Post Office Delivers the Seemingly Unimaginable: $8.5 Billion Loss

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How it that a private company that has been around since 1775 and has a virtual monopoly on a service that is used by tens of millions of people and businesses daily, manage to lose so much money year after year?

Once again, the U.S Postal Service has announced a massive loss of $8.5 billion for the current year, on top of the $3.8 billion it lost last year. The company earlier estimated that it would lose somewhere in the neighborhood of $6 billion to $7 billion, but a reduction in the volume of letters delivered and increases in workers’ compensation costs caused the loss to soar. Revenues totaled $67.1 billion in the most recent year, compared to $68.1 billion in 2009.

With declining revenues from the increasing use of premium delivery services for packages and emails substituting for letters, the Postal Service is having difficulty adjusting to modern times and changing technology. Even though the Postal Service has been a private employer since 1983, it operates as an independent agency of the U.S. Government.

While the company receives no financial assistance or subsidies from the government, as of late, it has been borrowing money from the U.S. Treasury to keep afloat. This year it plans to borrow $3.5 billion, tapping out its $15 billion line of credit.

In order to help stem the red ink, last year it eliminated 105,000 full time positions, saving the company $9 billion over a two year period. Chief Financial Officer Joe Corbett said “We will continue our relentless efforts to innovate and improve efficiency,” Corbett said. “However, the need for changes to legislation, regulations and labor contracts has never been more obvious.”

The major obstacle in bringing costs into line has been the requirement to pre-fund future retiree health benefits in the amount of $5.5 billion per year. The obligation was part of a postal reform law passed in 2006.

The Postal Service has recently asked Congress to allow it to scale back its basic services including the elimination of mail service on Saturdays. Without any help from Washington, officials predict the Postal Service will be bankrupt by the end of 2011.

The U.S. Postal Service is the second largest private employer in the U.S. with over 500,000 employees, second only to Wal-Mart. By comparison, in a much more complicated business, with thousands of competitors, Wal-Mart earned in $14 billion last year.

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Comment (1)
  1. !WaR says:

    In reading the article I was actually surprised a bit. The author(could not find name) included a paragraph, though the shortest one, about the mandatory pre-funding of $5.5 billion per yer. This is the most major, critical mistake crippling the USPS(beside being way too top heavy). The USPS would have made money, three out of the last four years, if it weren’t for this costly requirement. It seems the media wants to only convey the message that the USPS is in dire straights, gasp, will even become bankrupt by the end of 2011! An even worse mistake would be to kill 6-day delivery. The USPS is supposed to be based on service, how would removing a day of service make any sense? Over time the USPS would lose even more business and money and independent companies are drooling of the thought of 5-day delivery. The USPS can become a thriving company again. Where a middle class man can make a decent salary, but the pre-funding must be fixed and/or eliminated.

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