USPS posts $8.5 billion fiscal year loss

The United States Postal Service (USPS) reported that it had a net loss of $8.5 billion for the fiscal year which ended on September 30.

USPS officials cited various factors for the loss, including “continuing economic pressures and migration to electronic media [having] a significant adverse impact on mail volumes and operating revenues. Despite rigorous initiatives that eliminated 75 million work hours and drove productivity to record highs in 2010, the losses mounted.”

First-Class mail volume for the fiscal year was down 6.6 percent in FY 2010, preceded by 8.6 percent and 4.8 percent declines in 2009 and 2008, respectively. And the USPS said that Standard Mail showed some improvement but was flat year-over-year.

Due largely to an ongoing diversion to electronic alternatives, including e-mailing business documents and online purchasing orders, as well as other electronic mailing processes, the USPS has been under difficult circumstances for more than three years. It has seen mail volume drop by more than 25.6 billion pieces—or 12.7 percent—in the last fiscal year, with total volume currently at 177 billion pieces.

And in October, the USPS said it is planning to appeal the Sept. 30 ruling of the Postal Regulatory Commission denying the Postal Service exigent price request, which the PRC said “failed to justify rate increases in excess of its statutory CPI price cap.”

This proposal was part of the USPS’s exigent price case to raise rates filed on July 6. This case was comprised of four-to-six percent price increases for various products, including its 18 Market Dominant products.

These changes, had they been approved by the PRC, would have taken effect on January 2, 2011. When the USPS made this proposal, it said these price changes would generate $2.3 billion for the last three quarters of Fiscal Year 2011 and an estimated $3 billion for the full 12 months of Fiscal Year 2012.

The USPS also recently announced that Postmaster General and CEO John E. Potter will retire on December 3.

Potter, a 32-year USPS veteran will be replaced by Patrick R. Donahoe, Deputy Postmaster General and Chief Operating Officer. Donahoe was voted as Potter’s successor by The Governors of the Postal Service and will become the 73rd Postmaster General.

The USPS also is working to restructure retiree health benefits for as many as 800,000 retirees, even though it only has an active work force of 596,000 career employees. Left uncorrected, that bill will reach $4 billion next year.

PRC officials said that the USPS may not be able to continue to meet a statutory 10-year payment schedule at an average of about $5.5 billion per year to create a fund to pay future retiree health benefit premiums. They added that the USPS has been unable to fund this obligation from operations and has used all of its retained earnings and drawn down from its $15 billion borrowing authority. And even with the requested increase, the USPS would not be able to meet this annual obligation in 2011 or subsequent years, said the PRC.

USPS officials have stated that due to this situation it is running the risk of insolvency, coupled with a massive drop in mail volume and the fact that the bulk of its costs are fixed by laws, contracts, or regulations. And Stephen M. Kearney, USPS senior vice president, Customer Relations, said during a media conference call earlier this year that the USPS’ operating flexibility is severely limited right now.

“Our network is expanding by a million delivery points every year, and we are subject to a lot of legal requirements that limit our ability to reduce service commensurate with the decline in demand,” he said.