USPS Says It's Broke and Could Default on Government Payments

May 11, 2012
Postal Service loses $3.2 billion quarterly loss and says it will continue to bleed until Congress enacts legislative changes.

The U.S. Postal Service (USPS) ended its second quarter (Jan. 1 – March 31, 2012) with a net loss of $3.2 billion, compared to a net loss of $2.2 billion for the same period last year. What’s more, the USPS says these types of losses will continue until and unless key provisions of its five-year business plan move forward.

The losses are due primarily to legislative mandates such as the mandated pre-funding of retiree health benefits, and prohibiting management from making the needed operational and human resource changes required to address these issues under current laws and contracts. Also contributing to the continuing losses are the declining First-Class Mail and Standard Mail volumes. The USPS says Congress must act soon to pass legislation that provides the USPS with the flexibility and speed needed to make the changes necessary for long-term financial viability.

“We are aggressively pursuing new revenue streams and reducing costs in areas within our control,” says Postmaster General and CEO Patrick Donahoe. ”These actions are not enough to return the Postal Service to profitability. The legislative changes outlined in our business plan will enable us to reduce annual operational expenses by approximately $22.5 billion by 2016 and set the stage for long-term financial stability so we can continue to provide secure, reliable and economical universal service to the American public.”

It wasn’t all doom-and-gloom over the past quarter, though. Revenues related to shipping and packages totaled $3.5 billion, an increase of over 13% compared to the same period in the previous year, as volume increased 74 million pieces, or 9%.

That wasn’t nearly enough, though, to overcome the decline in Mailing Services. Revenue from Mailing Services, excluding Market Dominant packages, totaled $12.8 billion, a 3% decrease compared to the same period last year, on a volume decrease of 1.8 billion pieces. The revenue reduction reflects the continued decline in First-Class Mail as consumers continue to turn to electronic alternatives. The second quarter also saw a decline in Standard Mail, attributable to a decline in direct mail advertising spending across a number of sectors as sales prospecting slowed in certain sectors, advertisers used more selective targeting methods and competition from electronic advertising media increased.

“Without legislative change, we will not have sufficient cash to pay the $11.1 billion required for retiree health prefunding and may be forced to default on other payments due to the Federal Government,” says CFO Joe Corbett.

The Postal Service’s comprehensive business plan addresses these financial challenges through revenue growth programs, process improvements, eliminating excess mail processing capacity and other actions to address underutilized assets as well as improve operational efficiencies. It includes targeted legislative changes such as giving the USPS the ability to transition to a five-day delivery schedule, restructuring the retiree health pre-funding, enabling the USPS to sponsor its own healthcare program that is independent of other federal health insurance programs, and returning nearly $11 billion dollars to the USPS from its prior overfunding of the Federal Employees’ Retirement System, which would provide cash flow to ease the current liquidity crisis.

Other details of the second quarter results compared to the same period last year include:

· Total mail volume of 39.5 billion pieces, a decrease of 1.7 billion pieces, or 4.1%;
· Operating revenue of $16.2 billion, a decrease of $7 million or less than 1 percent;
· Operating expenses of $19.4 billion, an increase of $938 million, or 5.1 percent, driven by expenses related to the legally mandated prefunding of retiree health benefits payments scheduled to be paid in the final quarter of this year;
· Transportation expenses of $1.7 billion, an increase of $126 million, or 8.1 percent, driven by rising fuel costs. Other expenses of $2.3 billion, a decrease of $133 million, or 5.6 percent.

These results bring the year to date net loss to $6.5 billion, compared to $2.6 billion for the same period last year.

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