The Internet taketh, and giveth, a lot: The Postal Service's 2016 Q1 Financial Report

February 10, 2016

Yesterday the Postal Service posted its Form 10-Q financial report for the first quarter of Fiscal Year 2016 (Oct. 1, 2015 - Dec. 31, 2015).  Thanks to a brisk package business during the holiday season, the Postal Service had plenty of good news to report.

The financial report shows that the growth in e-commerce is more than making up for the losses in First Class Mail associated with the migration to electronic communication.  As APWU President Mark Dimondstein said in November on the occasion of another USPS financial report, “I often say that the Internet taketh and the Internet giveth. First-class mail has declined, but online shopping has triggered an explosion in package volume.”

That explosion, as Bernie Sanders would say, has been "yuge."  Apparently the widespread reports of the demise of the Postal Service have been greatly exaggerated.


A swing to profit

As highlighted in the USPS press release, compared to the same period last year, operating revenue grew 3.3 percent to $19.3 billion.

"Controllable income" totaled $1.3 billion.  That's how much profit the Postal Service made during the quarter before deducting $1.45 billion owed to the Retiree Health Benefit Fund and adding $196 million from a favorable workers' comp adjustment.  After taking these two factors into consideration, the net profit was still $307 million, as compared to a $754 million loss for the same quarter last year.

As the press release also emphasizes, however, the Postal Service continues to benefit from the exigent surcharge, which expires in April, and "legislative reform and careful focus on cost containment remain necessary."

Not surprisingly, the media reports are focusing on the fact that the Postal Service has finally posted a net profit.  As the Wall Street Journal quickly reported, “The U.S. Postal Service swung to a profit for the holiday quarter, helped by strong demand for package delivery, a big surcharge and continued favorable interest-rate changes on workers’ compensation."  

Lest anyone looking at the latest financial numbers think the news is too good, though, the USPS press release also contains this comment from Chief Financial Officer Joseph Corbett: "While net income is favorable compared to a net loss, it unfortunately does not reflect the end of our losses."  

Corbett goes on to explain that without the workers comp adjustment and the exigent surcharge, the Postal Service "would have actually reported a net loss of approximately $700 million."  

In the 10-Q report itself, the Postal Service puts a damper on the good news in yet another way (bold added):

While we continue to experience strong results in our Shipping and Packages business, it represented only 25% of our revenues for the three months ended December 31, 2015, compared to First-Class Mail, which represented 39%. For fiscal year 2015, Shipping & Packages would have needed to increase by 260% in order to make up for the impact of the volume losses of First-Class Mail for the year. Furthermore, the costs to process and deliver Shipping and Packages services are substantially higher than the costs for First-Class Mail.

This passage is apparently intended to make it seem that the growth in Shipping and Packages is insufficient to make up for the declines in First Class Mail.  The Postmaster General made the same claim in testimony before Congress back in January.  In neither instance, however, did the Postal Service explain how it came up with the figure 260 percent, and it's hard to imagine where the number came from.  Is that a real calculation or just hyperbole? 

As shown in this table from the FY 2015 10-K Report, First Class revenues fell from $28.41 billion in 2014 to $28.31 billion in 2015, a loss of about $100 million.  In FY 2014, Shipping & Packages revenues were $13.54 billion.  In order to make up a loss of $100 million, Shipping & Packages revenues would have needed to increase by only 0.7 percent, not 260 percent.  (In actuality, package revenues increased by 11.3 percent.)

In terms of volume, First Class volumes fell from 63.8 billion in 2014 to 62.4 billion in 2015, a loss of 1.4 billion pieces.  In FY 2014, Shipping & Packages volumes were 3.97 billion pieces.  In order to make up a loss of 1.4 billion pieces, package services would have needed to increase by 36 percent, not 260 percent.  (In actuality, the volumes increased by 14 percent.)

Neither of these scenarios explains the 260 percent figure, and it remains a mystery how anything would need to increase that much to make up for losses in First Class Mail in 2015.  


How increases offset decreases

In any case, the key question is simply this: Are increased revenues from Shipping & Packages making up for declining revenues in First Class Mail?  The answer is an unequivocal yes.

As shown in this table from yesterday's 10-Q report, compared to the same period last year, first-quarter revenues for First Class Mail fell from $7.603 billion to $7.541 billion, a drop of $62 million (about 0.8 percent).  Compared to the same period last year, revenues for Shipping and Packages rose from $4.196 billion to $4.762 billion, an increase of $566 million (about 13.5 percent).  

