• on Sep 29th, 2010 in Strategy & Public Policy | 7 comments
    The U.S. Postal Service is used to delivering large amounts of mail. Last year, it delivered more than 177 billion pieces. More mail pieces are sent per person in the United States than almost anywhere else in the world. But mail volume has been declining. How will the Postal Service change if volumes continue to fall? Is the Postal Service even financially sustainable at lower volume levels? The Office of Inspector General (OIG) asked the George Mason University School of Public Policy (GMU) to find out. The results of GMU’s work appear in a paper released today on our website. GMU researchers looked at how mail volumes of 150, 125, 100, and 75 billion would affect the Postal Service’s financial position and cost structure. Their results are encouraging. They found that the Postal Service is financially sustainable at volume levels down to 100 billion pieces per year, although price increases above inflation would be needed. The cost structure of the Postal Service would also change at lower volume levels. For example, delivery would account for a much larger share of total costs. GMU researchers also looked at the effect of various cost reduction initiatives and how they would impact the price increases necessary to break even. The paper describes their results and a description of the model they used for their analysis. What do you think? What are the biggest challenges for the Postal Service at lower volume levels? This topic is hosted by the OIG’s Risk Analysis Research Center (RARC).
  • on Sep 20th, 2010 in Delivery & Collection | 58 comments
    Although eliminating Saturday delivery has been heavily debated, reducing delivery to 5 days a week may not be enough. There has been some discussion of whether the viable model for the U.S. Postal Service of the future will incorporate 3-day delivery. A 2010 study by the Boston Consulting Group for the Postal Service forecasts that the average pieces of mail per delivery point per delivery day will drop from 3.8 to 2.8 by 2020. If this projection holds true, then more households will likely receive no mail on any given day. With the increasing availability of alternative communication choices, it is unlikely that the demand for mail delivery will ever return to previous levels. Therefore, postal delivery may only be needed 3 days a week. Some homes could receive mail on Monday, Wednesday, and Friday, while others, on Tuesday, Thursday, and Saturday. Delivery would still occur 6 days a week for Post Office boxes. This additional benefit for P.O. Boxes would meet the needs of customers who have need of 6-day delivery, while generating higher revenue and increasing traffic for the Post Office. For many customers in the future, the amount of mail they will receive on a given day may not warrant the effort required to check their mailboxes every day. Delivering 3 days per week roughly doubles the amount of mail a household receives on a given day, making the “mail moment” of receiving mail more significant. The savings could be significant. With the Postal Service estimating a $3.5 billion saving from cutting one day of delivery, cutting three days could save roughly $10 billion. An additional benefit of this every-other-day schedule is that about 50 percent of the mail will have an additional day to reach its destination. These savings can be realized through the use of less costly modes of transportation, additional use of hub-and-spoke mail consolidation network design, and additional load balancing for the mail processing equipment. What do you think? Can this model balance the need to be financially viable while meeting the needs of the public? This topic is hosted by the OIG’s Risk Analysis Research Center (RARC).
  • on Sep 13th, 2010 in Strategy & Public Policy | 9 comments
    Last month the Economic Policy Institute, an independent Washington think tank, issued a study (Congressional Mandates Account for Most of Postal Service’s Recent Losses) analyzing the Postal Service’s operating losses over the past three years. It should be noted that while the Institute is nonpartisan, the National Association of Letter Carriers provided support for the research. While the paper acknowledges the underlying shifts taking place in communications, it cites Congressional mandates, more specifically those requiring prefunding for retiree health benefits, as the principal driver behind the losses. In fact, the study discusses that removing the health benefits mandate would cover the Postal Service’s operational losses for 2007 and 2008 and a good portion for 2009. Furthermore, it points out that the Postal Service’s retiree benefits plan currently is funded at a significantly higher level than a sample of large private-sector employers that offer similar pensions. The authors recommend a number of steps for Congress: •Direct the Office of Personnel Management to recalculate Postal Service pension obligations using proper methodologies. •Transfer any surplus discovered to the retiree health benefits fund. •Should the surplus be sufficient to fully fund all benefit obligations, permit the Postal Service to pay off debt with the remaining surplus. The paper concludes that issues involving the overpayments must be resolved before turning to other major actions, such as cutting Saturday delivery. What do you think of the pension debate? What should Congress do? This topic is hosted by the OIG’s Risk Analysis Research Center (RARC).

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