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EcommerceBytes-NewsFlash, Number 2675 - November 16, 2011 - ISSN 1539-5065    1 of 3

USPS Posts $5.1 Billion Net Loss in Fiscal 2011

By Kenneth Corbin
EcommerceBytes.com
November 16, 2011




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The red ink continues to flow at the U.S. Postal Service, which on Tuesday reported a net loss of $5.1 billion for the 2011 fiscal year.

That loss was well below the worst-case scenario the Postal Service had projected earlier this year, but that owes to an act of Congress that postponed a statutory obligation to prefund retiree health benefits. Without that action, the Postal Service would have closed out the fiscal year with losses around $10.6 billion, officials said. The $5.5 billion prefunding requirement for retiree health benefits is now due at the end of this week - Nov. 18 - and absent another act of Congress that would eliminate or defer the obligation, the Postal Service says it will default on the payment.

In a conference call with analysts and reporters, USPS Chief Financial Officer Joe Corbett stressed the positive aspects of the balance sheet, notably the organization's Standard Mail and shipping services, both areas in which it competes with private-sector providers. But those modest gains were not enough to offset the continuing decline in the Postal Service's cash cow monopoly: First Class Mail.

"Our employees have been more efficient than ever and our business grew in 2011 in those areas where we are most competitive," Corbett said. "Our largest and most profitable product, First Class Mail, continued its year-over-year decline in 2011."

Proceeds from First Class Mail, which accounts for nearly half of the Postal Service's revenue, tumbled 5.8 percent, dropping from $34.2 billion in fiscal 2010 to $32.2 billion this year.

Over the same period, revenue from Standard Mail increased by $495 million, or 2.9 percent, buoyed by a volume increase of 2 billion pieces. Propelled by solid growth in Parcel Select and Parcel Return Services, as well as an increase in package volume attributed to heavy ecommerce activity, shipping services revenue spiked 6.3 percent, or $530 million, in 2011.

But those increases weren't enough to offset the secular shift away from First Class Mail in favor of electronic communications, Corbett said. Overall mail volume declined by 1.7 percent, or 3 billion pieces, from 2010.

"It's simply more efficient for some parts of First Class Mail to do it electronically than to use the U.S. Postal Service," he said. The Postal Service insists that it can return to profitability, but that it can't do it on its own. "Unfortunately, the continuing decline in our largest and most profitable product, First Class Mail, remains too significant to overcome with internal initiatives alone," Corbett added.

The Postal Service is calling on Congress to take action on a variety of fronts both to give it more latitude to implement cost-cutting and revenue-generating steps on its own, and to provide relief from some of the heavy financial burdens associated with its workforce. Chief among those are the elimination of the pre-funding obligation for retirees' health benefits and allowing the Postal Service access to the overpayments it has made to the Federal Employees Retirement System. The organization is also asking for the authorization to implement its own, private health care system for new employees.

Additionally, the Postal Service is seeking wider authority to raise rates and pressing hard for congressional authorization to move to five-day weekly delivery. It is also moving forward with plans to trim its workforce and significantly reduce its network of processing and retail facilities, seeking to replace many of the latter with privately run, so-called Village Post Offices that would layer postal products and services into existing shops within a community, such as grocery stores or office-supply stores.

"We want to offer our product and services at more sites where our customers are already doing their shopping," Corbett said.

Multiple bills have appeared in the House and Senate offering competing visions of how to save the Postal Service, but the legislation currently under consideration does not match the scale of the problems the organization faces, according to Deputy Postmaster General Ronald Stroman. The Postal Service estimates that to return to profitability, it must reduce its annual costs by $20 billion by 2015.

None of the pending legislation adequately addresses the issue of retiree health benefits, Stroman said. A bill introduced in the Senate earlier this month and voted out of committee last week would lower the prefunding target from the current 100 percent of retirees' health benefits to 80 percent and shorten the amortization schedule, for instance. But the Postal Service, which is essentially maxed out on its borrowing limit from the Treasury Department, argues that such proposals, while a step in the right direction, fall short of the reforms necessary to keep the organization afloat.

"There are great elements in the bills moving through both the House and the Senate, but I think it's fair to say that in terms of the cost reductions that we need to become solvent long term, none of the bills gets us to where we need to go," Stroman said.

"We're hoping to work with both the House and the Senate to improve those bills to get us where we need to go," he added.

About the Author
Kenneth Corbin is a freelance writer based in Washington, D.C. He has written on politics, technology and other subjects for more than four years, 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 .

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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