The U.S. Postal Service continued the trend of strong growth in its parcel business while showing losses in mail delivery in its third quarter results.
The shipping and packages business of the USPS saw revenue growth of $645 million or 18% in the quarter, with volume increasing 13.6% to 1.22 billion pieces. By contrast, first-class mail revenue was down $379 million, or 5.5%; officials said this was largely due to the expiration in April of an exigent surcharge.
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The expiration of the surcharge will reduce revenue by about $500 million for the fourth quarter and by almost $2 billion annually, USPS officials said.
The USPS reported $17.7 billion in total revenue for Q3, up 7% from $16.5 billion in 2015. The net loss was $1.6 billion, up 167.4% from $586 million in 2015, as operating expenses rose 12.5% while income from the exigent surcharge fell 91%.
The operating expense jump was due largely to a $1.6 billion unfavorable change in worker’s compensation expense as a result of a Brexit-driven interest rate decline. Without that change, operating expenses would have increased just 3%.
Still the increase in parcel volume is coming at a cost for the USPS. Labor costs were up $387 million in the quarter, while transportation costs rose $97 million.
“We continue to post double-digit gains in package volume and are well-positioned operationally for further growth,” said Postmaster General and CEO Megan J. Brennan in a release. “Our capital investments are enabling increased efficiencies across the enterprise and improving experiences for our customers.”
As she has in the past, Brennan pointed out the need for legislative reform to address the massive losses, which are primarily driven by a Congress-mandated pre-payment of retiree health benefits. In the latest effort, the Oversight and Government Reform Committee has proposed a bill that would save billions by reducing premium costs an estimated 10% through enrolling postal retirees in Medicare.
The USPS’s so-called “controllable loss” for the quarter – minus expenses tied to the pension fund mandate – was $552 million in Q3, more than two and a half times the $197 figure a year ago. This was mostly due to a $1.6 billion unfavorable change in workers’ compensation expense due to interest rate changes, offset by a $1.1 billion gain through an accounting change.