Pensions issue overshadows USPS outlook for 2011

Next year looks set to be a more favourable year for the US Postal Service, according to federal regulators – with the exception of its retiree health benefits problem. In its end-of-year report to the US Congress, issued yesterday, the Postal Regulatory Commission suggested that cost-cutting by the USPS over the past two years was having a positive impact.

The Postal Service cut its costs by almost $4 billion in the last 12 months, following $6 billion in cost reductions seen in 2009. The cuts were mainly achieved through cuts in workhours, along with changes to its transportation network and the renegotiation of supply contracts.

The USPS reported an annual loss of $8.5 billion for its financial year 2010, on operating revenues of $67 billion.

The Commission said in yesterday’s report that as of August 2010, the organization’s cost-cutting was outpacing the declines in its revenues and postal volumes, “indicating that financial year 2011 will be a more favourable year for the Postal Service”.

The regulatory body added that the glaring exception to the outlook for the USPS was the issue of the organization’s overpayments to its healthcare fund for retired postal workers.

Ruth Goldway, the Commission’s chairman, said that the improving economy was now strengthening the mail market, but that the Postal Service faced “potential financial insolvency” in 2011 because of its rising debt and the legally-imposed cap on its borrowing.

In particular, she highlighted the pension obligations issue as a key problem area, noting that her Commission had found that pay requirements for the USPS, compared to other federal organizations, may have been overstated by as much as $55 billion.

Ms Goldway said: “Adjustments to one or both of these obligations could provide the financial stability needed by the Postal Service as it restructures its operations and as Congress considers possible changes to the Postal Service’s business model.”

Elsewhere in the review of the year, the Postal Regulatory Commission highlighted continued efforts to cut USPS costs, pointing out that 162 USPS stations and branches are under review with respect to consolidation proposals, and that it is currently evaluating USPS proposals to cut Saturday deliveries and reduce Saturday processing activities.

Moving to a five-day delivery week would save the USPS $3.1 billion a year according to Postal Service estimates, while hitting its revenues by $428 million.

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