One small upside to losing 26 percent of mail volume and relaxing delivery service standards over the past decade is that the U.S. Postal Service should experience a significant decline in its costs as well. Except that hasn’t happened for transportation costs.
In fact, Postal Service transportation costs have risen about 18 percent, or by around $1 billion, from 2008 to 2017. Transportation costs were about 11 percent of total operating costs of $72 billion in FY2017. Our latest white paper, What’s Driving Postal Transportation Costs?, attempted to figure out why.
The Postal Service attributes the increase to significant growth in parcel volumes and higher driver wages. It’s true that an increase in parcels – which are heavier and thus costlier to transport than letters and flats – puts upward pressure on costs. However, some parcels receive little to no postal transportation because shippers enter them in the postal network at the destination post office. And, any increase in transportation costs due to parcel growth would be partially offset by savings stemming from the decline in letters and flats.
It’s also true that inflation – such as higher wages and increased fuel costs – is a factor. But how big a factor? Our analysis studied how much of the change in transportation costs was due to:
- The change in mail volume – including both the decline in letters and flats and the increase in parcels.
- The change in transportation-related costs, such as fuel and driver wages.
We found that these two factors together likely explain 61 percent of the cost increase. This leaves 39 percent of costs – or about $418 million – caused by other things. The Postal Service has said it loses some efficiencies because it can’t put letters and parcels traveling between the same facilities on the same trucks for service reasons. In addition, both the Postal Service’s programs designed to cut transportation costs to date have not met their expected cost savings estimates.
Should the Postal Service be doing more to cut transportation costs? What other factors, besides rising fuel costs and drivers' wages, could explain the cost increases for transportation?