• 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?
  • on Jan 7th, 2013 in Labor | 5 comments
    U.S. Postal Service employees are covered by the Federal Employees’ Compensation Act (FECA), which provides workers’ compensation benefits to civilian federal employees who sustain work-related injuries or an occupational disease. The U.S. Department of Labor Office of Workers Compensation Programs (OWCP) administers workers’ compensation and provides direct compensation to providers, claimants, and beneficiaries. The Postal Service later reimburses OWCP in what is known as “charge-back billings.” The Postal Service is the largest FECA participant in the federal government. It paid $1.2 billion in workers’ compensation claims and $67 million in administrative fees in charge-back year 2011. In addition, its estimated total liability for future workers’ compensation costs is about $17.5 billion. The Postmaster General noted in testimony last year that when the Postal Service revalues its liability to reflect current interest rates, it creates significant non-cash fluctuations in its bottom line. For this reason and others, the Postal Service has pushed for comprehensive FECA reform legislation. Providing gainful employment within medically defined work restrictions is in the best interest of both employees and the Postal Service. The Postal Service uses its limited duty program to assign available work for those employees who are temporarily unable to perform their regular functions. Limited duty employees retain the discipline of going to work every day and recuperation may also be accelerated if they are as active as possible. Early return to the regular job is the ultimate objective of the limited duty program. However, with diminishing mail volumes and limited resources for proactive case management, the Postal Service faces significant challenges in providing adequate work. The Health and Resource Management (HRM) staff and other officials play an important role in administering the injury compensation program and reducing related costs by returning injured employees to work as soon as possible and, in part, pursuing third-party liability. The Office of Inspector General (OIG) intends to assess whether the Postal Service’s HRM staff, supervisors, and other officials have all the necessary resources to successfully return employees back to work. And if not, what tools do they need to facilitate the return to work process. What practices are working or should be changed to more effectively administer the Postal Service’s injury compensation program? Share your comments in our blog section and follow the link to take one of the three surveys on this topic, depending on your employment position.
  • on Dec 31st, 2012 in OIG | 4 comments
    The Postal Service faced its own fiscal cliff in 2012 while the larger mailing industry continued to press for reform and innovation. But don’t count mail out just yet. A strong election season reminded many Americans that mail still matters, even in the digital age. And in Europe, one postal operator didn’t let 500 years of history stand in the way of reinventing itself. Looking over the headlines, the staff at the Office of Inspector General has pulled together the list below of the top 10 postal stories for 2012. After you read them, vote for your top story of the year, or let us know if we missed one. 10. Pitfalls of Sponsorship – The U.S. Anti-Doping Agency strips cycling legend Lance Armstrong of his seven Tour de France titles after accusing him of illegal doping while on the U.S. Postal Service team. 9. Sound as a Pound – Royal Mail positions itself for privatization after ending price controls, shifting its pension liability to the government, and earning a profit. 8. Regulatory Fireworks – The Postal Regulatory Commission approves a controversial and newspaper industry-opposed negotiated service agreement with Valassis and remands a portion of the Postal Service’s annual price increase, saying it ignored previous Commission orders. 7. A Vote for Election Mail – Direct mail still matters in politics. Election mail postage surged over $400 million as parties and politicians used mail to target their messages in contentious national and local elections. 6. Default This Year; Reform Next Year – The Postal Service defaults on two prefunding payments totaling $11.1 billion to the Retiree Health Benefits Fund. Lawmakers ready for a postal reform bill in the new Congress. 5. Terminator 2012: Rise of the Tablets, (Further) Decline of Print – Coincidence or not? Venerable publications, such as Newsweek and the Times Picayune newspaper, abandon or reduce their print editions, while the number of tablet owners doubled in the past year and reached 19 percent of adults. 4. Shrink to Fit – The Postal Service’s 5-year business plan calls for cutting costs by $20 billion through workforce reduction, consolidation of facilities, and elimination of Saturday delivery. In initial action, the Postal Service compromised and reduced hours at rural post offices rather than closing them and pushed back its plan to eliminate overnight delivery of First-Class Mail. 3. Postcards from the Edge – The Postal Service reaches its statutory borrowing limit of $15 billion for the first time ever and warned that it could run out of cash by October 2013, barring any significant action. 2. Brand Damage – Steady stream of bad news keeps the Postal Service in the news and threatens to hurt its brand, which could prove especially harmful as it reinvents its business model for the digital age. 1. Parcels are the New Letters – Same-day delivery trials by eBay and the Postal Service, the growth in parcel lockers, and the efforts of traditional brick-and-mortar powerhouse Wal-Mart to increase its online presence indicate a very bright future for packages.

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