USPS warns of default on government payments as losses increase

USPS could be forced to default on its financial obligations to the government, it warned while posting a net loss of $329m for the first quarter of this financial year. The results saw net loss rise by 9.7% compared to the same quarter of the last financial year, when USPS declared a net loss of $297m.

USPS reported a net loss of $8.5bn for 2010, for the fiscal year ending 30 September, which represented a further loss of $4.7bn on top of the 2009’s net loss of $3.8bn.

As well as having a cash shortfall, the company predicts to reach its statutory borrowing limit by the end of this fiscal year.

Unless changes are made to key legislation, it said the current trends will lead to the default on some of its financial obligations to the federal government by September.

USPS accrued the losses despite “significant cost reductions” and “efforts to grow revenue”, it said.

The results highlighted the burden of the future retiree healthcare benefits pre-funding and the workers’ compensation liability upon the USPS.

Excluding the cost of those two vast expenses, USPS would have recorded a net income of $226m.

Postmaster general and CEO Patrick Donahoe – who took over the role from John Potter in December – said that the USPS continues to “seek changes in the law to enable a more flexible and sustainable business model”.

“We are eager to work with Congress and the Administration to resolve these issues prior to the end of the fiscal year,” Donahoe added.

Last week, Post&Parcel reported that President Obama is to assist USPS in his latest Budget later this month.

USPS said that the lack of strong economic growth continues to have an impact on its financial situation.

Mail volumes increased by 707m pieces or 1.5% for the first quarter of 2011, compared to the first quarter of 2010. However, total mail volume remains well below the 2006 peak, the company said.

Mailing Services revenue of $15.3bn decreased $520m, or 3.3%, in the first quarter of 2011, compared to the same period a year ago. Mailing Services volume of 45.9bn represents a 1.5% increase from the same period a year earlier.

Revenues from Mailing Services declined despite an increase in overall volume. The increase in revenue from Standard Mail was not sufficient to offset the loss of revenue from the reduced volume of First Class Mail, USPS confirmed.

Mailing Services results include: First-Class Mail revenue of $8.8bn, on volume of 20bn pieces; Standard Mail revenue of $5bn, on volume of 23.8bn pieces; Periodicals revenue of $480m, on volume of 1.8bn pieces; and Package Services revenue of $431m, on volume of 186m pieces.

Shipping Services revenue of $2.6bn increased 1.7% or $42m compared to the same period a year ago. Shipping Services volume of 422m pieces represented a 2.4% increase compared to the same period a year earlier.

For the quarter, USPS reported operating revenue of $17.9bn, compared to $18.4bn in the same period a year earlier, a decrease of 2.6%.

Operating expenses stood at $18.2bn, compared to $18.6bn in the same period a year earlier, a decrease of 2.4%.

For the period, USPS reduced work hours by 6.4m hours or 2.1% representing a reduction of approximately 3,600 full time equivalent employees.

There was also a staff reduction of 5,616 since the beginning of the first quarter. In just over three years USPS has reduced career employees by 102,721 or 15.1%.

In better news, the company said that service performance remained “excellent” during the first quarter, with the national score for overnight Single-Piece First-Class Mail arriving on-time 96% of the time, a slight improvement over the same period a year earlier.

Addressing the Postal Service’s Board of Governors in open session today in Washington, Donahoe said: “I am very proud of our workforce. Postal employees continue to deliver exceptional service in these difficult times and in very challenging weather.”

Several new marketing initiatives have been introduced that may help to improve revenue growth in 2011, including expansion of simplified addressing for business mailers, Priority Mail Regional Rate Boxes, Reply Rides Free, customised cards and the sale of gift cards.

In addition, in January 2011, new Shipping Services prices increased an average of 3.6%. New Mailing Services prices that are limited to the Consumer Price Index cap of 1.7%, will take effect in April.

“The Postal Service is aggressively pursuing a plan to reduce total expenses, which include organisational redesign initiatives. The Postal Service projects $2bn in cost savings in fiscal year 2011, including a reduction of some 40m work hours across the organization. Benefits of these initiatives, however, may be offset by rising fuel prices. Also, new contracts with the American Postal workers Union (APWU) and the National Rural Letter Carriers Association (NRLCA) are currently in negotiation,” a USPS spokesman said.