on Jul 25th, 2011 in Finances: Cost & Revenue | 43 comments
The past few years have been tumultuous for the U.S. Postal Service. Mail volume has dropped 20 percent to 171 billion pieces from its peak in 2006, and over the last four years experienced unprecedented financial losses totaling $20 billion. In 2010 alone, the Postal Service experienced its largest 1-year net loss of $8.5 billion. Our Risk Analysis Research Center has published The Cost Structure of the Postal Service: Facts, Trends, and Policy Implications, which reviews the major components of the Postal Service’s 2010 cost structure and presents insights to the ongoing policy debate about the future of the Postal Service. Below are some of the paper’s key findings: 1.The mail business is labor intensive, and labor makes up 80 percent of Postal Service expenses. This means that in order to achieve real cost savings, the Postal Service has to cut labor costs. While ideally labor costs could be cut to match declines in volume, this is challenging because the Postal Service’s delivery network has significant fixed costs. 2.Since 1972, the total cost of benefits to the Postal Service has risen an astounding 448 percent above inflation, while the real amount spent on wages has declined by nearly 3 percent. This extraordinary increase in benefit costs is due to three factors: a general trend of higher benefit costs that has affected most U.S. companies, the gradual transfer of postal retiree benefit costs from the federal government to the Postal Service, and repeated overcharges for these retiree benefit costs. 3.Since 2000, cumulative unit costs for three of the four market dominant mail classes (Periodicals, Standard Mail, and Package Services) have far outpaced increases in the Consumer Price Index (CPI-U). 4.A continuing freeze in capital investment, while saving the Postal Service in the short term, may paradoxically lead to higher costs in the future. In particular, investing in rightsizing the physical network to meet decreasing demand is vital to the future viability of the Postal Service. We invite you to review the white paper and share your thoughts on reducing costs and the impact those cost reductions might have on the Postal Service here on our blog. This blog is hosted by the OIG’s Risk Analysis Research Center.