The US Postal Service made a mammoth $8.5 billion loss in the fiscal year ending September 30and is warning it may run out of cash next year without changes to its finances.
The recent recession, continuing economic pressures and migration of mail to electronic mediahad a significant adverse impact on mail volumes and operating revenues. Despite rigorousinitiatives that eliminated 75 million work hours and drove productivity to record highs in 2010,the losses mounted, the organisation announced.
The world’s largest postal operator had operating revenue of $67.1 billion in 2010, down $1billion from 2009, primarily due to lower volumes. Total mail volume dropped 3.5% to 170.6 billionpieces.
First-Class Mail volume continued to decline, with a year-over-year decline of 6.6% in 2010following -8.6% in 2009 and -4.8% in 2008. This trend is particularly disturbing as First-ClassMail, the most profitable product, generates more than half of total revenue, the organisationsaid. Volume for Standard Mail showed improvement during the year, reflecting some signs ofeconomic recovery in late 2010, but, in total, was flat in 2010, compared to 2009.
USPS managed to reduce operating costs to $70 billion (excluding a $5.5 billion expense forpre-funding Retiree Health Benefits), down from approximately $70.4 billion in 2009 (excluding a$1.4 billion expense for RHB).
But this year’s net loss ended at $8.5 billion, or $4.7 billion more than 2009, mostly as aresult of the revenue decline, additional expenses in 2010 associated with RHB pre-funding andworkers’ compensation. However these effects were offset by cost savings associated with the workhour reduction. The net loss was $6 billion excluding charges to income primarily resulting fromchanges to interest rates that impact the organisation’s workers’ compensation liability, USPSnoted.
“Over the last two years, the Postal Service realised more than $9 billion in cost savings,primarily by eliminating about 105,000 full-time equivalent positions — more than any otherorganisation, anywhere,” said Chief Financial Officer Joe Corbett. “We will continue our relentlessefforts to innovate and improve efficiency. However, the need for changes to legislation,regulations and labour contracts has never been more obvious.”
In its report on the financial statements contained in the Postal Service’s 2010 report,independent auditor Ernst & Young is expected to issue an unqualified audit opinion that willemphasise that questions remain about the ability of the Postal Service to generate sufficientliquidity to make all of its future payments, including the $5.5 billion RHB pre-funding paymentdue on the last day of fiscal year 2011, USPS stated.
According to US media, USPS also plans to use up its $15 billion credit line with the USTreasury by borrowing the remaining available $3.5 billion. This move could mean the organisationwould go broke at the end of 2011, several newspapers said.
USPS is seeking changes to its pensions obligations and wants to eliminate Saturday maildeliveries as part of a package of measures designed to reduce losses and downsize in response tofalling volumes.
