• on Jan 28th, 2013 in Ideas Worth Exploring | 18 comments

    With a large network of facilities and post offices, and yet mail volumes in decline, the U.S. Postal Service finds itself with a good deal of unused capacity. The dynamics over closing and consolidating facilities has raised the question of whether there are other uses for them. Further, the Postal Service could still own the facilities even after it closes or consolidates operations. Rather than sit empty, could the Postal Service use some of that capacity in non-traditional ways to generate additional revenue? One idea, if the law allowed, would be for the Postal Service to provide self-storage services at unused processing facilities. It could also provide safe-deposit boxes at under-used post offices. Self-storage allows users to rent storage space in the form of rooms, lockers or containers on a monthly or annual basis. Safety deposit boxes might be a miniaturized version of self-storage units, where the user could store especially valuable goods or papers in a secure and fire-safe box. These types of services would require little additional overhead or labor hours, although additional security personnel might be needed. Current law limits the Postal Service’s ability to offer services that are considered non-postal and in the past, some industries have resisted Postal Service’s efforts to enter into new business opportunities. However, as the Postal Service faces ongoing financial challenges and continued resistance to consolidation plans, is it time to consider new ways to use its infrastructure? Should the Postal Service be allowed to use its facilities to offer non-traditional services, like self-storage units and safety-deposit boxes? What offerings would you like to see? Do we need to rethink the infrastructure or simply allow the Postal Service to consolidate to match resources to workload?

  • on Jan 9th, 2013 in Finances: Cost & Revenue | 3 comments
    Some have argued that the U.S. Postal Service should be allowed to raise prices in order to increase revenue and ensure that the sales of their products cover their costs. Others have argued that the current costing system may overstate the cost of some products, as it assumes the Postal Service is able to adjust its capacity, such as quickly closing a facility or eliminating a tour, to match the decline in mail volume. So, the second argument goes, if the Postal Service is unable to adjust its capacity, it should temporarily lower the prices of certain products, in order to encourage volume, as it did in the past with its “summer sales.” The latter argument was briefly discussed in the OIG’s recently released paper “A Primer on Postal Costing Issues.” As a follow-up to that paper, we asked Professor Michael D. Bradley of George Washington University, an expert in postal economics, to co-author a paper on the use of short-run costing and pricing. Essentially, short-run costing varies from the current costing system in that it does not assume that the Postal Service can reduce its capacity as fast as volume falls. Using short-run costs to develop prices would allow the Postal Service to temporarily lower prices, at least on some products, to encourage volume that would make use of the excess capacity while the Postal Service creates a plan to reduce the excess capacity. However, the paper warns that short-run costs should only be used to set prices if they can be measured accurately and updated regularly and the Postal Service can be sure that a lower price will lead to a large enough increase in volume, otherwise they will simply lose revenue. Other issues that need to be considered when using short-run costs to set prices include:
    • Using short-run costs can result in prices that may generate additional revenue in the short term but will still not allow the Postal Service to cover its institutional costs.
    • Prices based on short-run costs would be more volatile.
    • Customers may be unsure as to whether prices are permanent or temporary.
    • Accurate measurement is difficult and would require significant effort from experts in postal operations.
    • The Postal Service may lose the incentive to shed the excess capacity.
    What do you think – should the Postal Service lower prices on some products to reflect current excess capacity? Or would lowering prices only lead to further revenue declines?