When good news is bad news: The Postal Service spins its Q3 financial report


One might think that a good financial report would be welcome news to postal management, but good news isn’t good when you’re trying to justify downsizing, service cuts, and more dismantling.

The third quarter financial report came out last week, and it looks like the Postal Service is having a decent year.  Maybe the worst is over.  Maybe the upturn in the economy will mean increases in mail volumes and revenues, and maybe it won’t be necessary to end Saturday delivery or close your post office or change you over to a cluster box.

That possibility is not helpful in advancing the narrative that postal management and legislators want us to believe, so the USPS press release accompanying the new report spins the numbers to make it seem the good news isn’t so good after all.  The major news outlets  apparently think that reporting means paraphrasing a press release, so now millions of people are all getting the same message — things are a little better at the post office but still terrible, so the cuts must go on.


The media report the press release

The title of the press release is “Postal Service actions to improve efficiency help to lower third quarter loss.”  It begins by stating, “The U.S. Postal Service ended the third quarter of its 2013 fiscal year (April 1 – June 30) with a net loss of $740 million, increasing the year-to-date net loss to $3.9 billion.  Aggressive Postal Service actions to contain costs and increase efficiency, along with a decrease in workers’ compensation expense due to fluctuations of discount rates, prevented the financial loss from being greater.”

There’s not a word in that opening paragraph about the real cause of the deficit — the Congressional mandate to prefund retiree health care benefits for decades into the future.  The payment for the third quarter was $1.4 billion, and for the first three quarters, $4.2 billion.  Were it not for this obligation, the Postal Service would have shown a profit of over $300 million for the year-to-date — and $700 million for the third quarter.

Even though they are right there in the Q3 financial report, it’s hard to find those numbers in the mainstream news media.  Instead, ever dutiful, they repeat what the USPS press release says.

The New York Times article is entitled, “Postal Service is Still Losing Money, but not Quite as Much.”  The Wall Street Journal says, “Postal Loss Shrinks From Year Earlier on Cost Cuts.”  The Washington Post headline is “Postal Service Financials Improve, but Big Losses Continue.”  The AP story begins, “The Postal Service has trimmed its losses to $740 million over the last three months by consolidating processing facilities, cutting hours for workers and post offices and reducing workers’ compensation costs, the agency said Friday.”

According to the press release and the media reports, then, the Postal Service may be losing a little less money but it continues to post billion dollar losses, and it’s thanks only to the cost-cutting efforts of postal management that the losses aren’t worse.  But there’s a lot more to the story, and most of it is not in the press release.


Revenues are up, could be up more

First off, one of the main reasons the losses weren’t worse is that revenues are increasing.  For the first nine months of the year, operating revenue is up $668 million, a 1.3 percent improvement, thanks primarily to more e-commerce.  Revenue from shipping and package services is up 7.5 percent over last year.  First-class packages are up over 15 percent, and Standard parcels, Parcel Select, and Parcel Return are up almost 20 percent.

For decades now, the doomsayers have been trying to justify massive downsizing by pointing to the inevitable decline in first-class mail caused by the Internet, but it turns out that the Internet has an upside too — more packages from purchases made online.  If the Postal Service were more aggressive about getting a bigger piece of the action instead of helping out FedEx and UPS by “partnering” with them, the revenues from parcels would be even bigger.

For example, the Postal Service delivers the last mile on a third of FedEx’s ground shipments (much of that is Parcel Select), and using Parcel Return, UPS customers can return merchandise by dropping it in any Postal Service mailbox or at any post office.  The Postal Service makes some money on these arrangements, but they also help FedEx and UPS increase their profits and retain market share.

In 2011, the Postal Service’s share of small-package shipping was about 14 percent, with UPS at 52 percent and FedEx at 34 percent.  Maybe if there weren’t a FedEx box in front of your post office, the Postal Service’s share would be bigger.


