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USPS Faces $354 Million First-Quarter Loss, Likely to Miss 2014 Retiree Health Payment

Monday, February 10, 2014
By Louis C. LaBrecque

Feb. 7 --The U.S. Postal Service, which ended the first quarter of fiscal year 2014 with a net loss of $354 million, is once again in danger of being unable to pay the federal government a statutorily required retiree health prefunding payment, the USPS said Feb. 7.

Without legislative action, the USPS said in a statement, the Postal Service will be forced to default on a $5.7 billion payment due by Sept. 30, because it will have insufficient cash and no ability to borrow additional funds at that date. The USPS last year failed to make a statutorily required $5.6 billion contribution to retiree health care benefits that was due no later than Sept. 30, 2013, contributing to the Postal Service's total net loss of $5 billion in FY 2013 .

The USPS has done a lot in terms of cutting costs, but it still needs Congress to act on a comprehensive postal overhaul, Postmaster General Patrick Donahoe told reporters during a Feb. 7 conference call. He added that the USPS is appreciative of action taken on such legislation by key committees in the House and, most recently, the Senate, which approved a wide-ranging postal overhaul bill (S. 1486) on Feb. 6.

Donahoe emphasized that the USPS has taken advantage of employee attrition by increasing its use of non-career employees--allowed under the Postal Service's new labor agreements, which have permitted the USPS to better align its staffing and workload levels, resulting in reduced labor costs.

Losses in 19 of 21 Quarters

According to the Postal Service statement, it has sustained losses in 19 of the past 21 quarters.

The Postal Service has been able to increase its revenue in some areas, particularly shipping and package services, and has aggressively reduced operating costs, it said. But losses have continued to mount because of the decline of higher-margin first-class mail, “stifling” legal mandates, and inflexible business and governance models, the USPS said.

“The Postal Service is doing its part within the bounds of law to right-size the organization, and I am very proud of the achievements we have made to reduce costs while significantly growing our package business,” Donahoe said in the USPS statement. “We cannot return the organization to long-term financial stability without passage of comprehensive postal reform legislation,” he said.

Joseph Corbett, chief financial officer of the Postal Service, said during the telephone news briefing that the service reached its statutory debt ceiling of $15 billion for the first time at the end of FY 2012 and currently remains at the limit.

The USPS will continue to have a low level of liquidity through October 2014, Corbett said. In the event that circumstances leave it with insufficient cash, the Postal Service would be required to implement contingency plans to ensure that mail deliveries continue, he said.

Corbett said in the statement that the Postal Service reduced its operating costs by $574 million during the first quarter of FY 2014. The separation of approximately 22,800 employees last year under a voluntary early retirement program helped the service cut its costs, Corbett added.

Reductions in Mail Volume

According to the statement from the USPS, total mail volume for the first quarter of FY 2014 came to 42 billion pieces, compared with 43.5 billion pieces during the same period last year.

Operating revenue for the period was $18 billion, an increase of $334 million or 1.9 percent compared with the same quarter in 2013.

But revenue from first-class mail, the Postal Service's most profitable service category, decreased $209 million, or 2.8 percent from the same period last year, with a volume decrease of 817 million pieces, or 4.6 percent, the USPS said.

The most significant factors contributing to this decline were the ongoing trends in the mailing behavior of consumers and businesses emanating from the recent recession, and the continuing migration toward electronic communication and transactional alternatives, the Postal Service said.

To contact the reporter on this story: Louis C. LaBrecque in Washington at llabrecque@bna.com

To contact the editor responsible for this story: Susan J. McGolrick at smcgolrick@bna.com


USPS financial results are available at http://op.bna.com/UTILS/lk.nsf/r/llbe9g4rlw?opendocument.

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