Alliance Study Examines Drivers of USPS Cost Growth

A June article in the Alliance of Nonprofit Mailers’ Report dug into the current trend of USPS costs outrunning USPS revenues. The report’s findings revealed that the Postal Service may be doing things that an institution with financial challenges like those facing the USPS shouldn’t do.
The following extracts from the Alliance’s report are provided with their permission.
The Alliance found four areas where costs seem ripe for further examination:

  1. Delivery Points
  2. Employees
  3. Transportation Cost
  4. Compensation Cost
Today we'll review "Delivery Points"

“… The Alliance and several other associations quantified the impact of more delivery points in our comments filed with the Postal Regulatory Commission in its ten-year regulatory review. “The Postal Service is correct that (1) the number of delivery points grows each year and (2) this growth tends to increase the Postal Service’s costs. The Postal Service exaggerates the size of this effect, however, as the Postal Service’s own roll-forward calculations show. When the Postal Service rolls forward (extrapolates) its historical expenses to future periods in rate cases, the
Postal Service is required to quantify the effect of the increasing number of delivery points, and may not just assert that the effect is large. The increase in the number of delivery points over time is the primary input to the non-volume workload effect used by the Postal Service in its roll forward model. … In Docket No. RM2013-11, the most recent case in which the Postal Service filed a roll forward analysis, this effect added just $75 million each year (or 0.1%) to Postal Service costs. ... Thus, while the growth in delivery points indeed creates a small headwind against the Postal Service going forward, the effect is much less than the Postal Service now claims. Furthermore, because the non-volume workload effect does not account for the fact that new delivery points are generally lower-cost ones (i.e., centralized delivery points), the real non-volume workload effect is likely much smaller than even the roll forward analysis suggests.

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