The struggling US Postal Service today announced a mammoth $5.2 billion loss in its April – June2012 third quarter, taking its nine-month loss to a staggering $11.6 billion, amid a cash shortage
that has forced it to default on $11 billion of benefit payments and with little sign of apolitical agreement on bailing out the public agency.Senior executives again called for urgent legislative changes to allow USPS to reform its healthbenefits payments scheme and to restructure operations, including downscaling to five deliveries aweek. But pre-presidential election rivalry between Republicans and Democrats looks likely atpresent to delay any postal reform until the end of this year.
The US Postal Service said it ended Q3 with a net loss of $5.2 billion, compared to a net lossof $3.1 billion for the same period last year. Operating expenses soared 10.2% to $20.8billion, driven by $3.1 billion of expenses for the legislatively mandated prefunding of retireehealth benefits.
Revenues dropped 1% to $15.6 billion with total mail volumes down 3.6% to 38.5 billion pieces.First-Class Mail volumes declined 4.4% due to the on-going shift of communications and transactionsto electronic alternatives.
The one bright spot was the 9% increase in Shipping Services and package delivery revenue to$3.3 billion with volumes up 5.2% to 43 million pieces. This growth was driven by new products andsuccessful marketing campaigns.
The Q3 results bring the year to date net loss to $11.6 billion, compared to $5.7 billion forthe same period last year. Contributing significantly to the year to date loss was the $9.2 billionexpense accrual for the prefunding of retiree health benefits, which unfortunately cannot be paid,USPS said.
USPS warned that despite continued success in generating new package delivery revenue, improvingefficiency and reducing costs, large losses are expected to continue until legislative changes aremade in line with the Postal Service Business Plan to return to financial stability. The agencywants more freedom to raise prices, cut Saturday mail deliveries and slow next-day mail deliveriesby a day.
The plan, designed to save $22.5 billion by 2016, also includes measures that require urgentlegislative changes, including a refund of $11 billion of pension plan overfunding needed to paydown debt and invest for future growth, transition to a five-day schedule of weekly mail delivery,and the elimination of prefunding for retiree health benefits with the introduction of a separatePostal health insurance programme.
“We remain confident that Congress will do its part to help put the Postal Service on a path tofinancial stability. We will continue to take actions under our control to improve operationalefficiency and generate revenue by offering new products and services to meet our customerschanging needs,” said Postmaster General and CEO Patrick Donahoe. “Moving forward with our businessplan will make the Postal Service financially self-sustaining, provide a platform for future growthand preserve our mission to provide secure, reliable and affordable universal delivery services forgenerations to come.”
The Postal Service was forced to default on a $5.5 billion prefunding payment for retiree healthbenefits on August 1, due to insufficient cash resources. Without legislative changes, the PostalService will also default on a second similar payment of $5.6 billion due by September 30, 2012.Current projections show very low levels of cash, and no remaining borrowing capacity, at the endof the current fiscal year and through October 2012.
In response, the Postal Service said it will continue to prioritise payments to employees andsuppliers to ensure completion of its mission to provide high-quality mail service to the Americanpeople.
“The Postal Service has successfully improved productivity while removing nearly $14 billionfrom its annual cost base during the past five fiscal years,” said Acting Chief Financial OfficerStephen Masse. “These operational actions to improve efficiency will continue in the future, but weurgently need the legislative changes noted above to restore our short-term liquidity and provide astable base for the future. In the meantime, we will prioritise our cash resources to ensurethat we deliver on our mission.”
