US Postal Service chiefs are urgently calling on the US Congress to approve large-scalecost-cutting plans after revealing a heavy Q2 loss of $3.2 billion that left the half-year loss at
a massive $6.5 billion.The US postal operator warned it is heading for a loss of some $9.1 billion in the yearending September 2012, excluding the $5.5 billion healthcare benefits payment held over from lastyear, and could again be at risk of running out of cash by October and having to default onobligatory payments, including this year’s benefits payment.
In the January – March 2012 quarter, USPS had flat revenues of $16.2 billion but itsoperating costs rose to $19.4 billion, up 5.1 per cent on the previous year. The main cost driverswere the prefunding of retiree health benefits payments and an 8.1 per cent rise in transportationexpenses due to higher fuel costs.
In Q2, USPS saw total volumes drop 4.1 per cent to 39.5 billion pieces. Mailing (letters)revenues declined 3.1 per cent to $12.8 billion on a 4.4 per cent volume fall. The reductionreflected the continued decline in First-Class Mail as consumers continue to turn to electronicalternatives. The second quarter also saw a decline in Standard Mail, attributable to a decline indirect mail advertising spending across a number of sectors as sales prospecting slowed in certainsectors, advertisers used more selective targeting methods and competition from electronicadvertising media increased, the agency explained.
In contrast, revenues from Shipping Services and “market-dominant packages” grew by 13.4 percent to $3.5 billion thanks to higher prices and an 8.7 per cent rise in volumes. This growth inpackage and express mail products was not enough to overcome the decline in Mailing Services,however, USPS noted.
As a result, the Q2 operating loss grew nearly by $1 billion to $3.14 billion. The net lossafter financial costs closed at $3.18 billion, up from $2.23 billion one year ago. In the sixmonths ending March 2012, the operating loss rose to $6.4 billion, up from $2.5 billion in theprevious half-year, while the net loss was $6.5 billion, compared to the previous year’s $2.6billion.
USPS stressed that its losses are due primarily to legislative mandates such as the uniquemandated pre-funding of retiree health benefits, as well as legal restrictions on cost-cuttingmeasures in response to declining volumes. Congress must act soon to pass legislation providing thePostal Service with the flexibility and speed needed to make the changes necessary for long-termfinancial viability, it stated.
“We are aggressively pursuing new revenue streams and reducing costs in areas within ourcontrol,” said Postmaster General and CEO Patrick Donahoe. “These actions are not enough to returnthe Postal Service to profitability. The legislative changes outlined in our business plan willenable us to reduce annual operational expenses by approximately $22.5 billion by 2016 and set thestage for long-term financial stability so we can continue to provide secure, reliable andeconomical universal service to the American public.”
Chief Financial Officer Joe Corbett added: “We expect to retain the ability to continue highquality delivery services to all of our customers, and continue to take all actions necessary tomake sure that our employees and suppliers will be paid. Without legislative change, we will nothave sufficient cash to pay the $11.1 billion required for retiree health prefunding and may beforced to default on other payments due to the Federal Government.”
However, a postal reform billed passed by the Senate would only allow smaller-scale costsavings while the Republicans and Democrats are split over a rival House of Representatives billthat would permit larger-scale cutbacks.
In February, the agency said it could lose up to $18 billion a year by 2015 unless it gainslegal freedom for its five-year restructuring plan. This focuses on downsizing the mail sortingnetwork, eliminating Saturday deliveries, slowing first-class mail by a day, closing some 3,700local post offices and raising some prices. USPS this week announced a U-turn on the post officeclosures following public and political protests.
In addition, USPS wants the freedom to restructure the retiree health pre-funding, enablingit to sponsor its own health care programme, and returning nearly $11 billion dollars to the PostalService from its prior overfunding of the Federal Employees’ Retirement System (FERS) which wouldprovide vital cash flow to ease the current liquidity crisis.
