How prepared is the U.S. Postal Service for a sudden increase in the price of diesel fuel? When diesel climbed by $2.03 a gallon from March 2009 to March 2012, the USPS’s fuel tab soared by $341 million.
It’s what happens when you operate one of the biggest vehicle fleets in the country: 7,600 of its own in addition to almost 16,000 contract vehicles. In fiscal year 2016 alone, USPS bought about 251 million gallons of diesel at a cost of over $570 million.
Of course, the flip side is also the upside: From early 2014 to early 2016, a $2 drop in the price of diesel fuel reduced the Postal Service’s fuel costs by $413 million.
But diesel fuel has proven an extremely unstable cost to manage. It’s not just that fuel prices fluctuate. It’s all the unanticipated domestic and global events ― natural disasters, disruptions of or reductions in the fuel supply, or even a sudden oversupply of fuel ― that can send prices ricocheting up and down.
Our recent audit report looked at whether the Postal Service has positioned itself to mitigate the risks associated with current projected increases in diesel fuel prices or an increase in consumption. We found it hasn’t. In particular, it needs to require more protection in its contracts with highway contract route (HCR) suppliers.
Despite declines in diesel fuel costs and mail volume, HCR miles and overall costs continue to increase. That is, even with a 4.3 billion decline in mailpieces between FYs 2013-2016 and lower diesel fuel costs, HCR miles increased, as did overall HCR costs. This increase in HCR mileage could expose the USPS financially if diesel fuel prices were to increase. It needs to get a better handle on HCR mileage.
The Postal Service also needs to move more aggressively toward its goal of reducing HCR diesel fuel use by 20 percent by 2020. To date, it has achieved only a 0.1 percent reduction. We recommended management continue to work with HCR suppliers to encourage their use of alternative fuels, perhaps through an incentive program that shared the savings. We also suggested exploration with Congress of a fuel surcharge, unallowable under current law, to recover increased fuel costs.
What ways would you recommend the Postal Service prepare for diesel fuel price fluctuations?