USPS: More red ink, missed payments

Paul Sakuma/File Buffeted by threats from Amazon drones and Uber to delivery by golf carts, the beleaguered U.S. Postal Service is counting on a different strategy to stay ahead in the increasingly competitive package business: more freedom to raise prices of stamps. Letter mail drop-offs make up more than 70 percent of total postal revenue.

WASHINGTON — The U.S. Postal Service warned Thursday it will likely default on up to $6.9 billion in payments for future retiree health and pension benefits for the fifth straight year, citing a coming cash crunch that could disrupt day-to-day mail delivery.

 

The service said it expected cash balances to run low by October and, to avoid bankruptcy, would likely not make all of its payments as required under federal law. Postmaster General Megan Brennan stressed an urgent need for federal regulators to grant the Postal Service wide freedom to increase stamp prices to help cover costs, citing continuing red ink due to declining first-class mail volume and the expensive mandates for retiree benefits.

The Postal Service has already defaulted on $33.9 billion in health benefit pre-payments. Left unresolved, the rapidly growing debt means American taxpayers eventually could be forced to cover the massive costs when future postal retirees seek to cash in on the benefits to which they are legally entitled.

The Postal Regulatory Commission is making a decision on stamp pricing next month.

“Our financial situation is serious, but solvable,” Brennan said, citing an unreasonable rate cap that restricts stamp price increases to the rate of inflation. “We’re clearly looking for the PRC to establish a new pricing system for us.”

The Postal Service on Thursday reported a quarterly loss of $2.1 billion, compared to a $1.6 billion loss in the same period ending June 30 last year. That came after double-digit growth in package delivery was unable to offset drop-offs in letter mail, which makes up more than 70 percent of total postal revenue.

Quarterly revenue came to $16.7 billion, a decline of $1 billion from the same period last year.

After a 10-year review, the regulatory commission appears likely to give the Postal Service more flexibility to raise rates, marking the biggest change in its pricing system in nearly a half-century. The commission might limit how high prices could go, but the cost of a first-class stamp, now 49 cents, could jump. It’s not known how much.

The Postal Service, an independent agency, is trying to stay financially afloat as it seeks to invest billions in new delivery trucks to get packages more nimbly to American homes.

Mail volume is dropping and demand for package shipping is surging due to the growth of online retailers such as e-commerce giant Amazon. With the holiday season approaching, Brennan said the Postal Service planned additional temporary hiring, and was looking to expand its package deliveries in the mornings, evenings and Sundays.

“The competition is most intense,” she said.

 

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