The U.S. Postal Service reported a net loss of $8.5 billion during the previous fiscal year as falling mail volumes continued to outpace operating cost savings.

The Postal Service has been trying to reform its business practices after the recent economic downturn, increased use of e-mail and competition from FedEx, United Parcel Service and other delivery services have hurt volumes.

The Postal Service has sought Congressional approval to cut Saturday service and has proposed price hikes for 2011 that require approval from its regulator.

“We will continue our relentless efforts to innovate and improve efficiency. However, the need for changes to legislation, regulations and labor contracts has never been more obvious,” said Joe Corbett, the agency’s chief financial officer, in a statement.

The Postal Service saw mail volumes fall 3.5 percent to 170.6 billion pieces in fiscal 2010, which ended Sept. 30, compared to 176.7 billion in 2009, the agency reported Friday.

Cost-saving measures eliminated 75 million work hours and reduced operating expenses about 0.6 percent compared to 2009. But that was not enough to compensate for a $1 billion decrease in revenue from fiscal 2009 to $67.1 billion in 2010.

“Over the last two years, the Postal Service realized more than $9 billion in cost savings, primarily by eliminating about 105,000 full-time equivalent positions — more than any other organization, anywhere,” Corbett said.

An audit of the agency’s finances is expected to question the Postal Service’s ability to make all future payments, including $5.5 billion to prefund retiree health benefits due on the last day of fiscal 2011, according to the Postal Service’s statement.

First-class mail, the agency’s most profitable product, fell 6.6 percent in volume in 2010, continuing a pattern that saw an 8.6 percent decline in 2009 and a 4.8 percent drop in 2008.

Volume for standard mail showed some recovery late in the fiscal year but was flat overall for the year compared to 2009, the Postal Service said.

The Postal Service receives no tax dollars for operating expenses and relies on the sale of products and services to fund operations.