March 18, 2019 (RARC-WP-19-002)

  • The Postal Service’s transportation costs have increased over the last 10 years, despite an overall decline in mail volume and the relaxation of First-Class Mail service standards.
  • Nearly 40 percent of the increase cannot be explained by changes in mail volume and transportation-related inputs alone.

While costs in general are expected to increase over time due to inflation, there were other factors that put downward pressure on the Postal Service’s transportation costs. Namely, the overall decline in mail volume and the reduction in First-Class Mail service standards. This led us to wonder how much costs should have been expected to change in response to two things: (1) the overall change in mail volume, including the decline in letters and flats and the increase in parcels; and (2) the overall change in transportation-related input costs, including fuel and driver wages.

The OIG found that almost 40 percent of the increase in transportation costs over the last ten years cannot be explained by these two factors alone. This finding does not mean these cost increases are necessarily bad or improper, but rather signals that further explanation is warranted. A better understanding of what is driving these costs could help the Postal Service find ways to contain them in the future.

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Comments (4)

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  • anon

    Why are postal mail pick up times at rural type post office not managed better. Example one rural post office in a community of about 7000 people have a 3pm and a 5pm mail pick up. I assume all mail is going to Las Vegas for distribution to onward locations. Why not do away with the 3pm pick up and just have the 5 pm pick up. It seems to me to be a waste of time and money in transportation costs for such (most likely) small amount of mail. Perhaps someone could review these routes and cost factors to save money even if it is only a few thousand a year. It would be worth the cost to all concerned. Just a suggestion. might want to have the Nevada routes checked.

    Apr 15, 2019
  • anon

    While their analysis process is interesting, their data substantially fails to match the PRC official Cost Segments data. It is not often when the first sentence in an OIG report is just plain incorrect. Instead of "transportation costs rising 18% from 2008 to 2017", according to the Cost Segment reports, Transportation (CS 14) increased 4%. Their opening statement is based on their segmented analysis. I could not validate any of the main numbers against the official reports. The study also is substantively misleading by using 2008 as the base to compare to 2017. The Great Recession had a dramatic impact on postal costs. When 2017 is compared to 2011, transportation went up 23%. So there was a big drop in transportation costs 2008 to 2010, then big increases. The biggest overlooked transportation cost in the past 5 years is between plants (Inter-SCF in this context). It has increase from $1.023 billion in 2014 to $1.708 in 2018, or 685 million (66%) in 5 years. This is an astounding increase. The report provides some insight into the reasons. But the increase really should be what is investigated. Overall, the report provides interesting structure for analysis but fails miserably to be accurate.

    Mar 20, 2019
  • anon

    Thank you for commenting on our paper. We stand by our analysis and the accuracy of our data, which came from the Postal Service’s Cost Segments and Components reports as filed at the PRC. As noted in our paper, our analysis is not a strict comparison of 2008 to 2017, it is based on a 2-year average to avoid being biased by data in any one year. You are correct that if we picked a different time frame, we would have different results. We purposefully picked a 10-year time frame to ensure that we included a significant time period before network realignment and the reduction in First-Class Mail Standards.

    Mar 21, 2019
  • anon

    Thank your for your reply. The total for Cost Segment 14, Transportation, using your method, yields a different result than your opening sentence. Using your method of 2-year averaging, the percent change in Total Cost Segment from average 2008-09 to 2016-17 is 9.6%. It appears your 18% number is based on the subset of your study. Your explanation is interesting as it ignores the impact of the great recession. Cost Segment 14 decreased by -13.4% from 2008 to 2009. This has a big impact on the average. The impact of the drop in 2009 clearly biases the data analysis, in my opinion. 2011-2012 seems like it would have been a better basis as it is mostly before network realignment and service standard changes, without the significant distortions of the 2009 recession and recovery. I probably should have said your opening statement is misleading rather than incorrect.

    Mar 21, 2019

Contributors

  • Jennifer Bradley, Chris Backley, and Jeff Colvin contributed to this report.

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