The US Postal Service posted another loss of $1.96 billion in the third quarter. CFO Joseph Corbett said the agency needed $10 billion to upgrade infrastructure and replace aging fleet
The US Postal Service’s CFO, Joseph Corbett, stated that the agency required an investment of up to $10 billion to continue providing competitive services. The agency would use the funds to upgrade infrastructure, purchase equipment and replace its aging fleet. 70% of the agency’s 200,000 vehicles are more than 20 years old.
It is not clear how the agency plans on sourcing the required funding. It reached its $15 billion credit limit with the Treasury department back in 2012. Moreover, the investment might still not enable to post profits since the root cause behind the losses is the $5.5 billion that the agency needs to pay annually to pre-fund the future health benefits of its retired employees. The agency has defaulted on the payment for the last three years, and chances are slim that this year will be any different.
It is apparent that the only hope to profitability in the short run for the agency can arrive in the form of leniency on its health benefits payment. Otherwise, the agency will continue to report a red bottom-line, even if it is somehow able to upgrade its infrastructure and replace the aging fleet. The agency would have reported a profit of $1 billion during the last three quarters, had it not accounted for the pre-funding for its future retirees.
Quarterly Performance
The US Postal service’s losses continue to mount. It reported a net loss of $1.96 billion in the third quarter of its fiscal year 2014 (3QFY14). It has now posted losses in 21 of the 23 preceding quarter. In fact, it has not reported an annual profit since 2006, when Congress made it mandatory for the company to pre-fund $5.5 billion every year for the health benefits of future retirees.
Even so, there was some good news in the latest filing. The postal service’s quarterly revenues rose 2% year-over-year (YoY) to $16.5 billion. The package delivery business continued to do well, recording a revenue increase of 6.6% last quarter.
Sales from package deliveries now constitute a fifth of US Postal’s revenues and its popularity is increasing due to its ease of use for customers. By using the agency’s online Ship-A-Package service, Americans can calculate, price, and print their own label and schedule a pickup at a location of their convenience.
In comparison, regular mail is losing ground as customers shift to email and other online modes of communication. For many, the hassle and cost of writing and posting a letter is not worth it anymore.
First class mail volume declined 1.4% YoY during the quarter and operating expenses were $18.4 billion, compared to revenues of $16.5 billion.
via News Analysis: Will The US Postal Service Turn Profitable With A $10 Billion Investment?.