USPS increased revenue by 11% in Q1, but the Postmaster General still wants to restructure
This week marks a rare moment of celebration for the typically ailing United States Postal Service. The agency reported a net profit for the first quarter of fiscal year 2021 (ending Dec. 31, 2020), the first quarterly profit recorded in several years.
Still, the party hats remain tucked away in the cupboard. USPS warned that the surge is likely temporary and stems from a COVID-related boom in package deliveries. This isn’t sustainable, said Postmaster General Louis DeJoy in a statement. His controversial plans to restructure and come up with a new financial plan remain in place.
“While our positive financial results this quarter are certainly welcome, we continue to face systemic imbalances that make our current operating model unsustainable, and the economic impacts of the COVID-19 pandemic will continue to challenge the organization,” DeJoy said. “It is essential that the Postal Service adopts comprehensive reforms so that we are able to meet the changing needs of our business and residential customers, and ensure our ability to provide reliable, universal mail and package delivery for all Americans.”
The Postal Service saw a record-breaking 25% increase in holiday shipping and package volume, with revenue up by $2.1 billion over the same quarter last year. About 1.1 billion packages were delivered through the holiday season—all with employees operating under the burden of a deadly pandemic.
Still, revenue from mail services, the most traditional revenue source for the USPS, continued its downward trend, even with the increase in vote-by-mail ballots this fall. Marketing mail revenue fell by $246 million, or 5.6%. First-class mail revenue decreased by $177 million, or 2.7%. With the increase in package delivery, the USPS saw total revenue of $21.5 billion for the first quarter of fiscal 2021, an increase of $2.1 billion, or 11.1%, over the same quarter last year.
“The increased postal revenue and operating profits reflect the essential work and value of the USPS over the past year and counting—the pandemic, election and holiday season,” said Fredric Rolando, president of the National Association of Letter Carriers, a union representing about 275,000 postal workers. “Letter carriers have helped tens of millions of Americans shelter safely at home and even vote from home.”
The postal union and DeJoy agree that reforms need to be made to ensure that the Postal Service continues to stay afloat; however, they disagree about what those reforms should be.
Union leaders say that while traditional mail services are on the decline and innovative solutions need to be made to find new sources of revenue, the major gap between revenue and reported losses is the result of expenses that the U.S. government imposes on the Postal Service—expenses that other shipping businesses don’t face, such as the pre-funding of retiree health care pensions well into the future.
The Postal Accountability and Enhancement Act, passed in 2006 with the support of the George W. Bush administration, required the USPS to pre-fund employee retiree health benefits years into the future. Typically, companies that pay pensions do so as the cost arises and aren’t required to set aside money in advance. No other federal agency bears this burden, and critics call the law “draconian,” claiming that it was created with the intention of leading the Postal Service toward privatization. Pension funding accounted for an estimated 80% to 90% of the agency’s losses before the pandemic, union officials say.
The quarterly report, Rolando said, “shows the underlying strength of the postal business model while making clear the need for postal reform to address the artificial red ink caused by the 2006 congressional mandate that the USPS—alone among all U.S. companies and agencies—pre-fund future retiree benefits.”
The report found that operating expenses were impacted by an increase in retirement benefits expenses of $176 million in the first quarter, or a 10.9% increase over the same quarter last year. These expenses, it noted, were “driven by revised actuarial assumptions outside of management’s control.”
DeJoy claims that it’s the business model itself that needs to be altered, not just the 2006 pension mandate. Calls to privatize parts of the Postal Service abounded under the Trump administration and under DeJoy, who is a Trump donor with a history of investing in USPS competitors.
Immediately upon assuming his role, DeJoy instituted overtime bans and limited the use of sorting machines, which caused slowdowns in delivery. He also has told Congress that he would like to privatize certain parts of the USPS.
“These changes are happening because there’s a White House agenda to privatize and sell off the public Postal Service,” said Mark Dimondstein, president of the American Postal Workers Union, to Fortune at the time. “But there’s too much approval for the organization right now. They want to separate the service from the people and then degrade it to the point where people aren’t going to like it anymore.”
While DeJoy came into power during the Trump administration, a sitting president does not have the authority to nominate or fire the postmaster general; that’s the job of the USPS Board of Governors, the majority of whom are Republicans.
While President Joe Biden is unable to pick a postmaster general, he does get to appoint the nine governors who serve on the board of the USPS for seven-year terms. There are currently only five members serving, which means that Biden can nominate four new governors right away. The remaining five members will see their terms expire over the course of his administration, freeing up more room for his nominees. Those serving on the board are permitted to select a new postmaster general.
The Postal Service is required by the Constitution to serve everyone in the country equally and with uniform rates. The USPS is the only universal provider of mail service and has been a low-cost anchor for the mailing industry, helping to keep private mail service rates down. A recent analysis by the Institute for Policy Studies found that without the USPS, 70 million more Americans would have to pay hefty surcharges for deliveries.