The past few years have been tumultuous for the U.S. Postal Service. Mail volume has dropped 20 percent to 171 billion pieces from its peak in 2006, and over the last four years experienced unprecedented financial losses totaling $20 billion. In 2010 alone, the Postal Service experienced its largest 1-year net loss of $8.5 billion.
Our Risk Analysis Research Center has published The Cost Structure of the Postal Service: Facts, Trends, and Policy Implications, which reviews the major components of the Postal Service’s 2010 cost structure and presents insights to the ongoing policy debate about the future of the Postal Service. Below are some of the paper’s key findings:
1. The mail business is labor intensive, and labor makes up 80 percent of Postal Service expenses. This means that in order to achieve real cost savings, the Postal Service has to cut labor costs. While ideally labor costs could be cut to match declines in volume, this is challenging because the Postal Service’s delivery network has significant fixed costs.
2. Since 1972, the total cost of benefits to the Postal Service has risen an astounding 448 percent above inflation, while the real amount spent on wages has declined by nearly 3 percent. This extraordinary increase in benefit costs is due to three factors: a general trend of higher benefit costs that has affected most U.S. companies, the gradual transfer of postal retiree benefit costs from the federal government to the Postal Service, and repeated overcharges for these retiree benefit costs.
President Obama’s State of the Union address in January included the announcement of the National Wireless Initiative, which would expand wireless broadband coverage to 98 percent of the population within 5 years. With that large percentage of the population on the verge of being wired, could such a network be leveraged by the U.S. Postal Service to modernize its obligation to deliver mail to every household in America?
The initiative provides financial incentives for private industry to expand wireless broadband infrastructure. The incentives are necessary because building a nationwide, interconnected communications network is cost prohibitive in some areas of the country. Once constructed, though, this network will be used by government agencies for a number of purposes including coordinating emergency response and communicating important information directly with citizens.
The Postal Service must provide universal service to every address in the United States under the Universal Service Obligation (USO). The USO requires that Americans have ready access to postal products and services through postal carriers, collection boxes and post offices. It also requires the Postal Service to deliver the mail to every street address, six days a week.