USPS Posts Revenue of $62.7 Billion, Though Internet Shadow Looms Large

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Under the looming shadow of the Internet, the U.S. Postal Service announced yesterday a net income of $363 million on revenues of $62.7 billion in fiscal 1999, delivering a record 201.6 billion pieces of mail in the year.

But though this is USPS' fifth consecutive year of net income, it is also the third successive year that its income has dropped. Net income in the years 1998 and 1997 respectively were $550 million and $1.26 billion.

The falling income was blamed on the delay of the last postal-rate increase, which took effect in January 1999 instead of fall 1998. It led to an estimated shortfall of $800 million, plus unexpected expenses of $100 million to cover employee health benefits and another $300 million to handle Y2K problems. Rising fuel costs put an extra dent of $100 million.

In all, the USPS books carry a cumulative loss of $3.5 billion, albeit way lower than $9 billion five years ago.

"We're pretty much satisfied that we're delivering on the promise that we're continuing to restore five-year losses and, in fact, we're having positive results in terms of what we're doing," said M. Richard Porras, chief financial officer of USPS, in a conference call.

The postal service will further tighten its belt in the next year. Porras said the advertising budget will be trimmed and the deployment of new call centers possibly slowed. He wouldn't specify the ad spend for 1999 or 2000, but said the slash was across the board, including direct mail advertising.

Increased postal rates are expected to boost USPS' revenues, but that hike has again been postponed to early 2001, giving mailers yet another reprieve.

Next year presents many challenges to USPS. Delivery addresses are expected to grow by 1 million, and labor costs are projected to rise because of negotiated settlements this year of disputes with three postal unions.

But the biggest challenge of all will be USPS' response to the Internet, which is steadily eating into its market.

"Sure, some people are saying, 'Well, this electronic commerce is not going to hurt you,' " said Porras. "We're saying, 'We think it is.' Now who knows to what extent or exactly what date, but there's no doubt in my mind."

Although the rising popularity of e-mail has reduced output of First-Class mail, it is online presentation of bills for payment that by 2003 will impact USPS' bottom line Porras said. A steady shift of ad dollars to the Internet is another concern, he said.

"So far, we think technology has affected us for 2-percent of our volume [of advertising mail delivered]," Porras said, "but that's the million-dollar question for all of us: How much effect will it have not only on First-Class mail [but] how much will it have on advertising mail, which may affect all of us?"

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