USPS Sets Borrowing Terms for $ 10 Billion Loan Through CARES Act
Included in the $ 2,000 billion CARES (Coronavirus Aid, Relief, and Economic Security Act), which was enacted by President Trump in late March, the United States Postal Service (USPS) has received an additional borrowing authorization of $ 10 billion to deal with operating losses. caused by the COVID-19 crisis, subject to conditions imposed by the Treasury.
This loan comes at a time when the USPS is in desperate need of federal financial assistance, as noted in a recent Washington Post report, which noted that the combination of the USPS ‘fiscal outlook, the insistence of the White House for the USPS to increase its flat rates, with industry competitors taking significant steps to strengthen their respective delivery networks, and USPS executives claiming at the onset of the COVID-19 pandemic that the USPS could be insolvent by October, all loom, as the organization tries to right the ship.
With the $ 10 billion loan to the USPS secured, the USPS today issued a statement outlining the terms under which it will provide the United States Department of the Treasury with specific information regarding costs, revenues and costs. the organization’s overall financial situation, which includes providing the Treasury, under strict conditions of confidentiality, with the contracts which generate the most revenue for the Post.
“Providing this information is simply an acknowledgment that the Treasury has been designated by Congress as the postal service lender, and therefore has a legitimate interest in certain circumstances in understanding the factors that affect our current and projected financial position. USPS said in a statement. “Other conditions, such as the requirement that borrowed funds be used only for operating expenses, not for capital expenditures, were expressly prescribed by Congress in the language of the CARES Act.
In its second-quarter fiscal year results release, released in early May, the USPS said total revenue, of $ 17.8 billion, marked an annual increase of $ 348 million.
And he added that the impact of the COVID-19 pandemic on USPS volumes became apparent in late May, when daily mail volume experienced a decline, which then worsened.
The U.S. Postal Service reported total revenue of $ 17.8 billion for the second quarter of fiscal 2020 (January 1, 2020 – March 31, 2020), an increase of $ 348 million from the same period last year.
Additionally, when it released these results, the USPS said it is estimated that the COVID-19 pandemic will dramatically increase the postal service’s net operating loss over the next eighteen months and threaten its ability to function.
In early April, a letter written to United States Secretary of the Treasury Steven Mnuchin by John McHugh, chairman of The Package Coalition, a company made up of United States-based retail and e-commerce companies competing fairly in the parcel delivery industry and the preservation of reliable parcel delivery services, Mnuchin asked to give the United States Postal Service (USPS) some leeway regarding the CARES Act.
Specifically, the Package Coalition called on Mnuchin “that the Treasury not impose onerous terms and conditions – including damaging policy changes – on the postal service in return for borrowing related to the COVID emergency.”
The letter explained that the CARES Act gave the USPS an additional borrowing authority of $ 10 billion to deal with operating losses caused by the COVID-19 crisis, subject to conditions imposed by the Treasury. Further, he added that the Treasury should allow the USPS to access borrowing related to the COVID emergency without conditions and that it would be inappropriate for the Treasury to use this emergency-related borrowing authority to put implementing nefarious policy changes advocated by the President’s Task Force on the United States Postal System.
The USPS ‘financial woes are not surprising, given the commonly cited reasons for its continued decline in revenue in First Class and Marketing Mail, which USPS says continues to see declining volumes, coupled with volumes. which are expected to decline further in the future, due to what the USPS has called the “migration to electronic communications and transactional alternatives resulting from technological change”. Items such as email, SMS and other electronic communication channels also continue to hamper first class mail.
In December 2018, the precarious financial situation of the USPS prompted the US Department of the Treasury to release a USPS task force report titled “United States Postal System: A Sustainable Path Forward,” which it said provides a series of recommendations for overhauling the USPS. business model in order to bring it back to sustainability and not pass additional costs on to taxpayers.
Topics studied by the task force, according to the report, included: expanding and pricing the parcel delivery market and the role of the USPS in competitive markets; declining mail volume and its implications for the USPS self-financing and USPS monopoly on letter delivery and mailboxes; the definition of “universal service obligation” in light of evolving e-commerce technology commercialization practices and customer needs; the role of the USPS in the US economy and in rural areas, communities, and small towns; and the state of the USPS business model, labor, operations, costs, and pricing.
“Now is not the time to force the Postal Service to restrict access to postal parcel delivery services,” wrote McHugh of The Package Coalition. “More than ever, Americans are relying on the Postal Service as a lifeline to deliver medicines, e-commerce products, and mail and parcel deliveries to connect refugees at home with their loved ones. In the short term, the Postal Service could play a pivotal role in distributing test kits, stimulus checks and mail ballots as Americans grapple with the challenges of the current crisis. Now is not the time to force the Postal Service to raise prices for its parcel delivery business by changing pricing rules or by separating lines of business within the Postal Service. Such changes would hurt, but not help, consumers and businesses, especially those in rural and remote parts of the country where postal service is the only affordable delivery alternative. The only beneficiaries of such policy changes would be the private express companies that operate in competition with the postal service. “
In a recent interview, John Haber, founder and CEO of Atlanta-based Spend Management Experts, said LM that the balance between helping the USPS in the short term and damaging them more in the long term is a very delicate one.
“While we have preached that reform is going to be mandatory for the USPS to continue to function in the long term, it is dangerous to tie some of these changes to COVID-19 / CARES ACT funding as advocated by the President’s Task Force. . on the USPS, ”he said. “This decision must be reassessed as requested yesterday by The Package Coalition, the USPS Board of Governors and the USPS Postmaster General. We agree that protections must be built into the funding to ensure that the additional $ 10 billion in funding is used wisely and appropriately. “
About the Author
Jeff Berman, Group News Editor Jeff Berman is Group News Editor for Logistics management, Modern material handling, and Supply chain management review. Jeff works and lives in Cape Elizabeth, Maine where he covers all aspects of the supply chain, logistics, freight transportation and material handling industries on a daily basis. Contact Jeff Berman