• on Jul 7th, 2010 in Pricing & Rates | 13 comments
    The Postal Accountability and Enhancement Act of 2006 (PAEA) ushered in a new regulatory structure for the U.S. Postal Service. One key element was a price cap on market dominant products. (Most of the Postal Service's products are market dominant.) This means that price increases for market dominant products are capped by the rate of inflation as measured by the Consumer Price Index (CPI). PAEA, however, does allow the Postal Service to increase its prices beyond the CPI cap under “extraordinary and exceptional circumstances.” The Postal Service makes the exception by filing an ‘exigent’ rate case to the Postal Regulatory Commission (PRC). Before the Postal Service can increase prices, the PRC must agree with the ‘exigent’ request and find it to be reasonable, equitable, and necessary.

    This week the Postal Service proposed an exigent rate increase, an average of 5.6 percent across all classes of mail, effective January 2011. The direct mail industry has challenged the increase, threatening legal action and warning that the Postal Service will suffer large drops in mail volume. Much of the industry’s objection has centered on whether the Postal Service’s current circumstances are really “extraordinary and exceptional.” The Postal Service has based its case on the significant decline in mail volume and revenue, caused by the economic recession. In addition, because inflation has been low, the Postal Service has a small margin under the cap to raise prices. Some might argue that a price cap based on consumer items such as food, apparel, and electronics might not be the best metric for the Postal Service, because its costs are based on fuel, salaries, and health benefits. What do you think of the exigent price increase? Is it important to the continued viability of the Postal Service or should other revenue and cost reduction opportunities be explored first? This topic is hosted by the OIG’s Risk Analysis Research Center (RARC).

  • on Jun 28th, 2010 in Products & Services | 50 comments
    For decades, the Postal Service offered vending machine service to supplement its retail operations. Vending machines meet the needs of customers who want to purchase stamps without waiting in line. While the lack of stamp vending machines has resulted in customer frustration and a surprising number of newspaper articles, the problems are particularly acute in economically depressed and more urban areas. Although Automated Postal Centers (APCs) provide many services including the sale of stamps and directly applied postage for First-Class letters, APCs require credit cards, which people in economically depressed areas often do not have. In addition, some customers find APCs to be intimidating to use. Finally, APCs sell only booklets of stamps or individual stamps in denominations of $1 or more, yet many disadvantaged customers may want to buy just one First-Class Mail stamp.

    So with an apparent need for simple vending machines, what should the Postal Service do? In the past, the Postal Service had problems with the legacy machines it owned. They were costly and difficult to maintain and operate. The answer may be to contract this activity out. Commercial vending machines, like those selling soda and chips, are generally not owned and operated by the organizations on whose property they are located. While Postal Service unions and management associations may have concerns, private operators might be very interested in acquiring stamp vending machine contracts for a percentage of gross sales (or similar) while taking sole responsibility for vending machine maintenance and support. In addition to the convenience vending machines would offer, they might also help window clerks operate more efficiently. Diverting low-value stamp sales from windows would increase revenue per labor hour and allow the Postal Service window clerks to focus on more important functions. With shorter lines and happier customers, the work environment of a window clerk would likely improve. This idea could be a win-win for all concerned. This topic is hosted by the OIG’s Risk Analysis Research Center (RARC).

  • on Jan 25th, 2010 in Finances: Cost & Revenue | 124 comments
    How much does it cost to develop, print, ship, inventory, secure, sell, and cancel a stamp used to mail a letter?  What about the stamps that are never sold?  The Postal Service destroys billions of stamps each year because they are obsolete.  In FY 2008, the Postal Service printed 37 billion stamps, which cost $78 million to print.  In that same year, they destroyed old stamps, some of which were printed more than 10 years ago, that were valued at approximately $2.8 billion.  Those stamps were printed, shipped, counted multiple times in various inventories, and finally shipped back for destruction under secure conditions.  How much does this cost and does the Postal Service benefit from the expense?

    Are there better alternatives to stamps?  Business customers often rent postage meters and use permits for bulk mail.  Now, the advent of online postage vendors has given individual customers an alternative to stamps.  Customers that use online postage can customize their postage and incorporate approved language or pictures.

    Not everyone has access to a computer.  What can we do for people who do not have access to online postage or who simply do not want to use online postage?  One answer may be simplifying the Postal Service’s current stamp inventory.  What if all postage stamps were “Forever Stamps”?  Stamps would never become obsolete and have to be destroyed, and production costs would never eat up their contribution to overhead.  After a rate increase — now generally an annual event rather than every 3 or 4 years — there would be no 1-cent or 2-cent stamp shortages or rush to produce the next generation of denominated stamps. What about stamp collectors?  Would philatelic sales suffer if the Postal Service reduced the denominations it offered?  Commemorative Forever Stamps could be issued in limited quantities to satisfy collectors.  Some commemorative stamps could be sold locally, while others could only be ordered and shipped direct from a central location.  Forever Stamps that marked holidays or other special events such as birthdays would be very useful for people who wanted to stock up.  And what could be more appropriate for wedding invitations than “Forever Love” stamps? Do you know of a better method of postage payment, convenient and available to everybody that could be implemented? Tell us what you think. This topic is hosted by the OIG's Field Financial East directorate. Topic was revised to indicate that 37 billion stamps not $37 billion worth of stamps were printed in 2008.

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