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Calls for “lame duck” reforms as USPS records $16bn loss

Thursday, November 15th, 2012

The US Postal Service said today it is “critical” that Congress passes key postal reforms before the end of next month, as it recorded a $15.9bn loss for the 2012 year.

The loss included a $11.1bn payment owed to the federal government that USPS actually refused to make in August and September, related to retiree healthcare liabilities.

But with mail volumes down from 168.3bn to 159.9bn year-on-year, USPS saw revenues slipping by less than a point to $65.2bn for the year ended 30th September, which did not cover the $81bn cost of running the network, including the defaulted payment.

The USPS package business represented a bright spot within the gloom, growing sales by 8.7%, or by $926m, compared to 2011, with a 244m boost to volumes thanks to ecommerce growth and a marketing push.

But as only a fraction of the overall USPS business, its “encouraging” performance was not enough to counter the $1.1bn (3.9%) drop in First Class Mail revenues, combined with the $747m (4.3%) slump in Standard Mail revenues, which are largely comprised of advertising materials.

USPS said the year’s decline in First Class Mail was slower than previous years, however.

The Postal Service, which is in the middle of closing half its processing network to cut costs, argued that ignoring payments mandated by Congress and the federal government, it’s “controllable” loss for the year was only $2.5bn – suggesting there is more to do to take costs out of the system and build new revenues, but emphasising the need for legal reforms.

Despite record productivity levels in the workforce, USPS is currently at its legal borrowing limit of $15bn.

“Our liquidity continues to be a major concern and underscores the need for passage of legislation that gives the Postal Service a more flexible business model to improve its cash flow,” said USPS chief financial officer Joseph Corbett, although he repeated past promises that: “Despite reaching the debt limit, the Postal Service mail operations and delivery continue as usual and employees and suppliers continue to be paid on-time.”

This month’s Presidential and Congressional elections left the balance of power largely unchanged on Capitol Hill, with the Presidency and the US Senate remaining in Democrat hands, while the House of Representatives remained controlled by the Republican Party.

Some observers have suggested this leaves the chances of postal reforms being passed during the “lame duck” session – before the next official session of Congress begins in January – better than if there was a significant change to come next year.

Both sides of Congress are understood to be keen on some kind of solution for the Postal Service, its more than half a million employees, and the $1 trillion mailing industry dependent on USPS.

However, priority in Washington is currently on the “fiscal cliff” that America faces in January as key tax cuts come to an end if Congress does not act, which could badly hit the American economy.

USPS fiscal cliff

“If Congress fails to act, there could be postal slowdowns or shutdowns that would have catastrophic consequences”

Senator Tom Carper, the Senate postal subcommittee chairman being tipped by some to become chairman of the Senate’s full government affairs committee, said today that the Postal Service was facing a “fiscal cliff” of its own at the moment.

He said: “The Postal Service’s financial crisis is growing worse, not better. It is imperative that Congress get to work on this issue and find a solution immediately. I am hopeful that now that the elections are over my colleagues and I can come together and pass postal reform legislation so that a final bill can be signed into law by the end of the year.”

The US Senate has already passed a postal reform bill – way back in April 2012 – but the House has not voted on its version.

If Congress fails to pass a compromise bill by the end of December, US lawmakers will have to go back to the drawing board and assemble new bills from scratch, passing them through the committee stage before they are voted on by the entire Senate and House, so the two bills can be merged, given final approval by both sides of Congress, and sent to President Obama for his signature.

While the US Postal Service will have a good cash flow over this winter, as festive volumes help with incoming revenues, into next year the operating balance will start to run dry.

The lobby group Coalition for a 21st Century Postal Service, which noted that the mailing industry accounts for about 7% of US GDP, said it was worried that next year mail volumes may be further depressed because this year’s volumes were boosted by recent local, state and national election campaigns and voting by mail.

“The Postal Service is facing a fiscal cliff of its own and any unanticipated drop in mail volumes could send the agency over the edge,” said Art Sackler, co-coordinator of the Coalition for a 21st Century Postal Service. “If Congress fails to act, there could be postal slowdowns or shutdowns that would have catastrophic consequences for the 8 million private sector workers whose jobs depend on the mail.”

Source: Post&Parcel/USPS

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