The US Postal Service is warning it may have to default on government payments from Septemberafter announcing a net loss of $2.2 billion for the second quarter of its fiscal year (Jan. 1 –
March 31, 2011).The state-owned postal operator had made a net loss of $1.6 billion for the same period in its2009/10 fiscal year. Operating revenues dropped 2.8% to $16.2 billion in the second quarter ofthis fiscal year and total volumes for all products and services fell 3% to 41 billion pieces.
Mailing Services revenue, covering letter mail and small parcels, dropped 3.9% to $14 billionand volumes declined 3.1% to 40.7 billion. The modest increase in revenue from Standard Mail wasnot sufficient to offset the loss of revenue from the reduced volume of First-Class Mail, USPScommented.
Mailing Services results in the second quarter included First-Class Mail revenue of $8 billion,on volume of 18.5 billion pieces, Standard Mail revenue of $4.2 billion, on volume of 20.2 billionpieces, and Package Services revenue of $394 million, on volume of 167 million pieces.
USPS Shipping Services, which covers commercial products competing with UPS, FedEx and otherparcel and express companies, increased revenues by 5% to $2.2 billion in the quarter and volumeswent up by 3.5% to 352 million pieces.
The organisation stressed that a number of new marketing initiatives have been introduced thatmay help to improve revenue growth in 2011, including expansion of simplified addressing forbusiness mailers, Every Door Direct Mail, Priority Mail Regional Rate Boxes, and Reply Rides Free.In January 2011, new Shipping Services prices increased an average of 3.6%. New Mailing Servicesprices that are limited to the Consumer Price Index cap of 1.7% took effect April 17, after theclose of the second quarter. While new marketing initiatives and price increases may improverevenue growth, electronic diversion will continue to cause reductions in First-Class Mail.
“Sluggish economic growth and diversion of First-Class Mail to electronic alternativescontinue to cause record losses, despite a reduction of over 130,000 full-time equivalents (FTEs)in the last three years,” said Joseph Corbett, CFO and executive vice president. The Postal Servicereduced work hours in the second quarter by 9.6 million hours or 3.2%. The number of careeremployees on March 31, 2011, was 571,566, a reduction of 6,726 employees during the secondquarter.
But despite significant cost reductions and revenue growth initiatives, current financialprojections indicate that the Postal Service will have a cash shortfall and will have reached itsstatutory borrowing limit by the end of the fiscal year in September. The organisation warned thatwithout substantial legislative change it would be forced to default on payments to the federalgovernment.
“The Postal Service continues to seek changes in the law to enable a more flexible andsustainable business model,” said Postmaster General and CEO Patrick R. Donahoe. “We are committedto working with Congress and the administration to resolve these issues prior to the end of thefiscal year. The Postal Service may return to financial stability only through significant changesto the laws that limit flexibility and impose undue financial burdens.”
The Postal Service said it is aggressively reducing expenses, including organisationalredesign initiatives. The Postal Service projects $1.2 billion to $1.6 billion in cost savings infiscal year 2011, including a reduction of workhours across the organisation. Benefits of theseinitiatives, however, may be offset by rising fuel prices.
