USPS Sees Parcel Volume Decline for the First Time in Nine Years

The U.S. Postal Service reported a drop in its parcel volume for the first time in nine years during its third quarter, as major customers like Amazon continue to shift business away from the USPS and take on some of the deliveries themselves.

Overall, the USPS continues to face massive losses as mail volume drops and costs increase, recording $2.3 billion in red ink for the quarter. The so-called controllable loss, less obligations like mandatory pre-funding of retiree health benefits, was $1.1 billion, up from $889 million in 2018.

Even though parcel volume declined by 3.2%, parcel revenue was up 4.8% thanks to rate increases that went into effect in January, as well as a revision of dimensional weight pricing in June. USPS overall revenue in Q3 was essentially flat at $17. 1 billion.

More pain is coming for the USPS in January, when FedEx will begin seven-day delivery, at the same time diverting about 2 million parcels from the USPS into its ground network.

“We continue to face imbalances in our business model that must be fixed through legislative and regulatory change,” said Postmaster General and Chief Executive Officer Megan J. Brennan in a release. “As we work to effectuate that change, we continue our ongoing aggressive management actions, and remain focused on delivering for the American public, and meeting their evolving business and residential needs.”

“We continue to focus on maximizing productivity,” said USPS Chief Financial Officer and Executive Vice President Joseph Corbett in the release. “While many of our network costs are fixed to meet our universal service obligations (to every U.S. ZIP code), we reduced work hours by approximately 1.7 million relative to the same quarter last year.”

According to JPMorgan analyst Brian Ossenbeck, the USPS now has a 30% share of Amazon’s shipping volume, half of what it was just two years ago as the ecommerce giant continues to insource its logistics and delivery operations.

UPS gets about 10% of its revenue from Amazon, according to a Morgan Stanley estimate, while FedEx said Amazon represented just 1.8% of the company’s 2018 revenue. Amazon is moving ground volume to UPS and other carriers as its contract with FedEx ends this month.

David Partenheimer, a spokesman for the USPS, said the Q3 parcel volume drop was “a reflection of industry insourcing of last-mile delivery (via) Parcel Select” as noted above. The drop has not affected Priority Mail and First-Class service, with volumes and revenues both growing in Q3, he said.

“Unlike our last-mile Parcel Select products, these products typically traverse our entire network, and drive higher revenues and costs,” Partenheimer said.