The U.S. Postal Service ended its third fiscal quarter June 30 with a net loss of $2.4 billion as cost cutting failed to keep pace with falling revenue.
Despite a plan to cut $6 billion from its budget, the U.S. Postal Service expects to lose $7 billion by year-end. The third fiscal quarter gives weight to the projection.
USPS third-quarter results include operating revenue of $16.3 billion, a decrease of nearly $1.6 billion, or 9 percent, from the same period last year. The decline was largely due to an unprecedented decline in mail volume, which has fallen by nearly 20 billion pieces in 2009 compared to the first three quarters of last year, USPS said. Third quarter mail volume totaled 41.6 billion pieces, down 7 billion pieces, or 14.3 percent, compared to a year ago — the largest consecutive three-quarter drop in total volume since 1971.
The trend of letter mail and business transactions being replaced with electronic alternatives is expected to depress mail volume further in coming years.
Operating expenses in the third quarter were $18.7 billion, a reduction of $294 million, or 1.5 percent, from the third quarter of last year. Results also included a non-cash adjustment that increased workers’ compensation expense by $807 million. The Postal Accountability and Enhancement Act of 2006 requires the Postal Service to pay $5.4 billion to $5.8 billion annually to prefund retiree health benefits.
The Postal Service has incurred net losses in 11 of the last 12 fiscal quarters. The fiscal 2009 year-to-date net loss is $4.7 billion, compared to a loss in the same period last year of $1.1 billion. A cash shortfall of up to $700 million is possible by Sept. 30.
“Our commitment to customer service is paramount,” said Postmaster General John Potter. “We will continue to provide the dependable service our customers need. We also will keep a balance with our critical focus on reducing costs so that service is not diminished.
“Thanks to extraordinary efforts across the entire organization, we are well on track to achieve our 2009 target of more than $6 billion in total cost reductions,” said Potter. “In the third quarter, we surpassed the targeted amount by $500 million.”
Cost reductions center on initiatives to match work hours to reduced mail volume. Other savings are coming from consolidating excess capacity in mail processing and transportation networks, realigning carrier routes, halting construction of new postal facilities, freezing Postal Service officer and executive salaries at 2008 pay levels, reducing travel budgets and similar measures. Of note is an effort launched this year to reduce the cost of more than 500 existing contracts that will result in short- and long-term savings for the Postal Service in the areas of price, scope and process improvements.
Work hours were reduced by 88 million hours in the first three quarters of fiscal 2009, or 8.4 percent compared to the first three quarters of 2008. “We are on pace to meet our goal of reducing work hours by more than 100 million for the entire year,” said Joe Corbett, chief financial officer and executive vice president. “That’s double the rate of last year’s successful work-hour reductions and the equivalent of 57,000 full-time employees, or 8.6 percent of our full-time workforce.”
Contact Thomas L. Gallagher at email@example.com.