By Elvina Nawaguna
WASHINGTON (Reuters) - The U.S. Postal Service narrowed losses in its latest quarter, as a surge in online shopping and package delivery boosted revenues during the busy holiday season.
The agency, which has lost money for 19 of the last 21 quarters, lost $354 million in its fiscal first quarter ended December 31, compared with the same quarter a year ago when it posted a net loss of $1.3 billion.
Revenues from shipping and package delivery rose by 14.1 percent to $479 million, driven by growth in online shopping and a lucrative deal with online retail giant Amazon to deliver packages on Sundays in some U.S. cities, the agency said on Friday.
The Postal Service has been grappling with tumbling mail volumes as Americans communicate more online, and as massive payments for its future retirees' health benefits take a toll. A 2006 law requires the Postal Service to fund 75 years worth of its future retirees' healthcare by 2016.
First-class mail volume, its most profitable product, declined by 4.6 percent, leading to a $209 million drop in revenues from that type of mail. Operating revenues increased by 1.9 percent to $18 billion.
The agency has sought legislation to allow it to become more innovative and to find other ways to raise revenues, including switching to a five-day delivery system and managing its own healthcare system. So far Congress has failed to pass reform legislation.
Postmaster General Patrick Donahoe said in a statement that he was proud of what the agency had achieved in reducing losses, but that its financial outlook remains grim.
"We cannot return the organization to long-term financial stability without passage of comprehensive postal reform legislation," he said.
Industry groups argue that the Postal Service's improving finances undercut the need for some of the drastic reforms the agency has sought, like raising postage fees and a five-day delivery schedule.
"Today's Postal Service figures for the first quarter of (fiscal) 2014 are highly encouraging and show why the postal network must be maintained and strengthened, not degraded," said Fredric Rolando, president of the National Association of Letter Carriers.
Higher postage rates would turn more people and companies away from the Postal Service and lead to more losses, said Ben Cooper, co-manager of the Coalition for a 21st Century Postal Service, a group seeking postal reform.
But Richard Geddes, an expert in postal issues and an associate professor at Cornell University's Department of Policy Analysis and Management, said the agency is still lagging behind its counterparts in other developed countries, and urgently needs lawmakers to allow it to adapt to the changing market.
"My hope would be that postal reform in the U.S. would take a deeper look than just what happens in any quarter and think about allowing this firm to adapt to the new marketplace," Geddes said. "I feel sad for the U.S. Postal Service that they have not been legally allowed to adapt."
(Reporting by Elvina Nawaguna; Editing by Karey Van Hall, Chizu Nomiyama and Leslie Adler)