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:

Delivery Points
Transportation Cost
Compensation Cost
We will wrap us this blog series with a review of Compensation Cost.

Compensation Cost

Of course, more employees and a higher ratio of career employees increase compensation cost. The largest driver of compensation costs, however, is the collective bargaining that USPS does with its unions. Recently, the National Rural Letter Carriers’ Association reached a tentative accord with USPS management. It would be interesting and useful to perform a quantitative comparison between this agreement and those of other businesses and governmental entities. Certainly, anyone reading this can feel free to compare it to their employment situation.

Terms such as guaranteed raises plus cost of living allowances, covering 65-75% of health insurance premiums, and a pension plan appear to be much more generous than the average American receives. And seeing a multi-year agreement with such promises to employees at an organization that projects to run out of cash is a head-scratcher.

As it did three years ago, the NRLCA contract will be the model for the much larger one with the American Postal Workers Union. Within about 72 hours of the NRLCA agreement, the APWU announced it is ending mediation with USPS and going into arbitration. It’s Groundhog Day all over again with postal collective bargaining since 1970. The problem is it’s not the 70s, 80s, or 90s any more.

A sustainable, successful business would not:

  1. Repeatedly denigrate a growth element that really adds a small fraction of cost and could drive more revenue: delivery points;
  2. Keep adding to staff when its volume is falling and revenue is flat;
  3. Allow transportation cost to grow much faster than revenue and not be able to account for 39% of why it is growing;
  4. Agree to extremely generous three-year labor contracts while warning that it will run out of cash in five years or less.

The Alliance’s report should be yet another sign to senior USPS management that ratepayers are tiring of unrestrained cost growth, especially in compensation and benefits, which are the majority of total USPS costs. Hopefully, this will motivate changes in USPS policies and practices accordingly.

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