Implications of Declining Mail Volumes for the Financial Sustainability of the Postal Service, September 29, 2010. Sponsored by U.S. Postal Service Office of Inspector General Risk Analysis
“Mail volume is declining. It is difficult to determine how much of this drop is due to the recent economic downturn, but many postal experts consider that a period of long-term volume decline has begun. What effect will lower volumes have on the Postal Service? The Office of Inspector General asked George Mason University School of Public Policy (GMU) to look at the financial sustainability of the Postal Service at lower levels of mail volume. GMU researchers created a model that can analyze the financial position of the Postal Service at many different volumes. The results of their analysis suggest the outlook for the Postal Service is optimistic. The Postal Service is financially sustainable down to volume levels of 100 billion pieces per year. However, price increases above inflation will be necessary unless steps are taken to greatly reduce the Postal Services cost structure. Such price increases are not unprecedented. Many other posts in developed countries have higher prices than the Postal Service. GMUs model can run what if scenarios, showing how various cost reduction initiatives can lessen the need for rate increases at specific volume levels. The GMU researchers analyzed the financial effects of options such as switching to 5-day delivery, optimizing the retail network, and increasing productivity. They also examined how the cost structure of the Postal Service will change if volume declines. At lower volume levels, delivery will become a much larger share of total costs, and any cost burdens unrelated to delivering the mail will be significantly more difficult to bear. GMUs analysis is encouraging. It provides hope that the Postal Service can remain solvent at lower volume levels if it is allowed to act.”
Sorry, comments are closed for this post.