In its financial statement, USPS said mailing service revenue for the three month period declined 3.9% over the same quarter last year to to US$14bn, on a 3.1% decline in mail volume to 40.7bn pieces. The Postal Service said the modest boost in revenue from Standard Mail was not enough to offset the loss of First-Class Mail volume.

The numbers are certainly grim - and coming on the heels of a US$6.8bn full-year loss for fiscal 2010, should trigger some concern from both traditional direct marketers and the printing industry reliant on the USPS and its ability to cost effectively deliver printed mailers to every residence and business in the US.

But behind the billions in red ink is a more complex story that has more to do with the Byzantine ways of Washington, DC than with business fundamentals. At its heart, this is a dispute over what the USPS has suggested are onerous pension obligations put in place by the US Congress.   

Spokesman Greg Frey stressed that the Post Office's core services would not be impacted by the default, adding that both employees and vendors would continue to be paid, though some payments to other federal government agencies could be affected.

"What we've said is we can continue to pay our employees and vendors and contractors because our mission is to safely and reliably deliver mail to every single residence and business in this country on a timely basis," he added. "That leaves you with the unfunded mandates that are out there, where Congress said you must do this or that. Unfortunately they mandate things for us to do, but there's not money to pay for it."

While Frey and others at USPS will not say so, the threat of default appears to be part of a strategy to ratchet up the pressure to get Congress the change parts of the 2006 Postal Accountability and Enhancement Act.

That law provides some pricing flexibility so that the USPS can better compete with private shippers such as FedEx and UPS.  But it also mandated that the Postal Service pre-fund all its future retiree health care costs in a 10-year period, which means its needs come up with an additional US$5.5bn every year above and beyond its current expenses.

"It's kind of like buying a house with a 10-year mortgage - the payments are astronomical," explained Frey, adding the mandated annual health payments are only for future employees when they retire and the USPS still has to come up with US$1.5 billion annually to fund the health payments for its current retirees.

Even more frustrating for USPS is that the 2006 law mandated a specific dollar amount, so even though the Postal Service had reduced its employees by 130,000 in recent years to the equivalent of 571,576 full-time workers, the payment can't be changed. "Even with less people and less work hours, the law still says you have to pay $5.5bn every year," Frey said.

The USPS is also locked in a battle with Congress over its efforts to end Saturday deliveries. Though the exact savings are in dispute, moving from six to five day delivery could save anywhere between US$1.7bn (according to the Postal Regulatory Committee) and US$2.5bn (according to USPS).

But that's for Congress to OK, and right now it has shown little signs of wanting to shift away from Saturday home and business mail. "It's not really a law, it's a piece of legislation that gets attached to the appropriation bill every year," explained Frey. "That does not mean they couldn't amend it at some point, but I don't think anything is going to happen this current year because it's already in the language."

The Postal Service receives no tax dollars for operating expenses and relies on the sale of postage, products and services to fund its operations. But these unfunded Congressional mandate do seem to be creating a bit of a crisis for USPS that seems to be escalating. 

James Workman, assistant VP for technology and research at the Printing Industry of America, stressed the pension issue is one the printing/mailing industry needs to be aware of, adding, "The five vs. six day delivery is a drop in the bucket by comparison, especially if you believe the savings forecast by the Postal Regulatory Committee."

Ironically, this either real or manufactured fiscal crisis is coming at the time when the Postal Service has turned the corner when it comes to its image, especially with the arrival of new Postmaster General Patrick Donahue and his publicized efforts to create a more streamlined and efficient business. "The USPS is in the process of being 'rightsized' and is trying to create a more customer friendly environment for mailers," Workman noted.