Reducing “workhours”

The press release on the new financial statement credits greater efficiency for reducing labor costs, and in fact total labor costs for the first nine months of the fiscal year were down by $500 million, from $35.9 billion to $35.4 billion.  But that’s not exactly a tribute to “efficiency.”

If you read further down in the press release, you learn the real reason labor costs are down: “Career employee workhours reduced by approximate 41 million.  Non-career employee workhours increased by approximately 30 million.”  In other words, the Postal Service was able to cut 10 million workhours and shift a lot of work to non-career employees, which helped produce that savings of $500 million.

The Postal Service likes to put things in terms of “employee workhours.”  Decreasing the workhours of career employees and increasing the workhours of non-career employees might mean that career workers are putting in less overtime and the extra hours are being covered by non-career workers.  It could mean a lot of things.

Talking about “workhours” doesn’t reveal how many full-time jobs have been lost.  There’s a chart in the new report, however, showing that in the third quarter of 2012, there were 540,000 career employees; in 2013, there were 494,000.  During the same period, the number of non-career workers increased from 98,000 to 123,000.

One probably shouldn’t make too much of the non-career numbers — they jump around month to month because it’s easy to “realign” staffing and workload — but the big picture is clear enough:  Over the past twelve months, the Postal Service has shed 46,000 career jobs — a reduction of 8.5 percent — and increased the non-career workforce by over 25,000 positions — a jump of 26 percent.

The shift from career to non-career workers over the past year continues a trend that’s been going on for over a decade.  In 2000, there were 787,500 career employees; now there are fewer than 500,000.  That’s an average decline of 22,000 per year.  (Over that same period, the non-career workforce has increased from 113,700 to 123,000.)  The unusual thing about the past year is that the Postal Service is getting more aggressive about shedding jobs — It eliminated more than twice the annual average.

And the Postal Service isn’t done yet.  According to the five-year plan, by 2016 the career workforce will be reduced to 400,000.  That’s another 100,000 jobs to be eliminated.  Most of them would come from ending Saturday delivery and changing modes of delivery (i.e., more curbside and cluster boxes).


Where have all the jobs gone?

This massive reduction in the workforce may be due partly to increased efficiencies, automation, and a decline in mail volumes, but much of it is due to something else: workshare discounts and other forms of outsourcing.  The Postal Service cuts workers while private-sector companies add them.

According to an OIG report, “worksharing has rapidly grown to dominate the Postal Service’s business.”  In 1976, the Postal Service introduced workshare discounts for presorting first-class mail; then the discounts were extended to periodicals and standard mail.   Now over 82 percent of the mail is workshared, and the Postal Service gives out $15 billion in discounts every year.  That’s another way of saying that $15 billion in costs have been transferred from the Postal Service to the private sector — the equivalent of something like 180,000 jobs.

So yes, the Postal Service has reduced labor costs by $500 million over the past year, and it has drastically reduced its workforce.  But it has accomplished this largely by outsourcing more and more work and by replacing its career employees with part-time workers who are paid poorly, get little or no benefits, and have no job security.  That may make the bottom line of the Postal Service look a little better, but it doesn’t help the overall economy very much.


Closing plants

There are many other numbers cited in the press release that don’t really tell the whole story.  The Postal Service lists a number of “efficiency measures” it has taken to “better align staffing levels with projected mail volume.”

The first item on the list is “104 mail processing facilities were consolidated.”  The press release doesn’t say how much that might have saved.  It’s a good question.

The Postal Service originally said the Network Rationalization plan would save $3 billion (the USPS website still says that); then it was $2.1 billion, and then finally $1.6 billion.  When the Postal Regulatory Commission analyzed the numbers for its advisory opinion on the plant consolidations (as discussed here), it found that it was almost impossible to estimate the savings because the market research on potential lost revenue was so problematic (remember the secret market research that showed staggering losses from slowing down the mail?).  The Commission could only come up with a range of savings — somewhere between 1.97 billion and $45 million.  In other words, the 104 plants that have been consolidated may not be saving hardly anything at all.

