• on Nov 28th, 2011 in Pricing & Rates | 14 comments
    Have you ever heard of Alaska Bypass? It’s a service the U.S. Postal Service offers only in Alaska, allowing shippers to send shrink-wrapped pallets of goods at Parcel Post rates using private airlines. The Postal Service pays airlines to carry the goods to rural Alaskan communities by delivering these goods directly to the stores located in rural areas. The shippers effectively and entirely “bypass” the Postal Service’s delivery network. The Postal Service has to pay the airlines much more than it receives in postage for this program. In FY 2010, the Postal Service lost $73 million on Alaska Bypass. In addition, the people receiving the shipments are usually retail merchants, because the orders must be at least 1,000 pounds. The Postal Service doesn’t provide this kind of service for retailers anywhere else in the country. Alaska Bypass began when it was much more difficult to get goods to rural Alaskans than it is today. There are even some that say it no longer seems to fit with the Postal Service’s mission. The Office of Inspector General Risk Analysis Research Center has developed a white paper, Alaska Bypass: Beyond Its Original Purpose, which outlines the history of the program and the shift away from its original purpose. The paper offers various options to improve the program. Should the Postal Service continue to pay for sending large shipments of goods to retailers and be permitted to charge the shippers more for this service? Should the 1,000-pound minimum order requirement, targeted to retailers, be eliminated in order to extend the benefit directly to consumers shopping online? What do you think? Click here to read the white paper and we invite you to share your thoughts about this program on our blog. This blog is hosted by the OIG’s Risk Analysis Research Center.
  • on Oct 31st, 2011 in Pricing & Rates | 12 comments
    When mailing a letter that weighs about one ounce, the U.S. Postal Service’s 44 cents is one of lowest First Class postage rates. Whether you are mailing a letter locally or sending a greeting card across country, it still only costs 44 cents now, but will increase to 45 cents in January. The graph below compares the U.S. Postal Service’s postage rate with other countries. As you can see, Norway charges the highest rate, which is nearly four times the cost U.S. rate.

     

    Source: 2011 Office of Inspector General analysis of Universal Postal Union data

    Some might feel it is reasonable for the Postal Service to increase rates and charge a fee comparable to those in other countries. On the contrary, others might say the Postal Service’s rate must remain at an affordable level, especially for people with lower incomes. They might also say raising the rate to a level found elsewhere would drive customers away even faster. When you think about prices paid for other goods and services, just how far does 44, 50, or even 75 cents go? By comparison, a small cup of coffee at McDonalds costs a dollar, a gallon of gasoline is over $3, and a gallon of milk is about $4. Share your thoughts below. This topic is hosted by the OIG’s Financial Reporting Directorate.
  • on Jun 20th, 2011 in Pricing & Rates | 7 comments
    Offering volume incentives is a common business practice in the U.S. and around the world. Although the U.S. Postal Service offers incentives to businesses that presort their mail, the agency does not offer incentives based strictly on the volume of packages shipped. One reason might be that offering volume incentives would lower the profit margin on each package shipped; yet, the potential volume increase of items shipped would make up for the smaller profit margins. E-retail is a multibillion-dollar industry through which millions of transactions are made via clearinghouses, such as Amazon.com and eBay. The e-retail industry continues to grow and includes on-line sales in virtually every industry. In the U.S., online retail spending for the Q4 2010 reached a record $43.4 billion, up from $39.0 billion in Q4 2009. This accelerated growth rate represented the fifth consecutive quarter of positive year-over-year growth and second quarter of double-digit growth rates in the past year. This trend will likely continue as more online people turn to the internet for their shopping needs, and younger, digital-savvy generations increasingly flex their spending power. Companies like eBay, Amazon.com, and traditional retailers with strong web operations should continue to benefit from this growth. Increases in e-shopping means an increase in the quantity of goods shipped is also increasing. Most vendors have their preferences, which are frequently based on cost. Should the Postal Service take advantage of the increased amount of shipping generated by e-retailers by offering incentives? Yes or no, and why? This blog is hosted by the Office of Audit’s Financial Reporting Directorate.

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