USPS May Default on Payments to Feds as Losses Deepen

The U.S. Postal Service ended the second quarter of its fiscal year (Jan. 1 - March 31, 2011) with a net loss of $2.2 billion, compared to a net loss of $1.6 billion for the same period in FY 2010.

As it warned in February, the USPS said absent substantial legislative change, it would be forced to default on payments to the federal government. It is legally required to prepay $5.5 billion to a retiree health benefit fund, due in September.

Mailing Services revenue of $14.0 billion decreased $568 million, or 3.9 percent, in the second quarter of 2011, compared to the same period a year ago. Mailing Services volume of 40.7 billion pieces represents a 3.1 percent decline from the same period a year earlier. The modest increase in revenue from Standard Mail was not sufficient to offset the loss of revenue from the reduced volume of First-Class Mail.

The Postal Service is aggressively reducing expenses, including organizational redesign initiatives. The Postal Service projects $1.2 billion to $1.6 billion in cost savings in fiscal year 2011, including a reduction of workhours across the organization. Benefits of these initiatives, however, may be offset by rising fuel prices.