The US Postal Service yesterday unveiled a massive $3.5 billion loss for the April – June 2010quarter and again warned it could run out of cash next year if it does not get political approval
for cost saving measures and price increases.The $3.5 billion loss for the third quarter of its 2009/10 fiscal year was 46% higher than the$2.4 billion loss recorded for the same period last year. Over the first nine months of the fiscalyear, the net loss has grown to $5.4 billion compared to $4.7 billion last year. The organisationhas previously warned the full-year net loss could hit $7 billion in 2010.
In the third quarter, USPS mail volumes dropped 1.7% to 40.9 billion pieces and operatingrevenues declined 1.8% to $16 billion. Electronic substitution of paper-based mail remained the keyfactor. The volume decline was lower, however, than the first half-year fall of 6.3% and the Q2drop of 3.3%.
Operating costs increased 4.2% to $19.5 billion. This rise was mostly due to higher workers’compensation expenses due to a non-cash fair value adjustment and higher retiree health benefitsexpenses. Lower interest rates adversely affected the workers’ compensation liability, resulting ina $2 billion expense for the quarter which was $870 million higher than the same quarter last year.In addition, USPS has to pay $5.4 – 5.8 billion annually to prefund retiree health benefits.
Liquidity remains a major concern as the end of the fiscal year approaches, USPS stated.Although cash flow appears to be sufficient for 2010 operations, it is uncertain whether cash flow,together with maximum available borrowing of $3 billion, will be enough to fund theCongressionally-mandated $5.5 billion payment to the Retiree Health Benefit Fund on September 30and retain sufficient liquidity into 2011, according to Joseph R. Corbett, the Postal Service’sChief Financial Officer.
“Given current trends, we will not be able to pay all 2011 obligations,” said Corbett. “Despiteongoing aggressive cost reductions totalling over $10 billion in the last three years, it is clearthat a liquidity problem is looming and must be addressed through fundamental changes requiringlegislation and changes to contracts.”
Postmaster General John Potter noted that despite the cost-cutting, the Postal Service hascontinued to maintain a high level of customer service. The third-quarter service score forovernight single-piece First-Class Mail was 96.7% on-time, an improvement of 0.4% from the sameperiod last year.
“Our dedication to customer service remains a top priority,” Potter said. “We continue toprovide dependable customer service even as we focus on reducing costs. With the dedicated effortsof our entire organization, we are well on track to achieve approximately $3 billion in total costreductions in 2010,” said Potter.
Cost reductions centre on initiatives to improve efficiency and match work hours to reduced mailvolume. Other savings are coming from consolidating excess capacity in mail processing andtransportation networks, realigning carrier routes, delaying construction of new postal facilitiesand a variety of other initiatives. Work hours were reduced 6.6% over the first three quarters offiscal 2010, which is equivalent of about 36,000 full-time employees.
“Securing the fiscal stability of the Postal Service will require continued efforts in all ofthese areas, as well as further review of retiree health benefit prefunding,” said Potter. “It alsowill require that the Postal Service gain flexibility within the law to move toward five-daydelivery, to adjust our network as needed, to develop new products the market demands, and to workwith our unions to meet the challenges ahead.”
Meanwhile, the US Postal Service has rejected moves by a customer lobby organisation, theAffordable Mail Alliance (AMA), to have its application for price increases next January dismissedby the US postal regulator, the Postal Regulatory Commission (PRC). The US Postal Service wants toraise prices for most of its letter products and services by 4-6%, put up periodicals deliveryprices by 8% and hike standard parcel rates by 23% to compensate for slumping revenues caused bythe decline in mail volumes.
The AMA, representing over 700 businesses, non-profit organisations and customer associations,already rejected these plans last month and called on USPS to step up cost savings instead. It hasnow formally requested that the PRC should reject the price increase proposal, arguing that theincreases are unjustified despite the economic downturn and electronic substitution. FedEx and UPSresponded to the recession with heavy cuts but the USPS did not and its productivity has worsened,the alliance claimed.
But in response, USPS claimed that it was wrongly compared to its private sector competitorssince it does not have the same commercial freedoms to reduce costs and has specific legislativeand regulatory restraints on workforce and labour issues.
In the latest development, the Affordable Mail Alliance yesterday rejected USPS’ assertion thatit might not have the capital to continue operations into fiscal year 2011. USPS will end the 2010year with $1.3 billion cash and on October 1, the first day of its new fiscal year, would haveaccess to another $1.8 billion, it stated. In addition, a potential shortfall could be eliminatedby waiving the Retiree Health Benefit payment of $5.5 billion.
“We’re saddened to see these dubious claims by the Postal Service and would hope for a moreconstructive dialogue with customers instead of making misleading public statements,” said TonyConway, Affordable Mail Alliance Spokesperson and Executive Director of the Alliance of NonprofitMailers. “Unfortunately, the Postal Service seems to be attempting to justify their proposed ratehikes of ten times the rate of inflation – a move that would drive away more consumers and worsenthe financial situation they’re highlighting in this report.”
