Global eCommerce continues to grow, and the Asia-Pacific region is expected to have surpassed North America in eCommerce in 2013, a trend forecasted to continue through at least 2016. To capitalize on this trend, the U.S. Postal Service launched a new item, the ePacket, through a bilateral agreement with China Post in fiscal year (FY) 2011. ePackets are small packages weighing up to 4.4 pounds with tracking and delivery confirmation features and are grouped with other inbound letter post packets. China Post is the largest exporter of ePackets into the U.S. with 96 percent of the total ePacket volume.
The Postal Service has priced ePackets under additional bilateral agreements with Hong Kong and Singapore, and negotiations have begun with South Korea as part of a larger strategy for developing the Postal Service’s international market.
During FY 2012, China generated more than 26 million ePackets, resulting in over $25 million in revenue, a volume increase of 182 percent, and a revenue increase of 316 percent over FY 2011. Our objective was to assess whether the Postal Service accurately determines the cost of inbound China ePackets.
WHAT THE OIG FOUND:
The Postal Service did not isolate the cost of China ePackets, which limits its ability to establish effective pricing strategies. Although China Post sorts and dispatches ePackets separately from other mailpieces, the Postal Service did not calculate ePacket cost data separately from other letter post mailpieces or report it separately in the annual performance report to the Postal Regulatory Commission.
ePacket volume and revenue have increased, but the Postal Service still lost at least $39 million during FYs 2011 and 2012. Until accurate costs for ePackets can be identified and used as a basis for pricing, the risk of revenue loss for ePackets remains high.
The Postal Service could also pursue a product classification change for inbound letter post packets, which could increase revenue from China Post and other business partners in emerging global markets.
WHAT THE OIG RECOMMENDED:
We recommended the Postal Service track and report inbound letter post packet costs separately. We also recommended the Postal Service evaluate a product classification change for inbound letter post packets.