How can the Postal Service solve its financial problems? What is the future role of the Postal Service at a time when digital alternatives are replacing many of the functions of hard copy mail? These are the questions facing policymakers and the postal community.
It’s that time of year again. Those of us helping on the Office of Inspector General blog have come up with a list of the top 10 postal stories for 2010. Tell us about any stories we missed and add whatever comments you think appropriate. In particular, we would like to get your input on the top story, so take a minute and vote in the poll below.
10. OSHA Fines the Postal Service – At plants across the country, the Postal Service receives sizeable fines for electrical hazards.
9. e-Tipping Point – A flurry of activity in 2010 bolsters the notion that the Digital Revolution has trumped paper-based communications: Apple introduces its iPad tablet computer; all e-reader sales are up nearly 80 percent over last year; the Kindle becomes Amazon’s biggest seller and the company predicts e-books will surpass paper books within a year; Netflix announces that more customers watch streaming videos than DVDs.
8. Congress Takes Notice – Members from both houses of Congress – and both sides of the aisle – introduce legislation to fix the Postal Service’s overpayments to the federal government, which contributed significantly to the Postal Service’s massive net losses over the past few years.
7. America Wakes Up – Widespread mainstream media coverage on a number of postal issues, including 5-day delivery and the financial challenges plaguing the organization, spark a national interest in our postal system.
6. Reports Address Flawed Business Model – The Government Accountability Office confirms that the Postal Service’s business model is ”not viable.” The Postal Service issues its action plan to address declining mail volumes, changing communications habits and other systemic problems.
5. Stakeholders Debate 5-Day Delivery – The Postal Service’s plan to eliminate Saturday delivery generates heated debate, massive press coverage and congressional input. The Postal Regulatory Commission holds a series of public hearings on the topic.Read More
On September 30th, the Postal Regulatory Commission (PRC) turned down the request by the Postal Service for an exigent price increase averaging 5.6 percent across all market-dominant products, such as First-Class Mail and Periodicals. Although current law cape increases in these products to the inflation rate, the PRC can consider rate increases beyond the cap if the Postal Service has been affected by “extraordinary or exceptional circumstances.”
In this decision, the PRC agreed with the Postal Service’s contention that the economic recession was an exceptional circumstance, but it ruled that the Postal Service did not show how the exigent rate request was due to the recession. The ruling also tied cash flow problems the Postal Service currently faces to current laws that require prefunding of retiree health benefits. An OIG study found that the Postal Service has been overcharged $75 billion in its funding of pension liabilities, an amount that could be used to fund current and future retiree health benefits.
The U.S. Postal Service is used to delivering large amounts of mail. Last year, it delivered more than 177 billion pieces. More mail pieces are sent per person in the United States than almost anywhere else in the world. But mail volume has been declining. How will the Postal Service change if volumes continue to fall? Is the Postal Service even financially sustainable at lower volume levels?
GMU researchers looked at how mail volumes of 150, 125, 100, and 75 billion would affect the Postal Service’s financial position and cost structure. Their results are encouraging. They found that the Postal Service is financially sustainable at volume levels down to 100 billion pieces per year, although price increases above inflation would be needed. The cost structure of the Postal Service would also change at lower volume levels. For example, delivery would account for a much larger share of total costs.
Although eliminating Saturday delivery has been heavily debated, reducing delivery to 5 days a week may not be enough. There has been some discussion of whether the viable model for the U.S. Postal Service of the future will incorporate 3-day delivery.
A 2010 study by the Boston Consulting Group for the Postal Service forecasts that the average pieces of mail per delivery point per delivery day will drop from 3.8 to 2.8 by 2020. If this projection holds true, then more households will likely receive no mail on any given day. With the increasing availability of alternative communication choices, it is unlikely that the demand for mail delivery will ever return to previous levels. Therefore, postal delivery may only be needed 3 days a week. Some homes could receive mail on Monday, Wednesday, and Friday, while others, on Tuesday, Thursday, and Saturday.
Delivery would still occur 6 days a week for Post Office boxes. This additional benefit for P.O. Boxes would meet the needs of customers who have need of 6-day delivery, while generating higher revenue and increasing traffic for the Post Office.