completely.’ It’s kind of maximizing disruption, uncertainty and chaos, when the longest tradition was to minimize those things,” he said.

Compared to last year, USPS also saw a 3.2% decrease in volume for its competitive package service — but a 2% growth in revenue.

While USPS package volume remains higher than pre-pandemic levels, the agency expects the “surge in revenue from consumer behavior changes during the COVID-19 pandemic will continue to subside in 2023,” USPS wrote in its Integrated Financial Plan.

Postmaster General Louis DeJoy told the USPS Board of Governors last November that USPS wasn’t on track to meet its “break-even” goal for fiscal 2023, citing record inflation and what it calls unsustainable contributions to a federal retirement fund that covers some postal retirees.

“Even with the high cost of inflation, we remain on the path toward break even for the 10-year period,” DeJoy said in a video message on Wednesday to USPS employees.

Rather than USPS hitting a turnaround point in its long-term financial outlook, the agency, in its Integrated Financial Plan, expects to see a $4.5 billion net loss for fiscal 2023.

Under the “Delivering for America” plan, released in March 2021, USPS was expected to start breaking even on its annual finances as soon as 2023, but no later than 2024. USPS, under this plan, anticipated fully digging out of its long-term financial hole by 2030, going from $160 billion in projected net losses to a $200 million net profit.

USPS reported a $1 billion net loss for the first quarter of FY 2023, which covers October through December 2022.

The first quarter is usually the strongest financial showing for USPS, because it covers its year-end peak holiday season. The first quarter performance for FY 2023, however, is still an improvement, compared to the $1.5 billion net loss for the same quarter of FY 2022.

USPS ended January 2023 with $23.4 billion cash on hand, but is embarking on $40 billion in capital investments over the course of its 10-year reform plan.

Among its major investments, USPS is modernizing its aging delivery trucks and replacing them with a mostly electric next-generation fleet.

It’s also consolidating mail carrier operations into Sorting and Delivery Centers in several metro areas, and investing in modern mail and package sorting equipment.

While these long-deferred capital investments are expected to improve efficiency and reduce operating costs, Plunkett said decreases in mail and package volume mean the opportunity for a return on investment is dwindling.

“At some point, you might have to rethink the expected results of those investments, if volume continues to tank,” he said.

USPS is reporting higher than anticipated losses despite major costs savings from a long-awaited postal reform legislation that was signed into law nearly a year ago,

President Joe Biden signed the Postal Service Reform Act into law in April 2022.

The legislation is expected to save USPS $50 billion over the next 10 years by eliminating a provision from the 2006 Postal Accountability and Enhancement Act that required USPS to pre-fund retiree health benefits well into the future.

The legislation also forgives USPS’ obligation to pay $57 billion in scheduled payments to its retiree health benefits fund.

Among its higher costs, USPS expects its contribution to the Civil Service Retirement System (CSRS) benefits, which covers most of its employees hired before 1984, will increase by more than $3 billion this fiscal year.

USPS claims a far greater share of these benefits should have been paid by the Treasury Department, and is calling for an administrative fix.

“These decades of overpayment could be corrected by an instruction from the administration to the Office of Personnel Management,” USPS wrote in its Integrated Financial Plan. “This reform would eliminate CSRS amortization expenses entirely and contribute greatly to our plan for financial stability.”

If OPM were to make this change, USPS expects any surplus in the CSRS fund would be transferred to its Retirement Health Benefits (RHB) fund, which would “greatly extend the life of the fund,” beyond its current projected run-dry date in the early 2030s.

 

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