Despite $5.6B Loss in 2016, Postal Service Financial Outlook Improves

Income shrinks as the Postal Service is forced to cut prices.

The U.S. Postal Service reported a $5.6 billion loss in fiscal 2016, despite claiming a controllable income of $610 million, with the net loss increasing by $500 million over the previous fiscal year.

The agency cited $5.8 billion in congressionally required payments to prefund future retirees’ health care as responsible for the loss, despite stabilizing mail volume and continued growth in its shipping and package business. When removing that cost from the equation, the Postal Service’s profits shrunk in half from the $1.2 billion controllable income it earned in fiscal 2015. The Postal Service has now lost at least $1 billion for 10 consecutive years.

USPS CFO Joe Corbett said on Tuesday the expiration of the agency’s emergency price increase caused the shrinking revenue, noting that without the price reduction, the Postal Service would have turned a controllable profit of $1.6 billion. (Controllable profit does not account for expenses beyond the control of USPS managers -- primarily the prefunding and adjustments to workers compensation' costs.) Postal regulators temporarily allowed USPS to increase prices by more than inflation to recover revenue it lost during the recession, but demanded an end to the hike in April.

Despite the price drop, the Postal Service still brought in $70.5 billion in fiscal 2016, up from $68.9 billion in fiscal 2015. Expenses also grew, however, as growing package volume led to higher transportation and labor costs. Total work hours grew by 30 million this past fiscal year, and compensation and benefits costs increased by $1.4 billion.

As it has for years, first-class mail volume -- which represents USPS’ most profitable offering -- dropped precipitously, falling 5.3 percent. Standard (what is often referred to as “junk”) mail volume increased by 1 percent, while shipping and package volume jumped nearly 14 percent. Total volume dropped by just 100 million pieces, after falling by 1.3 billion pieces between fiscal years 2014 and 2015.

Postal leadership continued its call for comprehensive reform from Congress, saying fully integrating its retirees with Medicare would solve most of its financial problems and eliminate much of its unfunded liabilities. Both a Senate measure and a House bill already approved in committee include that provision.

As USPS awaits congressional action in the lame-duck session, it is preparing for its busiest time of the year. The agency expects to deliver 16 billion pieces of mail, including 750 million packages, during the holiday season. The Postal Service said it would hire up to 40,000 employees on a temporary basis to staff post offices and distribution centers this winter, an increase over the 29,000 season workers it hired last year.

While USPS continues to report losses, its improving financial standing has allowed it to make investments in its business, spending $1.4 billion on building improvements, vehicles, equipment and other capital projects.

Fredric Rolando, president of the National Association of Letter Carriers, said USPS is on strong footing, arguing it has posted an “operational profit” for three straight years and its losses are attributable only to congressional gridlock.

“That's impressive for a government entity that gets no taxpayer money -- earning its revenue instead by selling stamps -- while enjoying strong public support and providing Americans and their businesses with the industrial world's most-affordable delivery network,” Rolando said. 

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