In any case, a good portion of whatever savings might be credited to the Network Rationalization plan isn’t due to consolidating plants per se but from getting rid of career employees.  The consolidations pushed many postal workers to take early retirement, if they were eligible.  Others were forced to quit because they couldn’t relocate or deal with a long commute.  A new labor contract also permits more use of part-time workers, and a lot of the savings comes from that, not the efficiencies associated with closing plants.


Cutting hours at post offices

Another one of the efficiency measures listed on the press release is “7,397 Post Offices reduced operating hours as part of Post Plan.”  Now how much did that save?

The Postal Service has said that when fully implemented at 13,000 small post offices, POStPlan would save $500 million.  A more realistic estimate — one, for example, that includes the possibility that cutting hours at post offices will drive at least some business away — might be $370 million.  (See this post for more on that.)

The Postal Service began the implementation process at the 3,000 offices with a postmaster vacancy.  The savings there were relatively modest — just cutting the hours for workers already getting a low hourly wage.  At the other 4,300 offices, a postmaster retired or left for another position and was replaced by a part-time worker.  All told, the savings at the first 7,400 post offices was probably something like $150 million.  Much of that has yet to be realized, however, because the Postal Service paid out millions of dollars in incentives to encourage 4,000 postmasters to retire.

The press release also includes establishing 264 village post offices as an “efficiency measure.”  That’s fairly ludicrous.  A Village Post Office is just a convenience store or some other business that’s been authorized to sell stamps and flat-rate boxes.  Creating a couple of hundred more VPOs hasn’t saved the Postal Service anything.

One thing a VPO does do, however, is siphon off revenues that would have gone to the real post office in town, the one that’s had its hours reduced under POStPlan.  Next time that this post office has its revenues reviewed, the hours may be reduced even further.  At that point, the Postal Service might save a little something.  Cutting two more hours per day at 264 offices where hours have already been cut might save $1.6 million.  But the Postal Service hasn’t had much to say about that.  It doesn’t really want people looking at a VPO as a threat to the town’s post office.  It’s supposed to be a “supplement.”

All told, it looks as though all the cost cutting associated the plant consolidations, cutting hours at post office, consolidating delivery routes, and using more non-career workers has shaved operating expenses by $350 million compared to the same nine-month period last year.  That’s less than one percent of total operating costs for the period.


Returning to profitability

Overall, things may be looking up thanks to more e-commerce, but the Postal Service says it “will not return to profitability and long-term financial stability without passage of comprehensive legislation to fix a business model that does not allow it to adapt to changes in the marketplace.”

The “fix” that the Postal Service wants is the green light to eliminate Saturday delivery, increase use of cluster boxes, close facilities, and take more control over its pension and health care plans.  It will mean more downsizing and dismantling, more work transferred from the Postal Service to the private sector, and a few more steps toward privatization.

Still, it’s good to hear the Postal Service talking about a “return to profitability.”  It’s easy to forget that the Postal Service was once profitable.  It has not always been running deficits on the order of $16 billion a year.  In fact, over the past 30 years, the Postal Service has posted a profit 15 times.  (See the chart on p. 55 for 1971-2001, and this one, p. 3, for after 2001.)

Half the time the Postal Service is in the red, half the time it’s in the black.  That’s pretty much the way it’s supposed to be — hovering around breaking even.  If the profits were consistently large, mailers would complain that rates are too high.  When the losses are too large, Congress gets worked up about a taxpayer bailout.

What’s been unique about the past few years is that the Postal Service was hit by a big recession and the prefunding mandate at the same time.  A huge deficit inevitably resulted — an opportunity too good to pass up for those who have always wanted to dismantle the Postal Service.

For some people, it’s unfathomable that the Postal Service — an institution they see as the epitome of everything that’s wrong with the government, like “bloated operating expenses” and an “inflexible unionized workforce” — could possibly run at a profit.

A good financial report is the last thing they wanted to see.