As shown in briefing prepared for this Commission by Richard Strasser, the chief financial officer of the Postal Service, total mail volume has decreased for the past two years by some five billion pieces, from 208 to 203 billion. First-class, single piece letter volume has dropped by almost 10 percent since 1998, from 54.3 to 49.3 billion pieces. The bottom line effect has been a series of deficits for the Postal Service (although a surplus is expected this year).
The Postal Service's analysis of types of mail is also telling. "Nonhousehold to nonhousehold" (presumably business to business mail) has dropped from 37 percent to 26 percent of total volume from 1987 to 2001. Household to household (presumably personal mail) has remained relatively insignificant, at 7 percent in 2001. That leaves mail between households and nonhouseholds, presumably businesses to individuals with a dominant 67 percent of volume.
Dated February 14, 2003.
The modern Postal Service delivers 138 percent more mail to 85 percent more delivery points today with just 2.5 percent more work hours than it did in 1971 when it was created.
The USPS maintains the most affordable postage in the world. A first-class stamp, which costs 37 cents in America, costs 72 cents in Japan, 67 cents in Germany and 54 cents in Britain. While in dollar terms stamps are cheaper in New Zealand, their cost is higher relative to hourly wages of workers there.
The USPS is financially independent of the rest of the federal government, generating all its own revenues with no subsidies from American taxpayers.
Taxpayer subsidies to the USPS were phased out between 1971, when they covered 23 percent of costs, and 1983. Today, an appropriation to the Postal Service proportional to that paid in 1971 would cost nearly $16 billion annually. The USPS is authorized to receive compensation of $460 million per year for operating unprofitable post offices, but has not requested or received this “public service” subsidy in more than 18 years. The direct savings to taxpayers: $12 billion through 2005.
In fiscal year 2005, the USPS sorted and delivered nearly 212 billion pieces of mail, about 680 million pieces a day.
The USPS delivers more items in one day than Federal Express does in a year and more items in one week than United Parcel Service does in a year.
The Postal Service delivers to 143 million businesses and households each day, six days per week. UPS delivers to 7 million addresses daily while FedEx serves even fewer.
The number of delivery points (households and businesses) served by the Postal Service grows by 5,900 every delivery day — some 1.8 million addresses a year.
From the National Association of Letter Carriers
The cost of universal service is a surprisingly small portion of the Postal Service’s $70 billion budget. In 1999, losses on unprofitable routes were $2.6 billion; about half of the losses were sustained on just ten percent of the routes. The cost of the 10,000 smallest post offices (out of a total of 28,000) was $567 million. Six-day-a-week delivery is also frequently cited as a universal service requirement. An upperbound on the savings from eliminating a delivery day is $1.9 billion (the daily fixed cost of residential delivery).
There is no urban to rural cross-subsidy. Analyses of revenues and costs byroute show that routes serving rural areas are, in total, quite profitable. Overall, because the Postal Service is required to break even (i.e., earn no net profit), a large number of routes are necessarily unprofitable. However, the proportion of unprofitable routes in the U.S. is approximately the same for urban and rural areas. Volume, not population density or urban character, is the major determinant of profits on delivery routes in the U.S. . . .
Extensive competition exists in mail processing and transportation due to worksharing discounts. Far more of the postal value chain is in the private sector in the U.S. than in any other country. Without worksharing, Postal Service costs would be 25 percent higher. . . .
Table 1 displays thedelivery profits (losses) by semi decile of the 230 thousand delivery routes of the U.S.Postal Service.
Annual Route Profits (Losses) by Semi Decile(FY 99, $ Millions)
Total Profits 6,520
Total Losses (2,615)
Net Profits 3,905 . . . .
Rather than abandon service to all unprofitable routes it would be better from a business standpoint to curtail delivery frequency on the loss making routes until they are at least breakeven. A post that delivers 6 days per week could reduce service on each loss making routes just enough so that it was no longer unprofitable. Each route wouldbe reduced to 5, 4, 3, 2 or 1 day per week according to the size of the loss on particular routes. . . .
