Billions of Dollars Lost in US Postal Service… Blood in Mail

The United States Postal Service is out with its quarterly filing of earnings, and it is not pretty.  In fact it is uglier than a head-on collision.  The quarterly report dated today shows a loss of $2.382 billion.  That compares to last year’s same quarter loss of $1.105 billion.  Revenues were $16.339 billion, down from $17.91 billion a year earlier.  Here is the sad case, this is going to essentially need another tax hike equivalent via another postal rate hike.

For the USPS to make money based solely upon the exact percentage of losses on revenues to get to a break even number, the postal rates need to increase by just over 14.5% on whatever the median postal rate comes to.  Sadly, this would have been even a wider loss if gasoline prices were the same as a year ago.

The loss for the 9-month period ending June 30, 2009 was 4.664 billion.  The USPS said that a significant portion of the loss in the current year is attributed to “an unprecedented decline in mail volume, which fell by 20 billion pieces…” resulting in a $4,823 million or 8.4% decrease in revenue.

There is a further warning ahead.  The USPS says that continued downward pressure on mail volume is expected throughout the current fiscal year and even with substantial cost reductions the 2009 net loss is projected to be in excess of $7 billion.

As far as 2010, the USPS said that mail volume could decline another 10-15 billion pieces and the net loss is expected “to be on the same order of magnitude as the projected net loss in 2009.”  That is despite a broad range of actions by the USPS to cut costs in response to lower mail volume.

The obligations for the USPS only merit more pain and losses.  It has an obligation to pay $5.4 billion into the Postal Service Retiree Health Benefit Fund by September 30, 2009. The USPS says that it does not expect to generate sufficient cash flow from operations in the last quarter of 2009 to fully fund this obligation. And to pour salt on the wound, the USPS also disclosed that it is required to pay approximately $1.1 billion to the Department of Labor for Workers’ Compensation by October 15, 2009.  It can fund some of this through debt, but that is limited by caps.

In short, you better go ahead and brace for postal rate increases.  Hopefully, the government doesn’t go back to considering ways to tax email to fill the gap.  That was a big argument back in the 1990’s.

JON C. OGG
August 5, 2009