Continuing decline in first-class mail volume highlights ‘strong headwinds’ facing USPS

Washington Postal Scene — By Bill McAllister

The latest quarterly financial report from the United States Postal Service describes “essentially flat” revenues, but there are some numbers in the new report that seriously worry top postal officials.

Postmaster General Megan J. Brennan and chief financial officer Joseph Corbett acknowledged that first-class mail volumes and revenues have taken a deeper than expected drop in the nine months ended June 30.

Advertising mail also has taken a hit, they said.

The USPS is facing “strong headwinds,” Brennan said.

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That’s a big problem because first-class and marketing mail, as it’s officially called, are the major revenue sources for the Postal Service, as both Brennan and Corbett stated in an Aug. 10 briefing.

First-class mail volumes have been falling for years, but the rate of decline in fiscal 2016 was 2.2. percent, Corbett noted.

In the most recent quarter (third quarter of fiscal 2017), it fell by 4.1 percent, almost double the previous year’s rate.

Marketing mail, which has been steadily recovering during the past four years and is the largest mail segment, dropped 1.8 percent in the quarter.

Double-digit increases in package mail volume have continued, but the executives noted that it’s more costly to move than letter mail and doesn’t contribute as much to the Postal Service’s overall expenses as first-class and marketing mail.

What prompted the changes?

The two postal executives blamed a growing preference by the public for email and the competition of other advertising channels for advertising mail.

The declines will force the USPS to continue to cut costs and, Brennan said, make all the Postal Service’s pleas for new legislation and regulatory relief all the more important.

Brennan repeated her warnings that the Postal Service’s problems remain “serious, but solvable.”

In addition to legislation that would restore half of an emergency rate increase that expired in fiscal 2016, Brennan also wants a ruling by the Postal Regulatory Commission that would allow it to seek price increases that exceed the rate of inflation.

A 2006 law installed a price cap on stamps and most postal products.

The cap limits increases to no more than the rate of inflation but Brennan said it is “fundamentally unsuited” to the problems the USPS is now facing.

Mailing organizations have rallied behind the price cap, telling the PRC that it is vital to keeping Postal Service spending under control.

“We believe strongly that the external financial discipline of the CPI cap is absolutely essential as long as USPS is a government monopoly,” said Stephen Kearney, executive director of the Alliance of Nonprofit Mailers.

“Without the cap, the Postal Service lacks the incentives of private sector organizations that have direct competition and face the possibility of going out of business,” he told Linn’s.

If the PRC does vote to end the cap, mailers have said the Postal Service would have to propose a new rule and have indicated their organizations will challenge the action in the courts.

Brennan said double-digit growth in package mail will continue this year, but she cautioned that the increase is not enough to overcome the declines in other mail revenues.

“We must generate approximately $2 in shipping and package revenue to replace the contribution from each $1 of lost first-class mail revenue,” said the USPS in a filing with the PRC.

The filing also noted that the costs of moving packages are “substantially higher than the costs associated with first-class mail.”

Overall revenues in the nine months ended June 30 totaled $53.1 billion, compared to $52.7 billion in the previous year, and excludes $1.1 billion from a now-expired temporary surcharge.

First-class mail revenue in the nine months totaled $19.7 billion, compared to $21.2 billion in the same period of fiscal 2016.

The USPS reported its “controllable income” for the nine months was a $100,000 loss, compared to a $1.3 billion profit in the same period of fiscal 2016.

Controllable income is a term the Postal Service likes to use because it reflects charges that postal management can control.

When all USPS costs mandated by Congress are included, the USPS said its net loss for the nine months was $1.3 billion this year, compared to a loss of $3.3 billion for the same period of 2016.