OIG Examines Changes in USPS Postal Costs

03/13/2017

OIGThe Office of the Inspector General, United States Postal Service has published a report that examines changes in postal product costs.

“Over the past 10 years, the U.S. Postal Service has experienced both sharp declines in overall mail volume and substantial changes in the volumes and proportions of the different types of mail deposited in its system.1 In response, Postal Service management has cut overall costs using a variety of strategies, including rationalizing its network, hiring lower-priced labor, and, in some cases — such as local First-Class Mail delivery — lowering service standards.” The report quantifies the main drivers behind cost changes for the Postal Service’s four main traditional products.

“It includes four key external factors that have driven cost changes from 2006 to 2015: inflation, product mix, individual volume change, and overall volume change. With these external factors accounted for, we attribute the remaining change in unit cost to other factors associated with management activity, such as productivity improvements, service modifications, and wage reductions.4 Such factors are at least partially within the Postal Service’s control. This is especially important to note because this analysis finds that via such factors, the Postal Service was able to reduce the costs of all products but one, Periodicals. These cost reductions occurred despite a growth in delivery points. Another important relationship highlighted by this work is the impact of the volume change of one product on the costs of other products. This occurs because products share the costs of the network, including transportation, processing facilities, and delivery activities. Any decline in overall mail volume results in fewer pieces of mail sharing the costs of the network. While this theoretical concept has been understood and accepted generally, its impact on Postal Service products has not been quantified until now.”

The OIG has also initiated two audits

An audit page has been set up for each project. Interested parties are invited to provide comments.