The US Postal Service reduced its heavy losses to $5 billion in the year ending September 2013compared to $15 billion last year by slightly increasing revenues, cutting costs by $1 billion and
defaulting on disputed healthcare benefit payments.But top executives said the US postal operator still has a “failed business model” and renewedtheir calls on the US Congress to pass wide-ranging postal reform measures to reduce financialliabilities and give it more commercial and operational freedom to enable it to return to profit inthe medium-term.
USPS managed to increase its revenue for the first time since 2008 with a slight rise of 1.2% to$66 billion compared to $65.2 billion in 2012, excluding a $1.3 billion non-cash change in anaccounting estimate.
The most profitable product, First-Class Mail, saw revenues drop by 2.4% to $28.15 billion andvolumes decline by 4.1%. But Standard Mail, the cheaper ‘second-class mail’ product, increasedrevenue by 3% to $16.9 billion on a volume increase of 1.8%. International revenues grew 7.1% to $3billion although volumes dropped back by 2.6%.
The main growth business was Shipping and Package Services whose volumes increased by 6% whilerevenues grew by 8% to $12.5 billion. The product line now represents approximately 19% ofrevenues.
Higher consumer spending, higher e-commerce retail sales and increased marketing efforts drovemuch of the growth in Shipping and Packages, USPS said in its 2013 report. Ground shipping serviceshave proven to be very popular in e-commerce fulfillment, as companies push to keep their costslow, it pointed out.
USPS developed several innovative parcel services during the year, including the operationalpilot test of MetroPost, its same day delivery service, in a major metropolitan area and tests of18 Gopost parcel locker units, which have been deployed in two major metropolitan areas. In thelatest moves it has announced a new Sunday delivery scheme with Amazon and will also be raisingprices next year.
At the same time, USPS succeeded in reducing its operating costs substantially this year to$72.1 billion compared to $81 billion in 2012. Savings from plant consolidations, restructuringhours at Post Offices, reductions in delivery units, and workforce optimisation resulted inapproximately $1 billion of savings in 2013. USPS consolidated 143 mail processing facilities in2013 and reduced the total number of processing facilities in the postal network to 320, whilemaintaining a high level of service to customers. Total work hours dropped by 1.1% and productivitywas improved by 1.9% to a record high.
Moreover, $8.2 billion of the cost decrease resulted from higher, legally mandated retireehealth care benefit expenses and higher non-cash Workers’ Compensation expense in 2012. Expenses in 2013 include a required $5.6 billion contribution to retiree health care benefits thatthe Postal Service was unable to make. Continued lack of legislation will likely force the PostalService to continue to default on these payments, the postal agency warned.
As a result, the net loss for 2012/13 was $5 billion after $15.9 billion last year and just over$5 billion in 2011. Excluding the costs of the disputed healthcare benefit payments, USPS made aloss of just over $1 billion this year compared to $2.5 billion last year and $2.7 billion the yearbefore.
But despite this year’s improvements, Postmaster General and Chief Executive Officer PatrickDonahoe emphasised: “We’ve achieved some excellent results for the year in terms of innovations,revenue gains and cost reductions, but without major legislative changes we cannot overcome thelimitations of our inflexible business model. Congress is moving forward with legislation that hasthe potential to give us greater flexibility and put us back on a firm financial footing, and westrongly encourage that they continue moving forward.”
USPS said the key legal changes within its Five-Year Business Plan include:
– Restructure the Postal Service health care plan.
– Refund Federal Employees Retirement System (FERS) overpayment and lower future FERS paymentamounts to those required.
– Adjust delivery frequency to six-day packages/five-day mail.
– Streamline the governance model (eliminate duplicative oversight).
– Provide authority to expand products and services.
– Require defined contribution retirement system for future Postal Service employees.
– Require arbitrators to consider the financial condition of the Postal Service.
– Reform Workers’ Compensation.
At the end of the 2012 fiscal year, the Postal Service reached its statutory debt ceiling of $15billion for the first time, and it remains at the limit at the end of the 2013 fiscal year. “Ourliquidity continues to be dangerously low and our liabilities exceed our assets by approximately$40 billion,” said Chief Financial Officer and Executive Vice President Joseph Corbett.
“This underscores the need for Congress to pass legislation that improves our financial positionand that gives the Postal Service a more flexible business model to improve its cash flow. Despitereaching the debt limit, Postal Service mail operations and delivery continue as usual andemployees and suppliers continue to be paid on time,” he added.
