USPS continues call for reforms after latest massive quarterly loss

The US Postal Service signaled its intent to default on another multi-billion dollar payment to the federal government this September, as it recorded a $1.87bn loss in its latest quarter.
The struggling Postal Service increased its revenue by $379m or 2.3% year-on-year in the second quarter of its financial year, to $16.7bn.

The achievement was thanks to January’s price increases, and an 8% or $252m revenue increase in the package business on the back of continuing demand from e-commerce.

The quarter was the 20th in the last 22 quarters in which USPS made a loss, but the third straight quarter in which revenue grew.

Postmaster general Patrick Donahoe said the Postal Service had been working “diligently” to improve its “precarious” finances by streamlining its network.

Costs in the quarter fell by 1.1% year-on-year to $17.9bn, leaving the quarter’s loss that was $6m worse than the same period last year.

Donahoe said: “Aggressive cost-cutting actions, however, we will still incur annual inflationary cost increases of approximately $1.2 billion each year, and First-Class Mail volume continues to decline.”

First Class Mail volume declined 4.1% compared to last year’s second quarter, with Standard Mail volume growing by just 0.5%. Express and package volumes grew 7.3% in the quarter, but overall mail volume fell 1.8% year-on-year to 38.1bn pieces in the quarter.

The first half of the year has seen USPS making a $2.2bn net loss, an improvement on the $3.1bn loss made in the same period last year.

Reforms

The Postal Service continues to hold out hope that lawmakers in Washington will pass the comprehensive postal reforms needed to help cope with declining mail volumes, in particular the decline of First Class Mail, which contributes 42% of all revenues.

The US Senate has passed a bill out of committee this year, but it is yet to pass the full Senate. The House of Representatives’ committee indefinitely postponed its effort to mark up a bill this week.

The Postal Service said today that without comprehensive legislative reform, it will default on its required $5.7bn payment to the federal government to cover its retiree health benefit pre-funding obligation. After the festive season, USPS currently holds only $3.7bn in cash reserves, and has no more borrowing power on its $15bn debt facility from the US Treasury.

The USPS chief financial officer Joseph Corbett warned that correcting the Postal Service’s monumental payment schedule for future retiree health benefit liabilities would not be enough to right the Postal Service ship at this stage.

He said the Postal Service also needs to find funds to invest in the infrastructure required to continue day-to-day operations.

“Our liabilities exceed our assets by $42bn and we have a need for more than $10 billion to invest in new delivery vehicles, package sortation equipment, and other deferred investments,” he said.

“If legislation reduced the required retiree health benefit prefunding payment, it doesn’t provide us with any more cash to pay down our debt or put much needed capital into our business. Only comprehensive postal legislation that includes a smarter delivery schedule, greater control over our personnel and benefit costs, and more flexibility in pricing and products will provide the necessary cash flows.”

The Postal Service said in its Q2 report that if there is any downturn in the US economy it would have to pursue contingency plans to keep mail services operating given its continuing liquidity concerns. This would entail making priorities on who to pay in order to maintain mail delivery services, with the federal government the first in line to lose out on any payments.

“No surprise”

The US Senate’s key postal reform advocate Senator Tom Carper said this morning that the continuation of the quarterly losses at the Postal Service “comes as no surprise”.

“The harsh reality is that it’s likely we’ll continue to see the U.S. Postal Service suffer unsustainable losses that threaten its long-term viability until Congress acts. As I’ve said time and time again, Congress and the Administration need to come to agreement on comprehensive legislation that reforms, right-sizes and modernizes this American institution,” said the Democrat from Delaware and Chairman of the Senate’s Homeland Security and Government Affairs Committee.

Carper said he was hopeful that the Senate postal reform bill will be voted on by the full Senate “soon”.

“Both the Senate and the House have reform bills that would fix the problem. It’s time for Congress to get something passed before another quarter goes by,” he said.

Mail industry groups are opposing the current form of the Senate postal reform bill, since it proposes to make January’s temporary above-inflation postage rate hike permanent and dilute the power of the US postal regulator regarding USPS pricing.

Nevertheless, mailers’ lobby group Coalition for a 21st Century Postal Service said the USPS losses this quarter showed the need for “sensible” postal reform legislation.

Art Sackler, the group’s co-manager, said: “The postal system can’t continue on this downward trend without disastrous consequences. Congress needs to take action on postal reform, and do it in a way that encourages more businesses to use the mail.”