The increase in shipping revenues was thus over nine times the decrease in First Class revenues. 

How the Postal Service sold Richmond's Saunders Station PO for a song

February 8, 2016

Back in October 2015, the Postal Service sold the historic 1937 Saunders Station post office in Richmond, Virginia.  At the time, the sale price was not made public, but as discussed in this previous post, there was reason to wonder if the sale made sense financially.  Turns out, the sale makes hardly any sense at all.

A reader of STPO pointed us to the City of Richmond’s assessor’s office, which posts the sale prices for all real estate transactions.  According to the Assessor's transfer record, on October 27, 2015, the Postal Service sold the Saunders Station to Torq Holdings (the LLC for a startup software company named Mobelux) for $812,000.

That amount is troubling for a couple of reasons.

First of all, the sale price is considerably less than the property was appraised for.  According to the Assessor, in 2015 the post office’s land and building were worth $1.2 million.   That includes $806,000 for the land (0.46 acres, with 16 parking spaces) and $395,000 for the building (13,000 square feet).

(An article about the sale last October in Richmond BizSense said the property had been recently assessed even higher, at $1.45 million, but it’s not clear where that number came from.)

Now, it’s possible that the assessed value of $1.2 million was simply off.  Assessments are typically based on comparable properties and the price when the building last changed hands, but old post office buildings are rather unique, and the building hadn’t changed hands since it was built decades ago.

The records show that in 2016 — after the Postal Service had sold the property — the Richmond Assessor did a new appraisal of the property and, for some reason, reduced the value to $1.127 million.  But this reappraisal means that the city apparently believes the property was worth $300,000 more than the Postal Service had sold it for.

(Disposing of properties below their market value is the subject of a scathing report by reporter Peter Byrne, Going Postal: U.S. Senator Dianne Feinstein's husband sells post offices to his friends, cheap, which argues that CBRE, the Postal Service's real estate agent, is helping out its friends and clients with deals on postal property.  The USPS Office of Inspector General has also done several audits criticizig the USPS-CBRE contract.  There's no indication in this case, however, that the buyer of the Saunder's Station has connections with CBRE.)  

In addition to the probability that the post office was sold significantly below its real value, there's this bit of arithmetic to consider about the sale.

Back in 2011, when the Postal Service originally expected to sell the historic Saunders Station, it began renting space for the new location just a few doors away.  (The historic post office is at 1625-35 W. Broad Street; the new Saunders station is at 1643 W. Broad Street.)

According to the USPS Leased Facilities Report, the new space has about 3,500 square feet, with no land (and no parking except for spaces on the street), and the Postal Service is responsible for the maintenance.  The annual rental price is $55,000.  

The lease began on September 1, 2011, just about the time the property was first listed on the USPS-CBRE Properties for Sale website.  According to BizSense, the relocation finally took place in early October 2015.  (The USPS Find Locations page still lists the New Saunders with no hours.)

Over the four years from September 2011 to October 2015, the Postal Service spent about $220,000 on the new space while it continued to operate out of the old space. 

District Court refuses to reconsider opinion in USPS v. SCE

January 17, 2017

Today is the birthday of Benjamin Franklin, the Nation's first Postmaster General, but U.S. District Judge James E. Boasberg has given the Postal Service little reason to celebrate.

On Thursday, Judge Boasberg denied the Postal Service's Motion for Reconsideration, which asked him to revise the Opinion he issued back in September in the case of USPS v. Southern California Edison (SCE), the utility company. 

Judge Boasberg's decision means that the Postal Service is not going to be collecting the $7.6 million it had sought from SCE.  Most likely, the Postal Service will end up with a small fraction of that amount.

As discussed in this previous post, the case involves millions of pieces of mail sent by SCE in 2007 and 2008 at discounted rates as part of a workshare deal.  Some of this mail was undeliverable-as-addressed (UAA) — a.k.a “dead letters" — and the Postal Service wanted to charge SCE a fine.  

According to the Postal Service, SCE owed $7.6 million — the entire difference between the workshare discount rate and the regular rate.  SCE was willing to pay an assessment but only for the mail that was actually UAA — the volume of which was not exactly clear, since the Postal Service could not provide specific numbers.

Back in September, Judge Boasberg issued an Opinion in which he rejected the Postal Service’s rationale for the huge assessment.  Since a relatively small portion of the mail had UAA problems, he returned the issue to the Postal Service with a directive to come up with a more “reasoned decisionmaking in calculating the appropriate assessment.” 

