- Why are finances worse than last year?
- Were the poor results unexpected?
- Could the Postal Service have taken actions to mitigate the financial losses?
- Will there be consequences for the Board of Governors and senior management?
Finances are worse for three reasons.
First, workers compensation liability adjustments required an accounting adjustment of $789. This has an impact on both the income statement and balance sheet but should have no impact on the Postal Service's cash flow.
Second, mail volume is declining and the mix is becoming unfavorable. Mail volume in the quarter was down 1.7% even though Standard mail volume rose by 4.2%. As such the average revenue per piece of mail (the yield) is more than likely declining more rapidly than volume is. Evidence to date suggests that the shift toward advertising focused products, which includes periodicals, is occurring at an accelerating rate. For example, single piece First Class mail is declining at a faster rate than prior to the recession and at a faster rate than the forecast contained in the exigent rate case.
Third, the need for labor and capital resources is declining faster than the decline in mail volume and faster than the decline in available resources through attrition. The shift toward advertising mail, and other products that are usually entered sorted and near the delivery address, is the primary reason why the demand for labor and other resources are declining.
Were the poor results unexpected?
The ability of the Postal Service to anticipate the problems in the third quarter depend on whether their planning included scenarios that anticipated the adverse trends that occurred and whether they had in place a system that generates warning flags months prior to end of the quarter that would indicate that financial results were falling below financial goals. Given that the Postal Service only took actions recently to freeze hiring, it is not clear how early Postal Senior management knew that financial results would be falling behind.
If the forecasts contained in the exigent rate case are the forecasts that the Postal Service used for planning, then information that indicated that financial results might deteriorate should have been available by the end of the second quarter. At that time First Class volumes were declining more rapidly than forecast and both senior management and the Board of Governors should have been aware of that trend at that time.
Could the Postal Service have taken actions to mitigate the financial losses?
Clearly the Postal Service could have instituted the hiring freeze a quarter earlier. It is not clear from information that is publicly available which additional actions should have been taken in the past few months that would have reduced the impact of the adverse trends and workers compensation adjustment. To the extent that the Board of Governors and management expected that Congressional or regulatory action would mitigate problems in time to reduce losses, then that expectation was mistaken.
Will there be consequences for the Board of Governors and senior management?
Consequences for either the Board of Governors or senior management appear unlikely. As the Postal Service does not have shareholders, the Board of Governors faces no risk from the poor financial results. The Postal Service's board does not face the prospect of a disgruntled investor proposing a proxy fight to replace the board. The Board of Governors all serve fixed terms and the worst that could happen is that they will not be reappointed. Postal senior management serves at the pleasure of the Board. However, given that the Board has fully supported the strategic and policy directions suggested by management, there is no indication that the Board has lost confidence in current postal management and would seek their replacement.