USPS reports record breaking loss for fiscal year 2012

The financial outlook for the United States Postal Service (USPS) remains dim, with this week’s announcement that it incurred a record net loss of $15.9 billion for fiscal year 2012, compared to a $5.1 billion loss in fiscal year 2011.

Representing $11.1 billion—or nearly 70 percent—of this loss are mandated prefunding health retiree benefits which are part of a Congressionally-mandated 10-year payment schedule at an average of about $5.5 billion per year to create a fund to pay future retiree health benefit premium, among others.  This summer, the USPS announced it could not make $5.5 billion in mandated prefunding health retiree benefits to the Treasury, which was due August 1, as well as a $5.6 billion payment due on September 30.

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 from the U.S. Treasury. And even with the requested increase, the USPS would not be able to meet this annual obligation at the present time or in subsequent years, according to the Postal Regulatory Commission.

The USPS stressed that in order to resolve the prefunding requirement and to provide more commercial flexibility to allow it to manage its business it needs legislative changes to fully implement its business plan to become financially solvent.

As reported, 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 the USPS said along with resolving the accelerated schedule to prefund retiree health benefits and has the flexibility to sponsor its own healthcare program for employees and retirees, other components of its plan include:
-allowing the Postal Service to determine delivery frequency;
-allowing the Postal Service to offer non-postal products and services;
-developing a more streamlined governance model for the Postal Service that would allow for quicker pricing and product decisions;
-instructing arbitrators that, during labor negotiations, they must take into account the financial condition of the Postal Service when rendering decisions; and
-resolving the overfunding of the Postal Service’s obligation to the Federal Employees’ Retirement System (FERS).

“It’s critical that Congress do its part and pass comprehensive legislation before they adjourn this year to move the Postal Service further down the path toward financial health,” said Postmaster General and CEO Patrick Donahoe in a statement. “We continue to do our part to grow revenue and reduce expenses by making our operations more efficient and by providing our customers with new and expanded services to meet their mailing and shipping needs. Additionally, through the expanded use of technology, including better use of digital tools and mobile technology, we are providing business mailers with new opportunities to connect with customers in a more individualized way.”

Fiscal year 2012 shipping and package services business revenues for the USPS were up $926 million—or 8.7 percent—at $11.6 billion, and volumes were up 201 million pieces at a 6.6 percent annual growth clip.

These services include Priority Mail, Express Mail, Parcel Select and Parcel Return services and account for 2.2 percent of total USPS volume and 17.8 percent of total revenue. USPS officials pointed to e-commerce fulfillment and last-mile services as drivers for its strong performance.

The upswing in shipping and package revenues is helping to counter the ongoing losses the USPS continues to experience on the Mailing Services side, due to the ongoing diversion to electronic alternatives, including e-mailing business documents and online purchasing orders, as well as other electronic mailing processes.

First Class Mail revenue for fiscal year 2012, said the USPS, dipped 3.9 percent to $28.867 billion, with volume down 5.3 percent or 3.826 billion pieces.

Given its myriad fiscal challenges, the USPS said that at the end of fiscal year 2012, the USPS has reached its statutory debt ceiling of $15 billion for the first time, explaining that liquidity remains a large concern and demonstrates its need for legislation that provides for a more flexible business model to improve its bottom line.

The Wall Street Journals reported that the Postal Service says it will run out of cash in October 2013 without congressional intervention.

“The USPS is not in good operating shape,” said Jerry Hempstead, principal of Hempstead Consulting, in Orlando, Fla. “It is maxed on its borrowing limit and almost out of cash although the election produced $500,000 in postage, which is a temporary booster shot and twice the amount that the 2008 election produced.

He also pointed out areas where the USPS can drive efficiencies and save money, including 3,000 underperforming post offices that can be closed or consolidated into other facilities; it has 150 too many processing centers that can be closed or consolidated; and too many employees for the amount of volume it handles, among others.

“Congress needs to man up,” said Hempstead. “They can, now that the election is behind us and we have two years before the next congressional election, pass legislation that allows the USPS to operate as a commercial business. I am also in favor of raising postage rates on transactions less than 1 lb, because they need to cover their operating costs and they are a monopoly. It is nuts that the government operates a monopoly, and the monopoly looses money. That speaks volumes about how we run our fiscal house.”