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USPS posts $3.2 billion fiscal second quarter loss

By Jeff Berman, Group News Editor
May 10, 2012

Fiscal second quarter 2012 earnings for the United States Postal Service remained in the red.

The USPS said it incurred a new loss of $3.2 billion during the quarter, following a $3.3 billion fiscal first quarter loss and a $5.1 billion fiscal year 2012 loss. USPS officials said that despite ongoing management actions that have grown and improved efficiency, these sizable losses are expected to continue until key provisions of the USPS five-year business plan move forward. Previous losses in recent years include $8.5 billion for fiscal year 2010 and $3.8 billion for fiscal year 2009.

Among the things it has proposed to get back into the black are consolidating its network in the form of facilities, processing equipment, vehicles, and staff, which it said would result in a savings of $2.1 billion and serve as a big chunk of its network optimization initiative that it projects to save up to $3 billion by 2015.

And as part of this rationalization, the USPS said in September 2011 it would consider closing down 252 of its 487 mail processing facilities.

For the first quarter, the USPS reported that:

  • total mail volume of 39.5 billion pieces was down 4.1 percent;

  • operating revenue at $16.2 billion was down less than 1 percent;

  • operating expenses at $19.4 billion were up 5.1 percent and the USPS said they were driven by expenses related to the legally mandated pre-funding of retiree health benefits scheduled to be paid in the final quarter of this year;

  • transportation expenses were up 8.1 percent, or $105 million, to $1.7 billion, due to higher fuel costs; and

  • net losses on a year-to-date basis are at $6.5 billion compared to $2.6 billion last year at this time.

As reported by LM, many of the losses incurred by the USPS, especially on the First Class side, have to do with ongoing diversion to electronic alternatives, including e-mailing business documents and online purchasing orders, as well as other electronic mailing processes. According to the USPS, First Class Mail revenue was down 4.1 percent year-over-year and total First Class Mail revenue and volume have declined 15 and 25 percent, respectively, since its peak in 2006.

“We are aggressively pursuing new revenue streams and reducing costs in areas within our control,” said Postmaster General and CEO Patrick Donahoe in a statement. ”These actions are not enough to return the Postal Service to profitability. The legislative changes outlined in our business plan will enable us to reduce annual operational expenses by approximately $22.5 billion by 2016 and set the stage for long-term financial stability so we can continue to provide secure, reliable and economical universal service to the American public.”

The USPS noted that pre-funding retiree health benefit payments and prohibiting management from making the needed HR changes required to address these issues under current laws and contracts are significant factors in its inability to improve its financials. Other factors are declining First Class and Standard Mail volumes. The USPS continues to stress the need for Congress to pass legislation that will give the USPS the “flexibility and speed needed to make the changes necessary for long-term financial viability.”

Late last month, the U.S. Senate laid out a plan, entitled The 21st Century Postal Service Act (S. 1789), which passed by a 62-37 margin and aims to help the USPS regain its financial footing.

The main objectives of the bipartisan bill, which was sponsored by Sen. Joe Lieberman (I-Conn.), chairman of the Homeland Security and Governmental Affairs Committee, and Senator Susan Collins (R-Maine), Senator Tom Carper (D-Del.) and Senator Scott Brown (R-Mass.), in order to help the USPS become financially solvent include:

  • giving the Postmaster General access to money USPS has overpaid into one of its retirement funds to provide incentives to encourage 100,000 eligible employees to retire.  This would help voluntarily “right-size” the workforce to take into account the steep decline in first class mail volume in recent years;

  • reducing the amount of money that USPS has to prefund for retiree health benefits by amortizing the costs over 40 years and calculating those costs more appropriately;

  • retaining overnight delivery of first class mail, but limit it in some cases to shorter geographic distances; and

  • preventing the Postal Service from going to five-day delivery for the next two years and require it to exhaust all other cost-saving measures first, among others.

“The bill preserves six day delivery for at least two years, which should give the Postal Service time to explore other cost savings initiatives,” said Doug Caldwell, AMFS Vice President, EMEA. “One of the bright spots at UPS has been parcels shipments, with domestic volumes up 7.5 percent over last year, making USPS the fastest growing US parcel carrier. Parcel Select, their ‘Last Mile’ product, was up an astounding 24.1 percent. A key advantage for USPS parcel shippers is six day delivery, and the two year waiting period should give the Postal Service time to minimize any impacts on shippers of a future switch to five day delivery.”

Caldwell added that bill also encourages the USPS to substantially reduce ‘door delivery’ in favor of less costly methods, such as cluster boxes or street delivery.  Door delivery is done on foot, and mail is delivered through door slots, and it’s easily the most expensive delivery method, Caldwell noted.

Fiscal second quarter shipping and package services business revenues for the USPS were up more than 13 percent at $3.5 billion, with volume increasing 74 million pieces or 9 percent. The USPS said these gains were due to higher consumer spending, higher e-commerce retail sales plus increased marketing efforts drove much of the growth in Shipping Services and package revenue and volume.
And Mailing Services revenue, excluding Market Dominant products, was down 3 percent at $12.8 billion, with volume down 1.8 billion pieces.

In a previous interview with LM, Jerry Hempstead, principal of Hempstead Consulting in Orlando, Fla., told LM that one way for the USPS to regain financial solvency would be for Congress to order the USPS and the Postal Regulatory Commission to do a one-time rate increase that would cover all current operating costs, which includes pre-retiree healthcare benefits, which could help it to break even and cover its obligations for servicing its debt.

“The USPS does not lack volume; it handles millions of pieces a day,” said Hempstead. “It’s obvious from the loss that they are just not charging enough for the service it provides. The mailers are not paying enough for the service it is receiving. Granted that extraordinary postal increases may hasten the declines in certain classes of mail, but the USPS and the PRC have statistics that can figure in the anticipated decline. A bail out is not quite fair, because we don’t all use the services of the USPS equally. The burden should be carried by those that actually use those services and the fee charged should adequately cover the cost for such service.”

About the Author

Jeff Berman headshot
Jeff Berman
Group News Editor

Jeff Berman is Group News Editor for Logistics Management, Modern Materials Handling, and Supply Chain Management Review. Jeff works and lives in Cape Elizabeth, Maine, where he covers all aspects of the supply chain, logistics, freight transportation, and materials handling sectors on a daily basis. .(JavaScript must be enabled to view this email address).

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