USPS’ Losses Grew During Q3

The US Postal Service continues to lose money, posting a net loss of $3.5 billion for the third quarter ended June 30. This is $1 billion more than the USPS lost during the same quarter last year, bringing the fiscal 2010 year-to-date net loss total to $5.4 billion. A significant portion of the USPS’ losses are due to an unprecedented decline in mail volume. Mail volume totaled 40.9 billion pieces in the third quarter, down 1.7% compared to a year ago. Overall, mail volume has declined by more than 20% since 2007, due in large part to the replacement of letter and business mail by electronic alternatives. The USPS’s continuing losses are one reason the organization insists it may not be able to meet to its financial obligations in 2011. “Given current trends, we will not be able to pay all 2011 obligations,” said Joseph Corbett, CFO at the USPS, in a statement. “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” The USPS is addressing this potential revenue shortfall through a variety of means such as cutting costs by eliminating 63 million work hours in the first three quarters of fiscal 2010, consolidating mail processing and transportation networks and realigning carrier routes. The USPS is also seeking to eliminate Saturday mail delivery and requesting a rate increase, both of which have been met with resistance by some mailers (Click here to read more about the debate surrounding five-day delivery and here and here for more on the rate increase). Finally, the USPS is hoping for relief from its obligation to prefund a retiree health benefit fund with a $5.5 billion payment in September. The USPS’s complete third quarter results include operating revenue totaling $16 billion, which is approximately $294 million less than the same period last year. Operating expenses increased during the same period by 4.2% for a total of $19.5 billion.

Discussion

By Joe on Aug 05, 2010

"unprecedented" decline of 1.7% ? Everything from USPS is exaggerated because of it's size. You hear anything with " billion" on it and you think it's the death of a business. But for USPS, it's a small percentage. Even if they are down 10% from last year, isn't that appropriate for most businesses in this economy?

By Brian on Aug 06, 2010

The inflammatory language is designed for political effect. No normal business would describe its revenue results with the term "unprecedented decline". But the USPS is not a normal business. As a business, USPS suffers from a very high fixed cost structure. This is partly the reality of the business it is in, partly the reality that it cannot easily adjust service levels to volume due to politics (like dropping Saturday delivery, or ceasing daily delivery to rural locations), and partly due to labor agreements/precedents that limit workforce reductions to attrition. As a business, USPS is cooked. Its markets are in terminal decline. But it is not a "real business". Therefore, its leaders will look to Congress for a solution.... not to the marketplace. Think GM and Chrysler. Think massive government bailout/buyout....without the inconvenience of bankruptcy.

By Chantal Tode on Aug 06, 2010

It might be helpful to give the phrase "unprecedented decline" some context. The USPS used the phrase only in reference to the decline in mail volume it has experienced over the past few years. In a recent statement by CFO John Corbett to the Postal Regulatory Commission, he said that in 2009, mail volume dropped by 12.7%, the largest annual volume decline experienced since the Great Depression. The largest annual contraction of mail volume recorded by the USPS was 18.3% in 1933. Between 2007 and 2009, the USPS lost 36 billion pieces of mail, bringing its cumulative loss to 17%. Between 1970 and 2006, the worst decline was in 2002 when volume fell 2.2% due to a recession and the effects of the 9/11 and the anthrax attacks.

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