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The U.S. Postal Service opened its 2013 fiscal year with another major spill of red ink, though agency officials said they were encouraged that the profitable and growing shipping business helped mitigate the losses.

For the three months from Oct. 1, 2012, through Dec. 31, the Postal Service reported a net loss of $1.3 billion, driven in large part by sustained declines in First-Class Mail volumes, which slumped 4.5 percent in the period.

Shipping and package volumes for the quarter that included the busy holiday season rose 4 percent from the year-earlier period, though Postmaster General Patrick Donahoe warned that the agency will continue to suffer mounting losses if it does not win the authority from Congress to enact structural reforms to its employee benefit programs.

"The encouraging results from our holiday mailing season cannot sustain us as we move deeper into the current fiscal year and face continuing financial challenges," Donahoe said in a statement.

"We urgently need Congress to do its part and pass legislation that allows us to better manage our costs and gives us the commercial flexibility needed to operate more like a business does," he added. "This will help ensure the future success of the Postal Service and the mailing industry it supports."

Over the coming months, the Postal Service will continue to lobby Congress to enact legislation that would ease its obligations to prefund retiree health benefits, allow it to take control of its own health insurance system and other workforce-related reforms.

But absent congressional action, the agency is pressing ahead with its own reforms to trim costs, including an ongoing review of its retail locations and distribution facilities, including the Village Post Office program, through which privately owned community institutions such as hardware stores or grocery stores in rural areas could begin offering a menu of postal services.

Perhaps the most significant - and controversial - of the cost-cutting initiatives was announced just two days before the most recent earnings report, when the Postal Service said that it plans to end Saturday mail delivery in August. Importantly, the agency said that it will continue to deliver all classes of packages on Saturdays even after it ends regular mail service for homes and businesses.

The Postal Service has been advocating the shift to five-day delivery for some time, but members of Congress have blocked it from doing so with language in an annual appropriations bill requiring the continuation of Saturday service.

Several lawmakers challenged the Postal Service's legal authority to end Saturday delivery in response to last week's announcement. Among those was Senate Majority Leader Harry Reid (D-Nev.), who charged that Donahoe had "relied on flawed legal guidance to claim that he can circumvent Congress' authority on the matter," and that his "actions have damaged his reputation with congressional leaders and further complicate(d) congressional efforts to pass comprehensive postal reform legislation in the future."

"Cutting down mail delivery to five days per week will not save the Postal Service from insolvency," Reid said in a statement. "This short-sighted measure will deal a crippling blow to the millions of Americans and small businesses who rely on the timely and reliable delivery to every community in our nation."

The Postal Service defended the move as a critical measure to trim expenses that would at once diminish service on the fast-shrinking First Class Mail product while preserving the current delivery schedule for the package business, which continues to grow, thanks in considerable part to the expanding ecommerce sector.

Revenue from the shipping business in the first quarter jumped $154 million, or 4.7 percent, from the same period in fiscal 2012.

But packages weren't the only bright spot on the balance sheet for the most recent quarter. The Postal Service also received a boost from Standard Mail, the service class used by advertisers, who were out in full force leading up to the presidential election. In the first quarter of the fiscal year, Standard Mail volume increased 3.6 percent from the year-earlier period, which translated into a revenue increase of $141 million, or 3.1 percent.

Meanwhile, the Postal Service processed 834 million fewer pieces of First Class Mail than last year, amounting to revenue slide of $237 million, or 3.1 percent.

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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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