MW: The US Postal Service gets $10bn in the stimulus act. It needs the help.

29/03/2020

Barron’s writes:

The CARES Act, the $2 trillion stimulus package signed into law on Friday, is a massive shot in the arm for a moribund economy, with payments and loan guarantees to workers, small businesses, and industries hard hit by the Covid-19 pandemic. The U.S. Postal Service is included in the act too—it allows USPS to borrow up to $10 billion from the Treasury.

The government wants to ensure mail and packages keep flowing during this unprecedented period of economic pause. It’s a necessary step given that logistics providers are the lifeblood of any economy.

“As Americans are urged to stay home, the importance of the mail will only grow as people will need access to communications and essential packages such as prescription drugs and other necessities,” the USPS said in a statement. “This is particularly true in rural and other areas.”

“National post carriers are declaring force majeure, suspending service, or otherwise making significant adjustments,” iDrive Logistics strategist Matthew White tells Barron’s.

(Force majeure is invoked when an entity can’t fulfill a contract because of unforeseeable circumstances.)

Deutsche Post (ticker: DPW. Germany), owner of DHL, for instance, recently reserved the right to modify services—effectively declaring force majeure—potentially delaying international shipments. One issue the lack of commercial flights which typically carry freight along with people.

That isn’t the case in the U.S. “Carriers in the United States are handling this crisis with relative aplomb,” adds White. “It is highly likely that the USPS’ longstanding agreement with FedEx Express could be further leveraged, as well as cargo assets of domestic airlines.”

It’s a difficult operating environment, to say the least. The USPS, for its part, is grateful for federal support but says it could need more.

“The Postal Service remains concerned that this measure will be insufficient to enable the Postal Service to withstand the significant downturn in our business that could directly result from the pandemic,” a post office representative told Barron’s in an emailed statement. “Under a worst-case scenario, such downturn could result in the Postal Service having insufficient liquidity to continue operations.”

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