USPS’ $5.1B loss reflects PAEA

In its annual report for fiscal year 2007, the US Postal Service reports that it had a net loss of $5.1 billion, largely because of the impact of the Postal Accountability and Enhancement Act (PAEA) of 2006.

Overall, the enactment of the PAEA added $6.8 billion in net additional ex­penses in fiscal 2007. According to a statement from H. Glen Walker, CEO and EVP of the USPS, “[The USPS] would have recorded net income of more than $1.6 billion for 2007, which would have marked our fifth consecutive year of positive net income.”

One major impact was the increase in retiree health benefits and the transfer­ring of funds held in escrow to the new­ly created Postal Service Retiree Health Benefits Fund.

Although the financial effects of the PAEA had their biggest impact in fiscal 2007, there will still be financial impacts in coming years, said USPS spokesman Dave Partenheimer, via e-mail.

Partenheimer said that the USPS’ In­tegrated Financial Plan, which was re­leased in September, projects a net loss of $600 million for fiscal 2008. However, this plan does not account for any poten­tial rate changes in the coming year.

Overall, the USPS reported a total revenue increase of 3% for fiscal 2007 compared to 2006. With the exception of Periodicals, all classes of mail showed revenue increases. Volume decreased in most classes of mail from 2006 to 2007, with the exception of Standard Mail and International Mail.

“Any time there’s a rate increase, the revenues of course will go up,” said Kate Muth, VP of the Association for Postal Commerce. However, these decreases in mail volume — which are not unexpected following a rate increase — are “worri­some,” she said. In particular, Standard Mail, which has always been an area of growth for the USPS, only increased less than 1% in volume in 2007.

Based on the economic outlook for 2008, it is expected that Standard Mail volume growth will continue to slow, said Jerry Cerasale, SVP of govern­ment affairs for the DMA. “We are very concerned that other classes of mail are dropping [in volume] as well,” he said.

With last year’s rate hike and a slow down in the economy, Hamilton Davi­son, executive director of the American Catalog Mailers Association, anticipated that fiscal 2008 would see a “significant reduction” in the volume of standard flats. “It’s a time of uncertainty and change,” he said.