USPS Navigates Mixed Fortunes in Q2: Revenue Rises Amid Structural Challenges

The U.S. Postal Service (USPS) reported second-quarter 2025 operating revenue of $19.7 billion, marking a 2.1% year-over-year increase. While this growth reflects strategic pricing and shipping gains, persistent headwinds—from declining mail volumes to pension liabilities—highlight the delicate balancing act facing the agency.

Revenue Growth, But at a Cost

The revenue rise was driven by increases across key segments:
- First-Class Mail revenue jumped 4.4% to $6.7 billion, fueled by price hikes that offset a 2.2% drop in volume.
- Marketing Mail grew 2.1% to $4.1 billion, with election-related mail boosting demand.
- Shipping and Packages revenue rose 1.2% to $9.1 billion, thanks to USPS Ground Advantage’s competitive pricing.

However, total volume fell 2.1% to 28 billion pieces, as First-Class and Marketing Mail declined. This underscores the ongoing shift from physical mail to digital alternatives—a trend USPS must counter with innovation.

Cost Discipline Masks Structural Pressures

Operating expenses dropped 3.1% to $21.3 billion, driven by a $326 million reduction in transportation costs from network optimization and workforce rebalancing. Yet USPS still posted a $1.5 billion GAAP net loss, widened by non-cash charges like $1.4 billion in unfunded pension liabilities.

When excluding these non-controllable factors, the “controllable loss” narrowed to $317 million, a 36% improvement from the prior year. This suggests USPS’s operational strategies—like its Delivering for America plan—are yielding results, but systemic issues remain unresolved.

The Elephant in the Room: Pension Liabilities

The USPS’s financial health is hamstrung by $1.45 billion in annual pension obligations, tied to outdated rules for Civil Service Retirement System (CSRS) and Federal Employee Retirement System (FERS) liabilities. These costs, which are non-operational and outside management’s control, highlight the need for legislative reforms. Without changes, USPS’s progress on cost-cutting will be overshadowed by these legacy burdens.

Election Mail: A Temporary Lifeline

The 2024 election cycle injected $360 million into Marketing Mail revenue through political mail, accounting for nearly 90% of its growth. While this provided a short-term boost, such gains are cyclical and unreliable. Relying on election-driven spikes risks masking the broader decline in traditional mail demand.

Shipping: A Bright Spot, but Not a Panacea

Shipping revenue growth—driven by USPS Ground Advantage—offers a glimmer of hope. The service’s 1.5% volume increase to 2.03 billion pieces reflects its competitive edge against private carriers. Yet the segment’s 1.2% revenue growth lags behind broader e-commerce trends, signaling USPS must further modernize to retain relevance.

Regulatory and Structural Challenges Ahead

USPS operates under constraints that limit flexibility:
- Rate-setting restrictions by the Postal Regulatory Commission hinder pricing autonomy.
- Debt ceiling pressures and outdated workers’ compensation rules add financial strain.

These factors, combined with a 1.4% annual decline in the postal industry’s market size since 2019, suggest USPS’s path to sustainability requires more than operational tweaks—it needs systemic reform.

Conclusion: Caution and Opportunity in Equal Measure

USPS’s Q2 results reveal both resilience and vulnerability. Strategic pricing, shipping gains, and cost discipline have narrowed controllable losses, but pension liabilities and regulatory hurdles loom large. Investors or stakeholders should note:
- Short-term stability: The controllable loss reduction to $317 million (from $498 million in 2024) signals operational progress.
- Long-term risks: Without pension reform and legislative changes, USPS’s structural deficits will persist, even as it grows shipping and adapts to digital demands.

For now, USPS remains a high-risk, high-reward proposition. Its universal service mandate and infrastructure provide a foundation for growth, but its financial future hinges on overcoming bureaucratic and economic headwinds. The next steps—whether through congressional action or further cost savings—will determine whether this century-old institution can truly deliver in the modern era.