Strasser: USPS '06 Costs Higher Than Those in Rate Filing

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The U.S. Postal Service's costs for fiscal year 2006 will be higher than the costs built into its current rate filing, according to Richard J. Strasser Jr., USPS chief financial officer and executive vice president.


Strasser's comment came yesterday while presenting the FY 2006 operating and capital plans to the USPS Board of Governors at its monthly meeting.


The operating plan is predicated on a 5.4 percent postage rate increase taking effect in January 2006, driven by the congressional requirement to place $3.1 billion in an escrow account by the end of the fiscal year. The USPS said the rate increase would bring more than $2 billion into the agency.


"FY 2006 costs will be higher than costs built into the rate filing, and given that rates will be implemented no earlier than the second quarter of the fiscal year, the operating plan results in a deficiency of $1.8 billion after funding the escrow," Strasser told the governors.


The deficiency would be covered by borrowing, the USPS said. Strasser said that the USPS expects to report a net income of $1.3 billion in FY 2006.


"We project revenue of $72.3 billion, an increase of 3.4 percent," Strasser said. "The plan calls for cost reductions of $1.1 billion, including work-hour reductions of 42 million hours." However, expense growth before reductions is projected at 4.9 percent, or $3.4 billion. This produces a net expense growth of $2.3 billion, or 3.4 percent, to $71.1 billion.


The USPS fiscal year 2006 covers Oct. 1, 2005, to Sept. 30, 2006.


Reflecting priorities outlined in the postal service's Transformation Plan, which also was discussed at the meeting, the USPS expects to commit $2.9 billion for capital investment, including $1.6 billion for equipment projects that will provide a return on investment.


The USPS also expects to report total volume of 213 billion pieces for the fiscal year -- versus 212 billion pieces in FY 2005 -- with an estimated 2.4 percent drop in First-Class mail and a 3.6 percent increase in Standard mail.


In other news, the governors voted to approve a filing with the Postal Rate Commission to make Parcel Return Service a permanent classification.


Parcel Return Service lets mailers provide customers with a prepaid return label that can be included in shipments, mailed to customers or made available for download via the Internet. Merchants can pick up returned merchandise at a post office delivery unit or bulk mail center.


In July, the USPS said Parcel Return Service generated $10 million since it began as a two-year pilot in October 2003. It has operated as an experiment since October 2003. The service will continue without interruption during the PRC proceedings.


Melissa Campanelli covers postal news, CRM and database marketing for DM News and DMNews.com. To keep up with the latest developments in these areas, subscribe to our daily and weekly e-mail newsletters by visiting www.dmnews.com/newsletters


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