Postal Service releases August 2015 financial statement

September 24, 2015

The Postal Service has released its financial statement for August 2015.  As usual, there’s some good news, and some not so good.

Compared to August 2014, volumes and revenues for First Class, Standard, and Periodicals are all down a few percent, and total volume for market-dominant mail is down 4.3 percent; total market-dominant revenue is down 6.5 percent.

On the other hand, Shipping and Package Services continue to climb.  Compared to last August, volume is up 14.4 percent, and revenue is up 13.3 percent.

For year-to-date (which includes all but September, the final month of FY 2015), total volume is down 0.9 percent, and revenue is up 1.6 percent.

For the month of August, the Postal Service posted a small loss of $61 million in Controllable Operating Income, compared to a small profit of $279 million last August.

For the year-to-date, the Controllable Operating Income is $1.265 billion.  That’s somewhat less than the same period last year, when there was a profit of $1.465 billion, but it is still a significant profit.

Figuring in the prefunding of the Retiree Healthcare Benefit Fund (RHBF)  — $5.225 billion so far this year — and a slight adjustment to worker’s comp, plus some interest income and expense, the financial statement shows a net loss of $4.116 billion for the year-to-date, considerably better than the same period last year, when the Postal Service posted a net loss of $5.245 billion.

At this point, with just one month left in the fiscal year, it looks as if the Postal Service will end FY 2015 with a net loss of something like $4.2 billion — about $1.3 billion better than FY 2014.  Factoring in a RHBF payment of $5.7 billion (which the Postal Service will default on) and other adjustments, the Controllable Operating Income will probably show a profit of about $1.2 billion, comparable to the $1.37 billion profit in FY 2014.

While many of the competitive products in Shipping and Package Services don’t have the high profit margin of First Class Mail, their continued growth is more than making up for the lost ground.  Revenues for First Class fell 0.2 percent for the year-to-date — about $60 million — but revenues for Shipping and Package rose 10.8 percent — about $1.43 billion.  

This gain in package services is almost 24 times the loss in First Class revenues.  The Internet may be causing the diversion of some mail away from the Postal Service, but e-commerce is clearly booming.

Apparently all those packages are taking a lot of workhours to process and deliver.  For the year to date, total workhours increased 1.9 percent over the same period last year.  The number of career employees increased from 487,842 to 490,187; non-career increased as well, from 129,894 to 130,101.  At this point, non-career employees represent 21 percent of the total workforce.

The August financial statement can be found on the PRC website here.

(Photo credit: USPS HQ)

On the border of the boundary wars: The PRC's order on First Class Mail Parcels

September 15, 2015

Last month the Postal Regulatory Commission denied the Postal Service’s request to transfer retail, single-piece First-Class Mail Parcels from the market-dominant list to the competitive list, where it would have become a category of First-Class Package Services.

FCM Parcels are lightweight packages weighing 13 ounces or less, and they're typically used by individuals and small businesses to ship things like eBay purchases, clothing, small tech products, and so on.  Larger single-pieces are usually sent Priority, and businesses that mail in bigger quantities use the commercial version of lightweight parcels, which costs less.  Commercial lightweight parcels have already been transferred to the competitive list, and the Postal Service wanted to complete the transfer with the retail version.

Classification cases like this are rather arcane and obscured by a lot of technicalities and legalities, and the PRC’s decision on FCM Parcels (Docket No. MC2015-7) is no exception.

But the FCM Parcels case is significant and deserves more attention than it's gotten.  The case is likely to be cited as a precedent for future classification cases, and it involves fundamental issues about the core mission of the Postal Service and the scope of the postal monopoly.


An unusual case

The FCM parcels case was unique for a number of reasons.

First off, it took a long time.  The Postal Service filed its request in November 2014 and asked the Commission to reach an expedited decision by mid-January, before the next meeting of the Board of Governors.  The PRC ended up taking over nine months to issue its final order.

Since 2007, when the Postal Accountability and Enhancement Act (PAEA) divided the mail into the market-dominant and competitive categories, the PRC has heard about 365 classification requests.  The average length of time between the request and final order is about five weeks, and only a half dozen or so have taken longer than FCM Parcels took.

Second, the Commission almost always grants mail classification requests.  They usually just involve adding contracts with individual mailers to the competitive list, but a few have involved transferring products from market-dominant to competitive.  Looking at all 365 cases since 2007, it appears that only a couple of the requests have been turned down by the Commission. 

One of the requests involved the rates for presorted First-Class Mail residual pieces and was considered a “minor” change (MC2013-30).  In the other case, the Postal Service wanted to move round-trip DVD mailers (the kind used by GameFly and Netflix) to the competitive list (MC2013-57).  The Postal Service argued that there was a lot of competition in the digital media delivery market, which would constrain its pricing, but the PRC rejected the request, finding that the Postal Service had “failed to verify that it lacked market power over the DVD mailers.”

The decision on FCM Parcels was unusual for a third reason.  Commission rulings on mail classification requests are almost always unanimous, but in the FCM Parcels decision, the Commissioners split, 3 to 2.  Commissioners Mark Acton, Ruth Goldway, and Nanci Langley voted to deny the request, and Commissioners Robert Taub and Tony Hammond voted to approve it.

