The US Postal Service today announced a $1.3 billion loss for October – December 2012 as itsgrowing shipping business failed to outweigh declining mail volumes in the pre-Christmas peak
season but this was a big improvement on the $3.3 billion loss for the final three months of2011.The reduced loss for the first quarter of its 2013 fiscal year was driven by a 9.8% cut inoperating costs to $18.9 billion while operating revenues dropped less than 1% to $17.7 billion.The postal operator’s total volume declined slightly to 43.5 billion pieces compared to 43.6billion pieces.
Revenue from First-Class Mail, the Postal Service’s most profitable service category, fell by3.1% and volumes were 4.5% lower. The continued migration toward electronic communication andtransactional alternatives is the most significant factor contributing to this ongoing decline,USPS said. Standard Mail revenue increased 3.1% on a volume increase of 3.6%. This increase islargely attributable to both official election and political campaign mail related to thePresidential and Congressional elections mailed during the quarter.
The Postal Service’s shipping business continued to show solid growth. Shipping and Packagerevenue grew 4.7% and volumes increased by 4%, fuelled by the growth of online shopping and newmarketing campaigns to promote the value of USPS shipping services. The holiday season resulted ina strong increase in competitive package volume as customers took advantage of Postal ServicePriority Mail flat rate pricing and increasingly turned to the Postal Service for last-miledelivery.
Revenue from Parcel Return and Parcel Select Services grew 19.2% as the Postal Service continuedto capitalise on its competitive advantage in providing the “last mile” service. First-ClassPackages also continued to show strong growth with a 13.2% revenue increase in the firstquarter.
The large decrease in total operating expenses is attributable to continued cost managementactions and the Postal Service accruing of only one legally required payment this year to prefundretiree health benefits. In 2012, the Postal Service was accruing amounts related to two suchpayments – one rescheduled from the previous year. The Postal Service was forced to default on bothpayments last year ($11.1 billion) and may be forced to default on this year’s $5.6 billion paymentabsent passage of legislation.
“The encouraging results from our holiday mailing season cannot sustain us as we move deeperinto the current fiscal year and face continuing financial challenges,” said Postmaster General andCEO Patrick Donahoe. “By moving forward with the accelerated cost-cutting actions directed by ourBoard of Governors, we will continue to become more efficient and come closer to achievinglong-term financial stability. We urgently need Congress to do its part and pass legislation thatallows us to better manage our costs and gives us the commercial flexibility needed to operate morelike a business does. This will help ensure the future success of the Postal Service and themailing industry it supports.”
USPS already announced earlier this week that it will stop delivering letters to private UShouseholds on Saturdays during the week of Aug. 5, 2013. This will save about $2 billion a year inoperating costs once fully implemented. Package deliveries on Saturdays will be maintained.
The Postal Service said it continues to suffer from a severe lack of liquidity. Currentprojections indicate that the Postal Service will once again have a low level of liquidity in thesecond half of this year and that there will be insufficient funds to make the required $5.6billion payment due Sept. 30 to prefund retiree health benefits. Further, as was the case lastyear, this cash position will worsen in October when the Postal Service is required to make itsannual payment of approximately $1.4 billion to the Department of Labor for workers’ compensation.Current projections show the Postal Service will have less than five days of operating cashreserves by the end of the 2013 fiscal year, an unsustainable position given the lack of commercialflexibility to react to possible economic downturns or other issues that may impact liquidity.
“We have mitigated our losses through growing the package business and continuing to improve ourefficiency which reached a new record in the most recent quarter. However, our liquidity concernscan only be fully resolved if Congress takes action to address our unsustainable business model,including resolving the overly-aggressive payment schedule to prefund retiree health benefits,”said Chief Financial Officer Joe Corbett. “The Postal Service will continue to prioritize paymentsto our employees and suppliers ahead of those to the Federal Government to ensure that we maintainhigh-quality customer service.”
