The U.S. Postal Service concluded fiscal 2005 with a net income of $1.4 billion on record revenue of $70 billion and record volume of 212 billion mail pieces.
Impressive as those figures are, the bottom line eroded somewhat from fiscal 2004, when USPS posted $3.1 billion in net income. USPS chief financial officer Richard Strasser attributes the decline in profit to rising costs that the Postal Service cannot compensate for via quick price changes. Nonetheless, “2004 and 2005 are the first two years that the USPS showed an actual profit since the Postal Service was reorganized in 1971,” says Strasser. “The prior 32 years all produced deficits.”
Strasser adds that the growth in mail volume has been aided by outsourcing and worksharing. The latter has enabled companies to earn a collective $16 billion in postal discounts.
The strong financials are tempered, though, by the ongoing situation with escrow requirements. Come fiscal 2006, because of an anticipated escrow requirement of $3.1 billion, the Postal Service may be facing a deficit of up to $2 billion. According to Strasser, the USPS did not pay escrow in 2005, and in both 2003 and 2004 it used savings from escrow to pay down additional debt.
The projected 2006 deficit will most certainly require another postal rate increase in 2007. Unlike the 5.4% increase that goes into effect next month and was necessitated by the establishment of the escrow account, Strasser says the next rate increase will cover normal inflationary costs since the previous increase in 2002.