USPS Will Hit Exigent Surcharge Limit by August

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$1.4 billion was collected as of last October, according to the Postal Service's Q1 report, and CFO Joe Corbett says $2 billion in cash will be lost if exigency's suspended.

Postmaster General Megan Brennan

Thanks to record holiday package volume and strength in Standard Mail, the U.S. Postal Service registered a 4.3% increase in operating revenue during the first quarter of its 2015 fiscal year ended December 31. Nonetheless, the agency posted a quarterly loss of $754 million, still plagued by a mandated $1.4 billion prepayment into its Retiree Health Benefits Fund.

Reprising what has become a mantra of the last several earnings calls, CFO Joe Corbett pleaded with Congress to pass postal reform legislation.“We need to be making investments in critical infrastructure needs, such as purchasing new vehicles,” he said. “We've delayed too long and we need to take action, and we are taking action.”

Yet Corbett and new Postmaster General Megan Brennan exhibited signs of optimism during a press call on quarterly results this morning. Shipping and package revenue increased by nearly $400 million on a 12.8% lift in volume, and Standard Mail receipts increased $351 million on a 3.5% volume rise.

While much of the Standard Class increase was attributed to political direct mail during midterm elections, Corbett said advertising mail rose, as well. “If you draw a line [of advertising mail volume] over the last four years, you see it moving up very steadily,” he said.

Corbett admitted dreading the day that the 4.3% exigent surcharge, enforced in January 2014, might be removed. He estimated it would arrive in late July or early August, when the $3.2 billion in funds deemed lost to the Great Recession would be recovered. The Postal Regulatory Commission issued an order for the removal of the surcharge last month, in keeping with the condition of its approval of the emergency rate hike.

According to USPS's 10-Q report, it had collected $1.4 billion in exigent surcharges as of the end of September, and Corbett estimated the Postal service would lose some $2 billion in cash flow for Fiscal 2015 should the rate be dissolved. Both Postal Service officials and stakeholders in the mailing community await a decision from the D.C. District Court of Appeals on a USPS petition requesting the exigent increase be made permanent.

Despite what's decided in the courts or in the halls of Congress, Brennan, the first female to hold the office of Postmaster General, remained bullish on the business prospects of the Postal Service.

“It's very encouraging to see the growth in advertising mail, and we will continue to use promotions to encourage marrying it with digital solutions,” Brennan said. “We have a tremendous amount of momentum running throughout the organization. It reflects the effective marketing campaigns run around our package and Priority Mail products.”

Brennan said that one of the priorities of her administration would be to ensure investing in the future of the Postal Service. “We're now looking at just the beginning of the capital investments we need to make, such as buying new vehicles, which will be a multi-year effort,” she said.” We have to look also at how best to leverage our infrastructure. This goes beyond capital investments. We're seeing tremendous changes in the delivery environment.”

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