No pain no gain. The U.S. Postal Service has reduced spending over the past decade but it has come with a downside, notably a reduction in service. Over the past decade the Postal Service has reduced labor costs by $10 billion, improved productivity, and generally reined in spending.
That’s the finding of our latest white paper, Peeling the Onion: The Real Cost of Mail, which took a close look at the Postal Service’s cost-cutting efforts since 2006 – the year the Postal Accountability and Enhancement Act became law. With volume and revenue in decline over the ensuing decade, the Postal Service certainly had to focus on spending less. It responded by redesigning its network of processing plants, retail locations, delivery routes, and transportation systems, as well as modernizing some of its workforce labor practices.
When total cost is adjusted for inflation and the Retiree Health Benefits prefunding obligation is excluded, the Postal Service has decreased its total costs by $13.7 billion since 2006, our paper found. More than 70 percent of the savings has been from labor expenses.
But the Postal Service’s focus on spending less has come at a cost in modernization and service. On average, the Postal Service has decreased its annual capital expenditures almost 16 percent in the past 8 years. By comparison, UPS has decreased its annual capital investments at a much smaller pace, just 5.4 percent, while FedEx has increased its capital spending 2.3 percent annually on average.
Furthermore, service performance appears to have suffered as a result of cost-cutting initiatives.
Future Postal Service success will require excellent service, both in delivery and in customer service. The Postal Service will need to make capital expenditures to modernize its existing network, including digital integration, to support 21st century postal demands. USPS stakeholders and management need to develop ways to generate adequate revenue so the Postal Service can build for the future.
What else can the Postal Service do to reduce costs? What does it need to consider on the revenue-generating side of the house?