Split decisions like this have occurred only a couple of times in mail classification cases.  In 2007, in one of the first classification cases after PAEA was enacted, the Postal Service requested approval for a Negotiated Service Agreement (NSA) with Bank of America, which also involved a mail classification change (MC2007-1).  Commissioner Dawn Tisdale dissented because he thought the Postal Service would lose money on the deal.

In 2014, the Commission approved the Postal Service’s request to add a new NSA with Valassis Direct Mail to the market dominant product list, which also required a change in the mail classification schedule (MC2012-14).  Commissioner Hammond dissented (for reasons not explained in a dissenting opinion). 

In neither of these two cases does the dissent seem to have involved the sort of significant issues that the FCM Parcels case raises. 

The FCM Parcels decision was unusual for another reason.  As Acting PRC Chairman Taub told the Parcel Shippers Association at its meeting February (while the case was still being heard), the PRC’s final order is likely to become a precedent for future cases involving the transfer of market-dominant products to the competitive list.  That may be why he and Hammond wrote such a lengthy, 14-page dissenting opinion.  

Using the U.S. Census to prevent post office closings

September 10, 2015

Last week Congressman Raúl M. Grijalva (D-AZ) announced that he would re-introduce legislation that would prohibit the Postal Service “from closing or consolidating any post office or other postal facility that is located in a ZIP code that has a high rate of population growth.”

The bill “directs the Postmaster General to determine annually whether a ZIP code has a high rate of population growth using population data available from the Bureau of the Census.”

When Congressman Grijalva first introduced this legislation back in 2012, it went nowhere.  But without such a law, the Postmaster General is not likely to ask the Census Bureau for this kind of information.  In fact, the Postal Service has previously expressed an unwillingness to consider census data when making decisions about closing postal facilities.

When the Postal Service was planning to close 3,700 post offices under the Retail Access Optimization Initiative (RAOI) back in 2011, a USPS witness told the Postal Regulatory Commission that economic and demographic profiles, as available through the census, would not be considered when deciding which facilities to consider for discontinuance.  (PRC Advisory Opinion, p. 76)

Some of the witnesses for the RAOI Advisory Opinion did, however, look at census data, and one of them (Professor Anthony Yezer) recommended that population growth be considered when evaluating the demand for postal services in each community.  (PRC Advisory Opinion, p. 79)

While considering growth rates may make business sense, it's not at all clear that this is a good idea.  The losers would probably be rural areas, economically depressed regions, and communities that, for one reason or another, aren't growing rapidly.  Why should these places lose their post offices? They're apt to be the places that need them the most.

Nonetheless, Grijalva's legislation raises some interesting questions about the relationship between census data and the shape of the postal system.  In particular, it leads one to ask, What effect might the legislation have on closing post offices and processing plants?


Post offices and census data

In order to answer this question, it’s necessary to consider what a “high rate of population growth” might mean.   This is not an official census category, so one can only speculate.

The population of the U.S. in 2000 was 282.2 million.  By 2013, the population had grown to 316.5 million.  That’s an increase of 12 percent.  One might say, then, that a “high rate of population growth” would be something above the national rate.  

How many ZIP code areas would this encompass?

The census website provides data sets that give the population in 2000 and 2013 for each of 33,300 5-digit zip code areas in the U.S. and territories.  We’ve used the data to create a table showing the population in 2000 and 2013 and the rate of growth for this period for every ZIP code.  You can see this table here.  (Note that there have been some changes in the ZIP codes during this period, so there are a few anomalies in the table.)

Overall, about 9,500 of these ZIP code areas (29 percent of the total) have experienced a population growth of more than 12 percent.  If that were the benchmark, the Grijalva legislation would prevent closures in these areas.

There are other ways, however, to look at the question of what constitutes a high rate of growth.

For example, about 13,450 of the 5-digit ZIP code areas (41 percent of the total) experienced a population decline from 2000 to 2013.  About 17,500 (almost half) experienced either a decline or an increase of less than 5 percent. 

If anything more than 5 percent were considered a high rate of growth, half the country’s post offices could not be closed under the Grijalva legislation.

New book explains why we need a postal bank

September 4, 2015

A new book entitled How the Other Half Banks by Mehrsa Baradaran makes a great argument for why we need a postal banking system.  The book explains how economic inequality in this country is caused largely by unequal credit.  A significant portion of the population has been deserted by the banking system and is consequently  forced to use payday lenders and check-cashing services to cover emergency expenses and pay for necessities.  The best solution to the problem, argues Baradaran, is postal banking.  

Baradaran has written previously about why the U.S. Postal Service should get back into the banking business in the Harvard Law Review and the New York Times.  

"The post office has branches in many low-income neighborhoods that have long been deserted by commercial banks," writes Baradaran in her NYT piece.  "And people at every level of society have a certain familiarity and comfort in the post office that they do not have in more formal banking institutions."  

(Order the book on Amazon and have the Postal Service deliver it.)

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