BPO Bulletin

The USPS – One Fiscal Year Later

by Joe Freeman
May 19, 2017

In my February 2016 blog, I spoke about the United States Postal Service (USPS) starting to “turn the corner” in solving its mounting operating losses that have been piling up over the last nine years. Here’s what I stated in that column:

"The United States Postal Services released its fiscal year 2016 first quarter report and the news is long overdue. The USPS generated enough revenue and controlled enough cost to produce its first profitable quarter in recent memory. Postmaster General (PMG) and Chief Executive Officer Megan J. Brennan noted that the increase included holiday shipping. However, revenue from package shipments grew 13.5% over the previous year. Another contributing factor was the additional revenue from the Exigent Rate Increase (ERI) that will expire in April of this year. As you may remember the ERI was an approved measure to assist the Postal Service while it restructured the national mail delivery system. The measures taken by the USPS have brought it back from multi-billion dollar deficits reported for many years.

This is certainly good news but the USPS faces a loss of revenue when the emergency rates are rolled back. Keep in mind that the USPS is due an annual rate increase request that is based on the consumer price index. Unfortunately, the USPS will not receive that increase this year to offset the roll back. That could result in a loss of three cents per stamp. When you consider the volume of items still moving via U.S. mail, this situation could take a bite out of the USPS’ recent fiscal success.

Here is to hoping that a negotiated plan can be reached this year where portions of the roll back can be considered a conditional operations “bonus” should the USPS continue to act prudently with its spending controls and improved revenue stream from package shipments. It’s a good sign that the USPS is evidently correcting past mistakes in adjusting to the customers’ future needs. Looking ahead, I suggest we review the next two quarters not from a profitability stance, but from the perspective of increased volume and revenue, year over year. It’s not possible to fix everything overnight. I know that I will be watching to see if we have a 'one hit wonder' with the profitable first quarter or if PMG Brennan has succeeded in helping the USPS turn the corner."

The “bottom” appeared this past fall when the USPS hit the following trifecta:

  • The holiday shopping season that included Internet services delivered via the USPS
  • The continued attrition program where long term retirees and staff reduction hit its peak
  • A presidential election year in which the incumbent finished two terms

These three dynamics created the first quarterly revenue “profit” since the slump began. I followed up the news in the first quarter of 2017 citing that it was not realistic to believe that the crisis was over, as the “exigent increase” was removed in 2016 and that created a revenue loss that would be felt once the first quarter revenue was calculated.

I also defended the USPS request to recoup the “exigent” dollars in a more productivity-related manner. The USPS should be rewarded with savings opportunities based on streamlined management. This is a very results-oriented business climate and if organizations want an increase, they must demonstrate that they know what to do with the extra funds.

Then I received a mailer informing me that new stamps were being previewed this year and a very sleek marketing package arrived at my office inviting me to join the USPS staff in “cutting the ribbon” on the first official day that these stamps were previewed and put into circulation. That lost me immediately because of the following:

  • The USPS is a monopoly—no one else can do what the postal service does.
  • They are basically broke and have been for years.
  • This kind of activity does not demonstrate responsible budgetary management.

In addition, as has happened in the past, this expensive and overweight packet arrived two days after the event. It would appear that the old metric of two to three day delivery has been adversely affected by the many regional sort centers that were closed across the country during the last two years.

This form of marketing is not needed—nor is the stamp preview celebration. Also, I have read enough multi-million dollar survey results that the USPS buys to convince me that I am happy when I get a piece of mail. So they are overselling a product that no one else can sell, coupled with slower service to get that information to me.

I have written many articles defending the USPS and pointing a finger at Congress, which ignored the Postal Service in its time of need. However, these unnecessary spending sprees are not giving me a feeling of confidence that anything has changed at the top. I have stated as recent as one month ago at a speaking engagement that I would not be doing any chest pounding over the first profitable quarter in eons—because a new quarter is coming during which the USPS will have to update the buying public. Now I am reading that the USPS is again requesting a postage increase as it anticipates the need to deal with declining mail volume and re-open some shuttered facilities earmarked for closure.

I agree that the USPS should have made its case for the exigent rate increase being converted to a permanent price adjustment. However, its spending practices would need to be assessed before any new increases are considered.

For an update on the USPS’ plans to raise stamp prices, you might want to read the article, “The Post Office Wants to Raise the Price of Stamps,” (Associated Press, FORTUNE magazine, May 10, 2017).

Feel free to visit the Mail Services page of our website for additional insights on industry trends and best practices, including whitepapers, case histories and more.

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