Post Office Loses $3.5 Billion as 2011 Cash Crunch Looms

The United States Postal Service delivered bad news on Thursday, reporting a $3.5 billion loss for its fiscal third quarter due to lower revenues from the continuing drop in mail volume and increased costs from retiree health benefit expenses.

The USPS lost $1.1 billion more than it did during the third quarter of 2009, and has now posted net losses in 14 of its last 16 quarters. Operating revenue fell to $16 billion, $294 million less than during the same period last year, while operating expenses increased to $19.5 billion, $789 million higher than last year. Officials are projecting that the postal service could run out of cash in 2011 unless relief it is seeking from Congress is approved.

"Given current trends, we will not be able to pay all 2011 obligations," said USPS chief financial officer Joseph Corbett in a statement. "Despite ongoing aggressive cost reductions totaling over $10 billion in the last three years, it is clear that a liquidity problem is looming and must be addressed through fundamental changes requiring legislation and changes to contracts."

The biggest changes Corbett is seeking are moving the postal service to five-day delivery and the deferment of its congressionally-mandated $5.5 billion annual payment to pre-fund its retiree health benefits fund.

Saturday Delivery Is Mandated by Law

Going to five-day delivery would allow the postal service to save money by continuing to reduce worker hours in line with the unprecedented decline in mail volume over the last few years. Third-quarter mail volume dropped 1.7%, or approximately 700 million pieces compared to a year ago, and volume is down 20% since 2007 as an ever growing number of bills, payments and business-related documents are being handled via email and online banking. Postal Service spokesman Gerry McKiernan said the proposal to drop Saturday delivery has been filed with the Postal Regulatory Commission and will be ruled on after the commission takes private sector testimony in September.

However, even if the commission responds favorably to the proposal, Congress must also act by removing the requirement of six-day delivery from the language in its annual appropriations bill. Six-day delivery by the post office has been legislatively mandated since 1983.

The deferment of payments to its employee retirement fund will simply give the agency more time and flexibility to meet funding requirements as it reacts to major changes in how customers send and receive mail. McKiernan noted that last year, Congress allowed the Postal Service to defer $4 billion of its $5.5 billion payment until 2017. "We are asking for similar relief this year," he said.

Additional relief may come with the proposed price increase for mail delivery requested in July, which would raise the price of a first-class stamp from 44 cents to 46 cents. The post office says the proposed increase, which would go into affect on Jan. 2, 2011, would raise $2.3 billion during its first nine months. Contract negotiations scheduled to take place this fall with unions over jobs and benefits may also help the postal service avoid a liquidity crisis next year.