EcommerceBytes-NewsFlash, Number 3063 - May 13, 2013     3 of 4

USPS Urges Congressional Relief Amid $1.9 Q2 Loss

By Kenneth Corbin

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The head of the U.S. Postal Service is warning that the situation is getting dire at the venerable agency, which reported a $1.9 billion quarterly loss on Friday and will continue to bleed red ink if Congress does not pass legislation to ease some of the structural burdens related to its workforce and delivery obligations.

"The most important issue relates to time, and we're running out of it," Postmaster General Patrick Donahoe said Friday morning at a meeting of the Postal Service Board of Governors. "We're losing approximately $25 million a day - every day - and these losses continue to add up. And at some point our financial liabilities become so large that they cannot be fixed without having to take extreme action, which is what we are trying to avoid. We do not want to get to the point where extreme options are the only options."

Donahoe and other USPS officials talked up the five-year business plan (available in PDF format here) that the agency issued last month, which outlined the current financial challenges the organization is facing, its appeal for legislative reforms and the steps that the Postal Service is taking on its own to cut costs and stoke new revenue sources.

Through that plan, the Postal Service aims to cut $20 billion in annual expenses by 2016. USPS Chief Financial Officer Joe Corbett touted the steps the Postal Service has already taken in reducing its workforce and shrinking its distribution and retail infrastructure, saying the agency has "accomplished a ton on the efficiency side."

For instance, over the past six months, the Postal Service has consolidated 61 mail-processing facilities while reducing the headcount by 31,000 full-time employees, leaving the agency with a career workforce of around 496,000, the lowest mark since 1966, according to Corbett.

Additionally, the Postal Service has rolled out more than 150 alternative retail locations managed by private owners, which can offer longer customer services hours and carry lower costs than traditional, standalone post offices.

In the same vein, as it navigates a balance between trimming operating expenses and nourishing the growing shipping business, the Postal Service has set up more than 250 self-service kiosks and reports promising, if early, results from a trial of next-day delivery service. In the second quarter, revenues from the shipping and package business grew 9.3 percent on a volume increase of 6.2 percent, compared with the same period last year.

But the margins on that business are lower than other types of mail, particularly First-Class, the Postal Service's most profitable product, which continues to see volumes decline amid a broad trend of electronic replacement, encompassing everything from email to online bill paying.

"While we are competing well in most aspects of our business, it's difficult to compete against free," Corbett said.

First-Class mailing volume tumbled 4.1 percent, or 713 million pieces, in the second quarter, making for a revenue dip of $198 million, or 2.7 percent, from the year-earlier period.

Even with the cost-cutting measures that the Postal Service has undertaken and the steady lift the package business is enjoying from ecommerce, the mounting multi-billion quarterly losses are threatening the agency with insolvency.

"Even for an organization as large as the Postal Service, that's a huge amount of money," Corbett said.

Given the urgency of the Postal Service's financial situation, Donahoe and his team will continue to press Congress for legislation that would permit it to enter into a competitive health-care program outside of the federal government system, reform the workers' compensation program and shift to five-day weekly delivery

Donahoe expressed a cautious optimism that Congress could move on legislation sometime this year, though with another round of workforce-related payments coming due, time is of the essence.

"If legislation doesn't pass, we have issues that we have to face," he said, holding out the possibility of across-the-board rate increases, among other moves to stay afloat, if Congress doesn't act. "I think everything has to be on the table."


About the author:

Kenneth Corbin is a freelance writer based in Washington, D.C. He has written on politics, technology and other subjects since 2007, most recently as the Washington correspondent for InternetNews.com, covering Congress, the White House, the FCC and other regulatory affairs. He can be found on LinkedIn here.


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