The financially troubled U.S. Postal Service lost $740 million in its third quarter that ended June 30, far less than the $5.2 billion loss posted in the same period a year ago, as it aggressively cut costs, the agency said on Friday.

The mail carrier attributed its continued losses to the ongoing decline in stamped mail as more people communicate electronically, to expenses related to delivering mail on Saturdays and to payments into a healthcare fund for its future retires as mandated by a 2006 law.

The independent government agency relies on sales of stamps and other products rather than tax dollars to fund its operations. Volumes of first-class mail, its most profitable service, fell by 4 percent in the third quarter of 2013.

Operating revenues were up by 3.6 percent, however, to $16.2 billion compared to the same time last year.

The agency has employed aggressive cost-cutting measures such as consolidating more than 100 mail processing facilities, reducing operating hours and eliminating delivery routes.

The Postal Service was also helped by a 8.8 percent increase in revenues from shipping packages and parcels as more Americans shop online and use the agency for deliveries.

The National Association of Letter Carriers president Fredric Rolando said the results show that the Postal Service should not have to resort to measures such as ending Saturday mail delivery and requiring cluster-box deliveries for all new homes - where mail is left at a centralized location and not delivered door-to-door.

"The latest financial results should finally convince Congress to deliver a postal reform plan that eliminates pre-funding; strengthens and protects the existing Postal Service network; provides a more business-oriented governance structure; and frees the Postal Service to meet evolving customer needs in the digital era," Rolando said in a statement.

MORE SAVINGS

Despite the improvement, the Postal Service said it still needs to save at least $20 billion annually or risk requiring a massive taxpayer bailout.

The agency lost nearly $16 billion last year, largely due to the healthcare mandate. The agency wants to do away with Saturday delivery of first-class mail and the future retirees' fund.

Postmaster General Patrick Donahoe said last week that the agency could benefit from shipping alcohol, a business that for more than a century has been left to its private competitors.

So far, no legislative reform has been passed to grant the Postal Service that kind of flexibility.

Several lawmakers recently introduced bills to help the Postal Service. But prospects for those measures are unclear once Congress returns from its August recess and lawmakers likely turn their attention to the U.S. debt ceiling.

Joe Corbett, the Postal Service's chief financial officer, said the agency expects to continue losing money for the rest of this fiscal year.

The service expects to default on a $5.6 billion installment into the future retirees' healthcare fund, and is required to make its annual payment of $1.4 billion to the Department of Labor for workers' compensation in October.

(Reporting by Elvina Nawaguna; Editing by Karey Van Hall and Xavier Briand)