Dive Brief:
- The U.S. Postal Service’s transportation costs rose for the quarter that ended June 30 as it faced climbing fuel costs and it shifted volume to satisfy its air cargo contract with UPS, per the agency's Q3 earnings report.
- Expenses for air transportation between facilities increased 4.7% year over year to $509 million. The Postal Service attributed the jump primarily "to shifting certain package volume from highway transportation back to air to meet our service standards and contract requirements," plus large jet fuel cost increases.
- Highway transportation costs grew 4.1% YoY to nearly $1.6 billion due to higher average diesel fuel prices, which were partially offset by the air volume shift.
Dive Insight:
The Postal Service made strides in reducing its transportation expenses last fiscal year, particularly on the air cargo side as it shifted some volume from air to highway transportation.
However, the Postal Service has been transporting more First-Class Mail and Marketing Mail via air instead of more economical ground transportation this year in order to satisfy its UPS air cargo contract, the agency's Office of Inspector General reported last month. Through the contract, the USPS guarantees a minimum average daily volume, but plummeting Priority Mail volume hasn't made reaching that minimum easy, per the report.
“If package volumes continue to trend downward, the Postal Service will likely shift even more First-Class Mail and Marketing Mail into the air network to avoid higher costs even though that is inconsistent with the longer-term goal of reducing reliance on high-cost air transportation,” the OIG's report said.
Further pressuring transportation expenses, the Postal Service and other carriers are navigating higher fuel costs amid the Iran war and associated Strait of Hormuz disruptions.
The Postal Service implemented an 8% temporary price hike in April for package shipping services like USPS Ground Advantage and Priority Mail to offset those costs. The increase, which is set to last until Jan. 17, 2027, helped the Postal Service boost revenue for its package shipping services by 7.7% YoY in Q3, despite a volume drop of 3.4% in the category.
"On the pricing front, the results this quarter show the strong leverage that pricing can have on results, and pricing is one lever that we have to use now to grow revenue," Postmaster General and CEO David Steiner said in remarks to the agency's board of governors on Friday.
Despite the revenue jump, the Postal Service posted a $2.5 billion net loss for the quarter and continues to face an "urgent financial crisis," Steiner said. The USPS leader said action from Congress will be necessary to position the agency for long-term financial stability.
