US Postal Service gets whacked with a $1.3 billion loss as it struggles to keep up with Amazon

  • The US Postal Service reported a total net loss of $US1.3 billion in the second quarter. It lost $US562 million a year ago.
  • The USPS posted a controllable loss of $US656 million in the second quarter, compared with income of $US12 million for the same period a year ago. This is an important number because it factors in expenses such as wage increases.
  • The losses are surprising when you consider package volume increased 5%.
  • The USPS largely attributed its downward profitability shift to increased compensation costs, suggesting that the company is scrambling to keep up with competition at the peril of its bottom line.

The US Postal Service is headed in the wrong direction.

It posted a controllable loss of $US656 million in the second quarter, compared with income of $US12 million for the same period a year ago. The USPS also incurred a total net loss of $US1.3 billion, compared to the $US562 million loss it saw in the second quarter of 2017. Those drastic slips are likely to overshadow USPS’s revenue rising 1.4%, to $US1.75 billion, on a year-over-year basis.

Perhaps even more troublesome is that the USPS posted such a large loss during a period in which package volumes increased by 5%.

While that uptick most likely explains the $US364 million increase in compensation expenses due to what it describes as “additional hours incurred to support the labour-intensive package business as well as contractual wage adjustments,” it also raises the question of why the volume surge wasn’t able to bridge the controllable-income gap.

One possible explanation for the wage jump is that the USPS is doing everything in its power to compete with Amazon – including offering workers more hours – at the expense of profitability.

This development is sure to catch the eye of President Donald Trump, who in a tweetstorm earlier this year attacked Amazon for what he says it’s doing to the USPS. In the past, Trump has mentioned changing the company’s tax treatment or going after it on antitrust grounds.

“I have stated my concerns with Amazon long before the Election,”Trump tweeted on March 29. “Unlike others, they pay little or no taxes to state & local governments, use our Postal System as their Delivery Boy (causing tremendous loss to the U.S.), and are putting many thousands of retailers out of business!”

Amazon’s stock climbed 0.2% in premarket trading and is up 38% this year.

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