Bloomberg News

U.S. Post Office Loses $1.3 Billion in First Quarter

February 08, 2013

U.S. Postal Service Loses $1.3 Billion in Quarter With Cost Cuts

Postal worker Janet Thompson loads her delivery vehicle with mail in Huntington Station, New York. The service this week said it will end Saturday delivery of all mail except for packages to save $2 billion a year. Photographer: Andrew Harrer/Bloomberg

The U.S. Postal Service today said it lost $1.3 billion in the quarter ended Dec. 31 despite cutting costs 9.8 percent, as Postmaster General Patrick Donahoe called on Congress to authorize changes in its business model to halt unsustainable losses.

Cost savings and a 4.7 percent increase in shipping and package revenue offset a 3.1 percent drop in first-class mail revenue from the same period last year, when the post office lost $3.3 billion. Total revenue held steady at about $17.7 billion during the first quarter, the post office’s strongest period because of holiday mailings.

The Postal Service released financial results two days after Donahoe said he would end Saturday mail delivery without Congress’s approval if necessary, pressing lawmakers to act on legislation to restore the post office’s financial viability.

“I’d like to say we can solve these problems on our own,” Donahoe said today at a postal board meeting in Washington. “The scale of our challenge requires major legislative reform to our business model. We do not want to be a burden on the American taxpayers.”

Donahoe said Feb. 6 that ending Saturday delivery of all mail except packages in August would save $2 billion a year. The post office wants to cut $20 billion of annual costs and says it can’t do it without congressional action.

U.S. House and Senate leaders said legislation to fix postal finances is a top priority this year, even as Senate Majority Leader Harry Reid yesterday joined other Democrats in questioning the legality of a unilateral halt of Saturday mail.

Health Default

Donahoe, on a conference call today with reporters, asked Congress not to stand in the way of cutting Saturday delivery.

“We feel that our interpretation of the way the law is written gives us the ability to move ahead,” he said.

Without legislation, the service projects having two and a half days of operating cash left at the end of its fiscal year Sept. 30, even assuming it defaults on a $5.6 billion payment due to the U.S. Treasury for future retiree health-care costs, Chief Financial Officer Joseph Corbett told reporters today.

He compared the Postal Service’s liquidity with finances at FedEx Corp. (FDX:US) and United Parcel Service Inc. (UPS:US), saying the companies have access to $10 billion of capital at any given time. The Postal Service exhausted its $15 billion borrowing limit last September.

Cash Shortage

A cash squeeze would leave the service no cushion to react to an economic downturn or other unexpected events, Corbett said. At the end of the first quarter on Dec. 31, the service had 10 days of cash on hand, one fewer day than it had a year earlier, he said.

“We can’t continue to operate on a precipice,” he told the board. “Our customers deserve better.”

With $140 billion in annual cash flow, a 1 percent deviation from the forecast would mean a change of $1.4 billion, which could take the service to zero cash, Corbett said.

“A billion to a layman sounds like a lot of money, but to the Postal Service, it’s just a few days of cash disbursements,” Corbett said.

The service remains at its borrowing limit despite increases in advertising and package mail and a boost from election-related mail during the first quarter, he said.

Horse, Buggy

The Postal Service lost a record $15.9 billion in fiscal 2012, which ended Sept. 30, as individuals and businesses continued their shift toward e-mail and e-billing.

“They cannot cut costs in a way that will make them sustainable,” said Richard Geddes, a Cornell University associate professor who studies the Postal Service and advocates changing its business model. “It’s like if you reduce the costs of horses and buggies in the automobile era.”

The Postal Service has asked Congress to defer or restructure the payment for future retirees’ health-care costs. Donahoe has also proposed taking the approximately 521,000 postal workers and the service’s retirees out of the U.S. government employee health-benefits system.

The service last year projected it would save $7.1 billion a year by managing its own benefits. It plans to release an analysis next week of how much it would save in the first year, said Mark Saunders, a Postal Service spokesman.

“We know it’s the right thing to do for this organization, but we can’t do that on our own,” Donahoe said on today’s conference call, saying a post-office health plan would be the country’s largest. “We need legislation.”

Congressional Action

Senator Tom Carper, a Delaware Democrat who is chairman of the Senate Homeland Security and Governmental Affairs Committee, plans to hold the first postal hearing of the new Congress next week.

“Piecemeal efforts like those announced in recent days and months will not be enough to solve the Postal Service’s financial challenges for the long haul,” Carper said in an e- mailed statement today. “I hope my colleagues and the administration share my sense of urgency to solve this situation.”

The Democrat-controlled Senate last year passed a measure giving the service much of the relief it sought, while requiring it to study the impact of ending Saturday delivery for two years. The Republican-controlled House didn’t bring up the Senate measure or vote on an alternative proposal criticized by Donahoe that would have set up an independent commission to close post offices while imposing a control board to oversee postal finances.

‘Flawed Guidance’

With his plan to end Saturday mail delivery, Donahoe now is drawing support from Republicans and criticism from Democrats.

The top Republicans on the House and Senate committees with postal oversight, Representative Darrell Issa of California and Senator Tom Coburn of Oklahoma, praised Donahoe’s move. Frank Lautenberg, a New Jersey Democrat who heads the Senate appropriations subcommittee with jurisdiction over the agency, said it “circumvents the will of Congress.”

The service previously said it needed a change in law to cut a day of delivery because language first added to appropriations bills in 1981 dictates six days of delivery. Donahoe on Feb. 6 said the service, which gets less than 0.1 percent of its revenue from taxpayers, would rely on a new legal interpretation that it could take that step under a temporary funding resolution that expires next month.

“The postmaster general relied on flawed legal guidance to claim that he can circumvent Congress’ authority on the matter,” Reid, a Nevada Democrat, said in an e-mailed statement yesterday.

Goading Congress

David Partenheimer, a Postal Service spokesman, said the service responded to the biggest criticism of five-day delivery by preserving Saturday package service.

“Given our worsening financial situation, the strong public support for this change, and the plan to maintain six-day package delivery, it is anticipated that most members of Congress will understand the urgent need to implement this change,” he said in an e-mail.

Reid and House Speaker John Boehner, an Ohio Republican, have both called postal service legislation a top priority for this year.

While Donahoe said ending six-day mail delivery isn’t a ploy to goad Congress to act, Farrokh Hormozi, chairman of the public administration department at New York’s Pace University, said it may have that effect. Millions of Americans depend on receiving physical mail, he said.

“The fact of the matter is that the Postal Service is what economists call the public good,” he said in an interview. “It doesn’t matter whether I get my Visa bill today or tomorrow. But for those people who depend on government subsidies or welfare checks or Social Security and they live from one paycheck to another, this is a significant issue we’re talking about.”

To contact the reporter on this story: Angela Greiling Keane in Washington at agreilingkea@bloomberg.net

To contact the editor responsible for this story: Bernard Kohn at bkohn2@bloomberg.net


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