After another quarter with losses in the billions, the U.S. Postal Service is once again urging Congress to enact legislation that would free the agency to adjust its operating schedule and move to five-day weekly delivery.
Postmaster General Patrick Donahoe said he wants to play to the strengths of the agency, reorienting the Postal Service around its promising marketing and packages businesses, while easing back on delivery of regular mail amid sustained volume declines.
On a conference call with reporters discussing the Postal Service’s latest earnings, Donahoe took aim at lawmakers and others who are seeking targeted legislation that would only address the agency’s obligations relating to retiree health benefits. Without a more comprehensive reform package, Donahoe argued, the Postal Service will continue to bleed red ink.
“I am disappointed with congressional action, or lack of it,” Donahoe said. “But we will repeat again: comprehensive legislation is needed. “Reform light,” as some are advocating, is irresponsible. Those who say that health care is the only thing that needs to be done should check their math. It is not.”
Irrespective of the funding obligations associated with retiree benefits, the Postal Service estimates that it incurs upward of $1.2 billion of inflationary cost increases each year, which, coupled with ongoing declines in First Class mail – USPS’ most profitable product – means that the agency starts each year “in the hole,” Donahoe said.
For the second quarter of fiscal 2014, the Postal Service reported a net loss of $1.9 billion, the 20th quarter of the past 22 in which the agency has finished in the red.
Ecommerce continues to provide a jolt, with revenue from the shipping and package business increasing $252 million, or 8 percent, over the second quarter in 2013.
USPS Chief Financial Officer Joseph Corbett said that the agency is “laser focused on packages and advertising” as it works to expand shipping services such as improved tracking and day-specific and Sunday delivery.
On Thursday, Amazon announced that it had reached an agreement with the Postal Service to provide Sunday delivery to 15 new markets, including the major urban centers of Houston, Dallas and Philadelphia. Amazon began Sunday delivery last November in the New York and Los Angeles metro areas, and said that it plans to expand the USPS partnership to provide seven-day service to “a large portion of the U.S. population this year.”
While the steady growth in online shopping has been a boon for the Postal Service, it hasn’t been enough to offset the tumble in First Class mailing volumes, which, year over year, fell another 4.1 percent in the second quarter. Donahoe said that the agency is anticipating a drop of 4 billion pieces this year.
“It’s unfortunate, but it’s inevitable in terms of First Class mail continuing to decline,” he said.
All told, the Postal Service reported that its net liabilities exceed assets by $42 billion. Absent legislative relief, the agency is expecting to default on a $5.7 billion payment for retiree health benefits due to the Treasury Department at the end of September.
Those hefty figures cast a long shadow over the operations of the Postal Service, though Donahoe and Corbett are quick to highlight efforts to improve efficiencies and reduce costs. In the second quarter, operating expenses declined $200 million, while revenue increased by $379 million, an uptick attributed largely to the package business.
“We’re happy with the financial progress. The operating income is good news,” Donahoe said. “Bottom line, though, is we’re still in the red.”