In his Opinion, Judge Boasberg expressed disdain for the irrationality of the Postal Service’s position, using words like “absurd” and “Kafkaesque,” and he had some fun as well, quoting the lyrics from the Elvis hit "Return to Sender." 

After getting this rebuff from the Court, the Postal Service filed a Motion for Reconsideration asking the Judge to change his earlier Opinion.  

In rejecting the Motion, Judge Boasberg again couldn’t resist a little wordplay.  His Opinion begins as follows:

When mail recipients decline to accept letters delivered by the United States Postal Service, they can write “return to sender” on the envelope so that USPS will offer the sender an opportunity to revise the destination address. In similar fashion, Defendant USPS here attempts to return this Court’s Opinion for revision, seeking a more favorable delivery.

Unfortunately, the Judge did not seem very amused by the Postal Service’s challenge to his earlier Opinion, and yesterday’s decision takes each of the points in the Postal Service’s motion, one by one, and pretty much, well, returns to sender.

Your Walmart closing? There's always your local post office

January 16, 2016

Whenever the Postal Service wants to close a post office, it tells affected customers about all the “alternative access” points in the area where they will continue to be able to do some postal business — like buying stamp booklets at Walmart.  The Postal Service usually includes a list and map of all these alternatives in the discontinuance notice (as they appear on the USPS Find Locations page).

Now that Walmart has announced that it is closing 154 stores in the U.S., it seems only fair to point out that there’s always a post office nearby where one can not only buy stamps but do all sorts of other business, like sending packages and Priority mail, getting a passport, renting a post office box, and so on. 

You can see a list of the 154 Walmart stores that are closing — along with the post office that’s in the same zip code area — here.  The average distance between the Walmart and the post office is about 1.5 miles.  For fifty Walmarts, the post office is less than a half mile away.  

Here's a map showing the locations, with the Walmarts in red and the post offices in blue.  If you zoom in on a location, you'll find that the post office is often just a short distance from the Walmart.  (Go here for a larger version.)

The Postal Service is always touting its “alternative access” channels where one can do postal business and thereby avoid going to the post office.  A few years ago, the Postal Service ran an ad campaign called “USPS Everywhere.”  The press release starts like this:

With nearly 100,000 places to buy stamps, ship a package or renew a passport, the U.S. Postal Service is expanding customer access to its products and services. It’s not about brick-and-mortar Post Offices anymore, as postal products move online and into retail outlets, grocery stores, office supply chains and pharmacies.

That’s a little misleading, since more than 60,000 of the 100,000 places just sell stamps on consignment as part of the Stamps to Go program, and another 32,000 are actually USPS-operated post offices.  But the point is clear enough: you don’t need to go to the post office. 

The Postal Service makes the same point in a more recent ad campaign promoting as “the world’s largest post office.”  It starts this way:

"Customers are always at the front of the line at this Post Office that never closes. With a click of the mouse customers can conveniently ship from their homes to any location by scheduling a next-day package pickup — saving a trip to the Post Office."

The Postal Service encourages people not to use the post office because that’s the most expensive way to bring in retail revenues.  It's much cheaper to have Walmart sell stamps on consignment or to have an approved shipper like Staples deal with parcels.

But one of the problems with citing alternative access points when the Postal Service wants to close post offices is that private retailers can be closed at a moment’s notice, like the 154 Walmarts closing soon or the 225 Staples stores that closed last year.  There’s no guarantee that a particular alternative will be there tomorrow.

Along these lines, it’s also worth noting that the Postal Regulatory Commission is currently inviting comments on a Public Inquiry docket about post office closings and appeals. 

One of the issues being addressed is how the statute governing post office closings —39 USC 404(d) — may need a new interpretation due to the fact that that there are more places to buy stamps and send packages than there were when the statute was enacted in the early 1970s.

The PRC is apparently moving toward narrowing its jurisdiction over appeals, which will make it easier to close post offices without a full-fledged discontinuance study and all the transparency and community input such a study provides.  It will also mean that fewer communities will even be able to appeal a closing to the PRC. 

Perhaps one day it will be just as easy for the Postal Service to close post offices as it is for Walmart to close any of its stores.  That’s one of the consequences of telling the Postal Service to “act more like a business.”

(Image credits: Walmart closed; Stamps Everywhere; Approved Postal Provider)

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