Cost Savings from Reducing Delivery Dayson Non-Business Routes(FY 99)
Cost Savings [$ billions]; Percent of Total Costs
5 days $1.9 billion 3.0%
4 days 3.8 6.1%
3 days 5.7 9.1%
2 days 7.6 12.1%
1 day 9.5 15.2%
While many posts in industrialized countries deliver six days a week, severaldeliver only five days without apparent problems (Australia, Austria, Canada, Finland,Greece, Ireland, Luxembourg, Portugal, Spain and Sweden). Sweden Post’scompetitor, City Mail, delivers every third business day. Thus, six-day-a-week deliverymay not be necessary to retain volume. . .
The distribution of the various types of delivery for the USPS in FY 99 were:
City Carriers (166,743)
Park & Loopa70.6%
Rural Carriers (63,552)
a“Park and loop” refers to a route where the carrier parks his or her vehicle and serves a group of houses on foot, returns to the vehicle and drives to another location, andso on.
Foot routes and park and loop routes involve delivery to the door while curb delivery is to a box placed by the street in front of the residence and roadside delivery is to a boxplaced alongside a road that is traveled by a rural carrier.
In the mid-1970’s the PostalService stopped serving new housing developments with park and loop routes. Since then new housing developments have been served by curb routes. The increasing use of cluster boxes is a continuation of the trend to more efficient delivery. . . .The savings of $778 million, is 1.2 percent of total costs [is the possible savings from converting all park and loop routes to curb routes]. . . .
The 10,127 smallest offices18costthe post office $567 million annually in FY 99. Including personnel and facility costs.This is seven-tenth of one percent of total postal costs. . . .
The amount of the air service cost of parcel post in FY 99 was $99 million or two-tenth of one percent of total costs. This is the upper bound amount that the Postal Service could save if it were to discontinue parcel post service to the Alaska bush. . . .
The term “dropshipping” will be used here to mean mailer transport to enter mail more deeply in the sorting network, thereby bypassing handling operations. . . . The ultimate dropshipment discountis for mail entered at the carrier delivery facility (destination delivery unit - DDU). Mailers of bulk categories (except for First-Class) make extensive use of dropshippingwhich not only saves costs but it also results in improved service.
Advertising mail makes the most extensive use of dropshipping. On average 21 percent of theadvertising mail dropship cost avoidance is from handling and 79 percent is from transportation.
Presorted and Barcoded Mail
Volume(billions);Percent of Total Mail; Cost Savings to the USPS($ millions )
Single-Piece 57 28% N/A
Non-barcoded Presort 5 2% 43
Basic 5 3% 409
3-Digit 22 11% 1,918
5-Digit 12 6% 1,248
Carrier Route 1 1% 138
Total First-Class 102 51% 3,755
Basic 1 0% 8
3-Digit 2 1% 125
5-Digit 3 2% 380
Carrier Route 5 2% 923
Total Publications 10 5% 1,436
Basic 9 4% 272
3/5-Digit 41 20% 2,679
Carrier Route 36 18% 4,613
Total Advertising Mail 86 42% 7,564
Single-Piece 0 0% 0
Barcoded Presort 1 0% 136
Total Package Services 1 1% 136
Other Mail 3 1% NA
Total All Mail 202 100% 12,891
In Table 8 no dropshipped volume is shown for First-Class because no such discount is available. An unknown amount of First-Class is dropshipped for service reasons. For all classes of mail it is difficult to assemble the density to make it economically feasible to dropship at the DDU level.
Volume(billions)'Percent of Total Mail; Cost Savings to the USPS($ millions)
Nondropshipped 102 51% NA
Total First-Class Mail102 51% NA
Nondropshipped 7 3% NA
DSCF 3 2% 64
DDU 0 0% 7
Total Publications10 5% 71
Nondropshipped 32 16% NA
BMC 19 10% 509
DSCF 27 13% 895
DDU 8 4% 329
Total Advertising Mail 86 42% 1733
Nondropshipped 1 0% NA
BMC 0 0% 475
DSCF 0 0% 44
DDU 0 0% 93
Total Package Services 1 1% 612
Other Mail 3 1% NA
Total All Mail 202 100% 2416 . . .
The hierarchy of this network is:
3-digit areas 900
5-digit areas 24,000
Carrier routes 220,000
From Congressional Testimony on February 20, 2003.