With expenses rising and mail volume continuing to decline, the US Postal Service ended the third quarter with a net loss of $2.4 billion. Revenue declined $1.6 billion during the same period.
With the organization projecting a possible cash shortfall of up to $700 million and a net loss of $7 billion by the end of its fiscal year in September, Postmaster General John Potter is looking to Capitol Hill for some help.
Separate bills are currently before the House and the Senate that would provide temporary relief and are nearing full votes, Potter said during a conference call with reporters to announce the organization’s third quarter results. “We are working hard with the administration, the Senate and the House to get legislation passed to give us relief from our retiree health benefit payment,” he said. “I am fairly confident that legislation action will be taken before the end of the year,” he said. However, if it isn’t, Potter said postal delivery service will not be interrupted.
As a result of the Postal Accountability and Enhancement Act of 2006, the Postal Service is required to pre-fund retiree health benefits — costing the agency between $5.4 billion and $5.8 billion a year.
Still, with mail volume continuing to decline, any legislation would only provide temporary relief. In the third quarter ended June 30, the USPS reported mail volume dropped 14.3% over a year ago. Year-to-date, mail volume has fallen by nearly 20 billion pieces compared with the first three quarters of last year. This is the largest consecutive three-quarter drop in total volume since 1971.
“I see [the bills currently before congress] as phase one of what will be a multi-phase legislative effort to put the Postal Service on the proper path going forward,” said Potter. He pointed to the need to adjust the business model of the Postal Service, which is neither fully part of the federal government nor a private enterprise, to provide the flexibility to deal with cost issues, such as the requirement to pre-fund health benefits for retirees, and to move to a five-day delivery schedule to adjust for declining demand.
Potter also addressed a rumor that postage rates will undergo a double digit increase in the future. “I will not be making that recommendation to the Board of Governors,” said Potter, adding that such an increase “would only drum more mail out of the system.”
The Postal Service is also facing rising costs. Workers’ compensation expense increased by $722 million, or 198%, during the third quarter compared with the same period last year, reflecting a non-cash adjustment of $807 million to the carrying value of the Postal Service’s workers’ compensation liability due to a change in discount rates caused by the current low interest rate environment.