The US Postal Service reported a net loss of $8.5 billion for 2010, the largest loss in the organization’s history.
However, the USPS also faces a major financial challenge in FY 2011, which began October 1. It is projecting a year-end net loss of $6.4 billion if Congress does not change the retiree health prefunding payment schedule.
“We will not have sufficient liquidity at the end of the year, and we will be unable to meet all of our financial obligations,” said James Miller, chairman of the Postal Service’s audit committee.
The shortfall would occur even if the Postal Service borrowed the final $3 billion allowed by law, postal officials said. At the end of FY 2011, the Postal Service would reach its total borrowing limit of $15 billion.
However, most of the USPS’ loss in FY 2010 was due to the statutorily required prefunding payment of $5.5 billion the Postal Service made to its Retiree Health Benefits Fund. The USPS also made a $2 billion non-cash adjustment to workers’ compensation to reflect lower interest rates.
The loss from operations was only $500 million, Joseph Corbett, CFO of the USPS, said at the open meeting of the Board of Governors on November 12. The organization also shed 75 million work hours and increased productivity, which contributed to a cost savings of $3 billion in FY 2010.
“Even with the losses, by any objective measure, our performance was remarkable,” Corbett said.
One positive trend is that Standard Mail increased 8.9% in the final quarter of FY 2010, marking its third straight quarter of growth. However, its rebound was not enough to boost overall FY 2010 volumes, as total mail volumes declined by 7 billion pieces. Postal officials say growth in Standard Mail should continue through FY 2011, and could propel total mail volume growth of about 1.1% for the year. If that projection holds, it would mark the first year of volume growth in four years, said Corbett.
Postal officials also recognized the effect the digital revolution had on the Postal Service, in particular on First Class Mail volumes. Revenues from First Class Mail result in three times the revenue of Standard Mail. Responding to this challenge is one of the many difficult tasks awaiting Patrick Donahoe, the next postmaster general, mail officials said.
“Of all the challenges that [outgoing Postmaster General] Jack Potter faced in his nine-and-a-half years at the helm, I think the digital transformation is probably the biggest challenge,” said Louis Giuliano, chairman of the Board of Governors.