Postal Service reaches agreement on $10 billion Treasury loan

The U.S. Postal Service (USPS) has reached an “agreement in principle” with the U.S. Treasury Department on a long-awaited $10 billion loan that the agency needs to survive a steep drop in mail volume and staggering financial losses.

But the loan comes with a caveat: USPS must provide Treasury copies of its 10 largest service contracts with third-party last-mile delivery companies Amazon (NASDAQ:AMZN), FedEx (NYSE:FDX), and UPS (NYSE:UPS), according to the Washington Post, which obtained a copy of the loan’s term sheet.

A USPS loan provision was included in the original CARES Act legislation the Senate passed in March. But President Donald Trump stated at an April 24 press briefing that he would not authorize Treasury Secretary Steven Mnuchin to sign off on the loan unless USPS raised the prices it charges Amazon and others for parcel delivery.

The loan agreement was unanimously approved by the USPS Board of Governors on Tuesday. The board announced Wednesday that it expects the parties will formalize the agreement in loan documents developed over the coming weeks.

Access to the new line of borrowing authority from the Treasury “will delay the approaching liquidity crisis,” said U.S. Postmaster General Louis DeJoy. Dejoy warned, however, that the agency “remains on an unsustainable path and we will continue to focus on improving operational efficiency and pursuing other reforms in order to put the Postal Service on a trajectory for long-term financial stability.”

Dejoy’s predecessor, Megan Brennan, asserted in April that the CARES Act loan was needed to help offset an increase in net operating loss of more than $22 billion over the next 18 months as a result of the coronavirus pandemic.

A major infrastructure package backed by Democrats that passed the U.S. House of Representatives on July 1, the $1.5 trillion Moving Forward Act, includes $25 billion to fund USPS, with $6 billion of that dedicated to new zero-emission trucks. However, the legislation is not given much chance of passing in the Senate.

USPS reported on May 8 a $4.5 billion loss for its latest fiscal quarter amid warnings that government intervention would be needed to avoid a potential service shutdown. The loss was more than double the $2.1 billion loss in the same period last year.

USPS has relied heavily on large-scale partners like FedEx, UPS, and Amazon to induct parcels deep into the postal infrastructure for last-mile deliveries to residences and businesses. 

The companies use USPS’ universal-delivery network to provide deliveries without the cost of dispatching their drivers and vans. In recent years, however, UPS and FedEx have created algorithms allowing them to better compete with USPS for large amounts of traffic.

Competition levels have increased on the international front for USPS as well. Starting July 1, a new pricing structure for low-value small parcels went into effect that raises rates on shipments connecting several origin and destination postal systems.

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