OIG: The Postal Service Can Survive at Lower Levels Of Mail Volume

The Office of Inspector General asked George Mason University School of Public Policy (GMU) to look at the financial sustainability of the Postal Service at lower levels of mail volume.

Here are excerpts from the report:

Annual mail volume peaked in 2006 at 213 billion pieces. Since then, the number of mail pieces has declined substantially. Amid the background noise of the economic downturn, determining how much of this volume loss represents long-term electronic diversion is difficult, but Boston Consulting Group (BCG) projects that these declines will continue. BCG estimates mail volume will fall to 150 billion pieces over the next 10 years.1 Such a sustained volume decline is unprecedented.

The U.S. Postal Service has never operated in an environment of persistently declining mail volumes, and the last time annual mail volume was below 150 billion pieces was 1986. The critical question is whether today’s Postal Service can remain solvent at much lower volume levels.

The Postal Service is not currently profitable, although the financial picture is obscured by the amounts improperly taken by the Office of Personnel Management to fund benefit prepayments.2 The U.S. Postal Service Office of Inspector General (OIG) asked the George Mason University School of Public Policy (GMU) to examine the financial sustainability of the Postal Service under various volume scenarios. GMU’s work is described in the following paper Implications of Declining Volumes for the Financial Sustainability of the Postal Service.

The George Mason Model
The GMU research team created a flexible model that can do two critical things. First, it assesses the financial position of the Postal Service at any volume level. Second, it shows how applying different cost reduction alternatives can affect that financial assessment. For example, the researchers examined how alternatives such as optimizing the retail network, implementing 5-day delivery, and increasing productivity would reduce the gap between the Postal Service’s costs and revenues at various volume levels.3 Users of the model can also mix and match alternatives into “what if” scenarios.

The research team used the model to analyze how volume levels of 150, 125, 100, and 75 billion pieces per year would affect the Postal Service’s financial sustainability. They show that if mail volume declines and no other action is taken, price increases in excess of inflation will be necessary to avoid insolvency. The risk is that price increases will tip the Postal Service into a death spiral, where price increases drive out customers necessitating further price increases. But GMU’s evidence suggests that this threat may not be that severe. Modern economies can support higher price levels. Many posts in developed countries maintain profitable mail businesses while delivering fewer pieces and charging up to 86 percent more than the Postal Service. This is an encouraging sign, and the study finds that the Postal Service is financially sustainable down to volumes of 100 billion per year.

Options for Adapting to Volume Declines
We believe the model offers an objective framework to organize the debate about how to respond to the current crisis. The available solutions fall into three broad options:

1. Let the market dictate. Increase prices to the levels the market would bear to make the Postal Service break even as suggested by the GMU study. This option requires price increases above the levels allowed by the Postal Accountability and Enhancement Act.

2. Introduce substantial changes to the Postal Service’s cost and revenue structure. Allow the Postal Service to implement its 10-year action plan announced in March 2010, giving the Postal Service the flexibility to cut delivery days, pursue new products, optimize its network, and undertake other initiatives.

3. Aggressively correct CSRS and FERS overpayments. Reform the Postal Service’s prefunding of its health and pension obligations by returning the amounts the Postal Service has overpaid and by allowing it to adopt the same funding targets commonly used in the private sector — 80 percent for pensions
and 30 percent for retiree health care. This option can maintain the PAEA price cap.5

GMU’s analysis provides hope that the Postal Service can survive the anticipated volume declines as long it is allowed to act on the options available for financial


3 thoughts on “OIG: The Postal Service Can Survive at Lower Levels Of Mail Volume

  1. Someone needs to realize that the Boston Consulting Group, PMG Potters opinions, and everyone esle who has chimmed in with their conclusions that Mail volume will never recover, is giving us nothing more than their own “Theory”, which is purely based on nothing more than a premise! What part of history are they relying on? NONE!!!! That’s why we always end up in a mess, cause everyone buys on to these theory’s simply because they believe anything they hear if it comes from big business, CEO’s, Economists, our Government, etcetera. Just cause they graduated from college, and got a powerful position, or gigantic pay check doesn’t make them right about everything. Wasn’t it the U.S. government economists who said that Big Banks could never fail. So much for that THEORY!

  2. Start by FIREING PMG POTTER, He’s a big part of the reason the mail volume is LOW, due to (CUTTING SERVICE)…..How does the USPS get REVENUE? when nobody can find a P O open, and if you do, the lines are out the door. That’s bad service and we are just sending our VERY IMPORTANT CUSTOMERS AWAY.. All he continues do is ADD JOBS @ HEADQUARTERS, they are over paid, for no results… we need employees who “WORK THE MAIL” NO MORE PENCIL PUSHERS, who are never on the same page, cut 90% of the jobs @HEADQUARTERS, nobody will miss them, and the USPS will run more effectively!

  3. Dear OIGs:

    How about some real simple ideas to chew on:

    Cut the fat at the top. Postal upper management is like the 800 pound man who is too fat and sick to get out of bed, but somehow has talked people into bringing him food all day, every day. He gets fatter and sicker, and has everyone enabling him to remain this way. So, Cut the appointments at the top. Consolidate positions at the top and area levels. Absorb the duties. Make them pay for their health insurance at the same rates as other postal employees. No more house buying and selling. No more make work for trailing spouses. No more bonuses based on lies and fake numbers. Stop catering to the fat cats and their numerous relatives and relationships up at Headquarter and Area levels, and the bloated body will start to shrink.

    Offer an incentive of half a year’s salary to get people to retire. You might get some of those 80 year olds who can barely lift a letter tray to do what they should have done years ago. At bargaining time, try for a mandatory retirement age of 70 years of age to move people off the rolls.

    You would also get others to take the incentive bait and bail out. Many are just waiting for an offer and they are gone. The USPS would probably have to hire emergency casuals to cover all the people stampeding toward the door. Then bargain to bring back PTFS in large plants and offices. How about offering incentive retirement offers to any district that is under an excessing impact?

    Its so simple to bring this mess under control, even a caveman could figure it out.

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