Supply Chain News / Finance & Credit

USPS Rebounds in FY 2013, Still Loses Billions

December 3, 2013
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The U.S. Postal Service ended the 2013 fiscal year (Oct. 1, 2012 – Sept. 30, 2013) with a net loss of $5 billion. This marks the seventh consecutive year in which the USPS incurred a net loss.

  • Revenue increase driven by 8 percent growth in shipping and packages, 3 percent growth in Standard Mail; First-Class Mail continues to decline
  • Nearly $1B in savings driven by work hours reduction of 12 million hours and optimizing workforce flexibility
  • Substantial deficit liabilities of $61B exceed assets by approximately $40B

According to the agency, this highlights the need to continue to capitalize on growth opportunities, reduce costs and enact comprehensive legislation to provide a long-term solution to its financial challenges.

Even though the USPS has implemented a number of strategies that resulted in $15B in annual expense reductions since the Postal Accountability and Enhancement Act was passed in 2006, the combination of onerous mandates in existing law and continued First-Class Mail volume declines threatens the USPS’s financial viability.

“We’ve achieved some excellent results for the year in terms of innovations, revenue gains and cost reductions, but without major legislative changes we cannot overcome the limitations of our inflexible business model,” said Patrick Donahoe, Postmaster General and CEO. “Congress is moving forward with legislation that has the potential to give us greater flexibility and put us back on a firm financial footing, and we strongly encourage that they continue moving forward.”

The legislative requirements put forward by the USPS, as outlined in the Five-Year Business Plan, include:

  • Restructure the USPS health care plan.
  • Refund Federal Employees Retirement System (FERS) overpayment and lower future FERS payment amounts to those required.
  • Adjust delivery frequency to six-day packages/five-day mail.
  • Streamline the governance model (eliminate duplicative oversight).
  • Provide authority to expand products and services.
  • Require defined contribution retirement system for future USPS employees.
  • Require arbitrators to consider the financial condition of the USPS.
  • Reform workers’ compensation.

Complete financial results are available in the Form 10-K, available here.

Results of Operations
Highlights of yearly results compared to the same period last year include:

  • Total mail volume was 158.4B pieces compared to 159.8B pieces a year ago.
    • Package and Standard Mail volumes grew by 210 million pieces and 1.4B pieces, respectively, while the most profitable product, First-Class Mail, fell by 2.8B pieces, led by single-piece volume decline.
  • Operating revenue, excluding a $1.3B non-cash change in an accounting estimate, was $66B compared to $65.2B in 2012.
    • While this is the first growth in revenue since 2008, declining First-Class Mail revenue continues to negatively impact financial results.
  • Operating expenses were $72.1B in 2013 compared to $81B in 2012.
    • Approximately $8.2B of this decrease resulted from higher, legally mandated retiree health care benefit expenses and higher non-cash Workers’ Compensation expense in 2012.
    • Expenses in 2013 include a required $5.6B contribution to retiree health care benefits that the USPS was unable to make. Continued lack of legislation will likely force the USPS to continue to default on these payments.
    • Savings from plant consolidations, restructuring hours at Post Offices, reductions in delivery units, and workforce optimization resulted in approximately $1B of savings in 2013.
  • The net loss for the year, which was decreased by a $1.3B non-cash change in estimate, was $5B.
    • However, this change in accounting estimate has no impact on the USPS’s receipt of cash, or cash on hand, nor does it lessen the severity of its current liquidity situation.

The USPS continues to grow its Package Services business. From fiscal year 2012 to fiscal year 2013, revenue from Package Services increased by $923 million, or 8 percent, on a volume increase of 210 million pieces (6 percent).

By developing innovative services to appeal to the growing parcel delivery market, Shipping and Package Services grew to $12.5B, representing approximately 19 percent of revenues. Standard Mail revenue grew by $487 million, or 3 percent, on a volume increase of 1.8 percent.

“Our productivity reached an all-time high in 2013, increasing 1.9 percent, compared to 2012,” said Chief Financial Officer and Executive Vice President Joseph Corbett. “This marks our fourth consecutive year of positive total factor productivity growth since the depths of the recession in 2009.”

Work hours in 2013 decreased by 12 million or 1.1 percent, despite an increase of approximately 774,000 delivery points during 2013.

At the end of the 2012 fiscal year, the USPS reached its statutory debt ceiling of $15B for the first time, and it remains at the limit at the end of the 2013 fiscal year.

“Our liquidity continues to be dangerously low and our liabilities exceed our assets by approximately $40 billion,” said Corbett. “This underscores the need for Congress to pass legislation that improves our financial position and that gives the Postal Service a more flexible business model to improve its cash flow. Despite reaching the debt limit, Postal Service mail operations and delivery continue as usual and employees and suppliers continue to be paid on time.”

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