USPS records $5.6bn loss, thanks to deferred healthcare payment

The US Postal Service released its financial results today for the full 2011 fiscal year, reporting a $5.6bn loss for the 12 months up to the end of September. The loss would have been in the region of $10.6bn if an emergency spending bill hadn’t been passed by Congress in which the Postal Service was given until November 18 to make the year’s $5.5bn healthcare prefunding payment.

Not counting the delay to the retiree healthcare payment, the situation marks a deterioration of the situation a year ago, when USPS recorded a $8.5bn loss.

Suffering from continuing competition from the internet and from a slow US recovery, USPS said its mail volumes reduced by 1.7% or 3bn pieces during the 2011 fiscal year, to a total of 167.9bn pieces.

Revenues for the year declined 2% to $65.7bn, while operational expenses increased $200m to $67.7bn, with the remaining losses stemming from workers compensation claims and adjustments.

The Postal Service’s main money-maker, First Class Mail, saw the major share of USPS woes with a 5.8% drop in revenue to $32.2bn for the year.

Standard Mail and competitive express and parcel services saw increases in revenues, of 2.9% and 6.3% respectively, as USPS customers shifted to cheaper options for mail and parcel volumes grew with the support of more online retail shipping. However, the $17.3bn revenue from Standard Mail (up $495m) and $8.5bn (up $530m) from Shipping Services could not make up for the decline in First Class revenues.

USPS operating costs grew thanks to $500m in higher transportation costs and $500m in extra staff benefits, though staff pay fell by $700m compared to 2010.

“Inevitable”

As USPS Governors met today Joe Corbett, the USPS chief finance officer, said today: “The continuing and inevitable electronic migration of First-Class Mail, which provides approximately 49% of our revenue, underscores the need to streamline our infrastructure and make changes to our business model.

“Since peaking at 213bn pieces in 2006, our volume has continued to decline each year.”

The Postal Service is still hopeful that Congress will help it rebalance its annual budget with new legislation to restructure its pension and healthcare payments, as well as help to reduce the size of its infrastructure and work force.

At today’s Governor’s meeting, executives said USPS would seek to accelerate its restructuring efforts, which look set to include a reduction in the number of mail processing plants from 508 to less than 200, and drop in headcount by 120,000.

If current Senate proposals come to fruition, the USPS could find it is not allowed to reduce delivery frequency to five days per week for a two-year period, a move it had said would save $3bn a year. However, indications are that it could seek $2.3bn through an “exigent” increase in postal rates.

US Postmaster General Patrick Donahoe said today: “The Postal Service can become profitable again if congress passes comprehensive legislation to provide us with a more flexible business model, so we can respond better to a changing marketplace.

“To return to profitability we must reduce our annual costs by $20bn by the end of 2015. We continue to take aggressive cost-cutting actions in areas under our control and urgently need Congress to do its part to get us the rest of the way there.”

Industry alarm

The $1.1 trillion US mailing industry that relies on the US Postal Service expressed alarm today regarding the extent of the USPS losses.

The Coalition for a 21st Century Postal Service, which represents businesses throughout the mailing chain, said the Postal Service was “encumbered with an outdated operating structure and debilitating labour contracts”, while being “saddled with expensive, mandated over-payments into government retiree funds”.

The lobby group wants Congress to approve short-term solvency assistance and long-term reforms for the USPS.

Art Sackler, the group’s co-ordinator, said: “For the Postal Service and the mailing industry, the news cannot get much worse. If nothing is done to stem these losses, USPS will be forced to shut down within a year.

“There are 8m private sector jobs that rely on the Postal Service, and these jobs will be put at risk unless Congress quickly enacts bold reforms.”