USPS losses continue to spiral in "sluggish" US economy

The US Postal Service saw its losses increasing by more than 37% year-on-year in the second quarter of its 2011 fiscal year. The USPS Board of Governors met today in Washington DC to discuss the Postal Service’s latest financial results, which saw last year’s second quarter loss of $1.6bn rising to $2.2bn for the three months up to March 31, 2011.

For the first six months of its fiscal year 2011, the Postal Service had net losses of $2,557m, compared to $1,881m the same period in the 2010 fiscal year.

Despite job cuts and efforts to grow revenues through new products, the Mail Services division of the Postal Service saw its $14bn revenue declining by $568m (3.9%) in Q2, compared to the same period in 2010.

The growing losses were driven by a 3.1% decline in overall mail volumes, to 40.7bn pieces, a decline which the Postal Service said was led by a drop in its lucrative First Class Mail with a continuing rise in Standard Mail volumes being insufficient to make up for the loss in First Class volumes.

First-Class Mail volume decreased by 2.7bn pieces (6.6%) in the first half of 2011 year-on-year, and is expected to decline overall in 2011 by 5-7%.

The USPS Shipping Services division – its competitive products – saw a $105m (5%) increase in revenues during Q2 thanks to a 3.5% year-on-year growth in volumes to 12m pieces. Improvement was signs of “early signs of economic recovery” along with Postal Service advertising, although Shipping Services accounts for just 1% of overall USPS volumes.

During the quarter, USPS did cut its costs with staff workhours cut by 9.6m hours (3.2%) while staff numbers fell 6,726 to a total of 571,566. Staff represent about 79% of USPS operating costs.

Commenting on the quarter, USPS CFO Joseph Corbett said: “Sluggish economic growth and diversion of First-Class Mail to electronic alternatives continue to cause record losses, despite a reduction of over 130,000 full-time equivalents (FTEs) in the last three years.”

Outlook

The rest of the year is expected to see some financial assistance from April 17’s postal rate increases, along with a number of new mail marketing initiatives getting underway now and in the summer. Staff numbers will continue to fall, with 7,500 admin, supervisory and postmaster jobs set to go in addition to normal attrition.

While First Class Mail is likely to continue its decline, Standard Mail is expected to grow, although Standard Mail per-piece income is just a third that of First-Class.

Nevertheless, after posting a $8.5bn loss for the full year in 2010, the Postal Service is expecting a major cash shortfall at the end of this year given that its government borrowing is limited to $15bn.

USPS executives persisted today with their warnings that without Congressional action to tackle “undue” financial burdens from its federal pension and healthcare obligations, the end of the financial year in September would see a blunt refusal by the Postal Service to pay its $5.5bn government bill.

Congress continues its examination of the postal market in the next few days, with a hearing by the House oversight subcommittee on Thursday, while the Senate’s Federal Financial Management subcommittee is to hold a hearing on the USPS financial “crisis” on May 17.

“The Postal Service continues to seek changes in the law to enable a more flexible and sustainable business model,” said Postmaster General Pat Donahoe.

“We are committed to working with Congress and the administration to resolve these issues prior to the end of the fiscal year. The Postal Service may return to financial stability only through significant changes to the laws that limit flexibility and impose undue financial burdens.”