U.S. Postal Service Annual Loss Totals $5.1 Billion

The U.S. Postal Service (USPS) is bleeding red ink. The nation's mail delivery system has reported financial results for the latest fiscal year, showing a loss of $5.1 billion.

The loss would have exceeded $10 billion if Congress had not passed legislation that postponed a $5.5 billion payment to pre-fund retiree health benefits. The obligation, however, remains on the books.

There are probably two main reasons for the postal service's dire finances. The first, and most obvious, is the rise of electronic mail that has reduced the need to send paper through the mail.

And then there is the little matter of customer service.  It's not so much the errors, misdeeds and oversights that infuriate consumers.  Rather, it's the response they get when they complain. 

"On 11-14-11 I received a letter having only 2 items of the address to me. The name, street, and zip code were all incorrect. Not to mention the name was a school," said Nisi of Grand Rapids, Mich., in a complaint to ConsumerAffairs.com. "I wrote on the letter pointing out all the inaccuracies. The next day, our postal worker rang my doorbell and proceeded to yell at me for pointing out how poorly she was doing her job. She was in the wrong, and still yelled at me for her mistakes."

This type of behavior may not drive consumers into the arms of the competition, whatever that might be, but it certainly buys the Postal Service no friends as it prepares for an epic battle with Congress.

Mail volume is down

Total 2011 mail volume fell by three billion pieces, or 1.7 percent, from 2010. The Postal Service’s largest and most profitable product, First-Class Mail, continued its year-over-year decline, from $34.2 billion in 2010 to $32.2 billion in 2011 - a 5.8 percent decline, which dwarfed continued growth in its more competitive products, packages and Standard Mail.

USPS Shipping Services revenue, which includes Priority Mail and Express Mail, increased $530 million, or 6.3 percent, in 2011. The increase in Shipping Services revenue was driven by strong growth in the Parcel Select and Parcel Return Services, due to increased mailings of packages.

Ironically, as the Internet has eaten away at First Class Mail revenue, it has pumped up shipping revenue, as customers continued to use the Internet more often to purchase products.

Too cheap?

The second reason for the USPS troubles may be less obvious. Even though revenue from First Class Mail is declining rapidly, the postal service may be selling that service below what it costs to provide it. Consider that it costs 44 cents to send a letter from California to New York. Sending that same letter via one of the commercial delivery services - even at the lowest rate - would cost several dollars.

USPS critics also point to a bloated bureaucracy and the high overhead of operating so many post office facilities. It's a cost Federal Express or United Parcel Service, which have more centralized operations, don't have to pay. Postal Service officials freely acknowledge the need to make big changes.

“The Postal Service can become profitable again if Congress passes comprehensive legislation to provide us with a more flexible business model so we can respond better to a changing marketplace,” said Postmaster General and CEO Patrick Donahoe. “To return to profitability we must reduce our annual costs by $20 billion by the end of 2015. We continue to take aggressive cost-cutting actions in areas under our control and urgently need Congress to do its part to get us the rest of the way there.”

Meanwhile, the $5.5 health benefit payment Congress postponed in September is now due on Friday, Nov. 18. Unless Congress passes additional legislation, postponing the payment again, Donahoe says USPS will be forced to default.