USPS posts $3.5 billion loss as mail volume plunges

CNN Money (Link) - Hibah Yousuf (August 5, 2010)

The U.S. Postal Service reported a $3.5 billion loss in its most recent quarter Thursday, as mail volume plummets and retiree health care costs mount.

The USPS, a self-supporting government agency that receives no tax dollars, said operating revenue declined 1.8% to $16 billion during the fiscal 2010 third quarter compared to a year earlier, while operating expenses spiked 4.2% to $19.5 billion.

The quarterly loss was the fourteenth in the last sixteen quarters, the postal service said.

�A significant portion of USPS losses in the past few years has been due to an unprecedented decline in mail volume -- down more than 20% since 2007,� the USPS said in a statement. �The replacement of letter mail and business-transaction mail by electronic alternatives continues to cause downward pressure on mail volume.�

During the third quarter alone, mail volume slipped 1.7% to 40.9 billion pieces. The USPS, which relies solely on the sale of postage-related products and services to generate revenue, has projected that total mail volume will fall more than 5% on an annual basis for the 2010 fiscal year, which ends September 30.

Making the problem worse is a federal law passed in 2006 that requires the Post Office to pay between $5.4 and $5.8 billion into its prepaid retiree health benefits each year. USPS chief financial officer Joseph Corbett said making the $5.5 billion payment that�s due to the retiree fund Sept. 30 will threaten the agency�s cash flow for the next fiscal year.

�Given current trends, we will not be able to pay all 2011 obligations,� Corbett said. �Despite ongoing aggressive cost reductions totaling over $10 billion in the last three years, it is clear that a liquidity problem is looming and must be addressed through fundamental changes requiring legislation and changes to contracts.�

Among the cost-cutting initiatives, the USPS has reduced total work hours by 63 million -- equivalent to 36,000 full-time employees -- this year to match lower mail volume.

Still, the agency has lost a total of $5.4 billion so far in 2010, 13% more than what the cash-strapped agency lost during the first three quarter of fiscal 2009.

Earlier this year, the USPS estimated that it will incur about $238 billion in losses in the next 10 years if Congress doesn�t permit it to revamp its outdated business model.

�Securing the fiscal stability of the Postal Service will require continued efforts in all of these areas, as well as further review of retiree health benefit prefunding,� said postmaster general John Potter.

�It also will require that the Postal Service gain flexibility within the law to move toward five-day delivery, to adjust our network as needed, to develop new products the market demands, and to work with our unions to meet the challenges ahead,� he added.