U.S. Postal Service

The U.S. Postal Service, the nation's largest civilian employer, has operated for 20 years as a governmental quasi-corporation. It has successfully modernized its operations, improved compensation and working conditions for postal employees, foregone the direct taxpayer subsidies that used to support its operations, and maintained mandated universal service--equal service for the same price delivered anywhere in the country. Today, however, competition and constantly rising prices for its services threaten the viability of this important institution. This report (1) describes the Post Office's competition and its response to it, (2) examines the constraints and obstacles that affect its efforts to compete effectively, and (3) evaluates the major issues of postal ratemaking in a competitive environment.

GAO found that: (1) although USPS has modernized its facilities and automated many mail processing operations, it has had difficulty restraining increases in operating costs; (2) some postal customers have increasingly looked to the development of private-sector delivery services and emerging electronic technologies that provide new, nonpostal methods of transmitting information; (3) private carriers dominate the parcel post and expedited mail markets, and price, level, and quality of service, and regulatory constraints hinder USPS competitiveness in those markets; (4) the Postal Rate Commission (PRC) rejected the proposed USPS pricing strategy for offering volume discounts to make its Express Mail service more competitive; (5) while first-class mail accounts for more than half of USPS volume and revenue, third- and second-class mail help to provide the volume necessary to sustain the USPS delivery network and keep postage unit costs down; (6) total mail volume has grown at an annual 3.3-percent rate, but USPS has no assurance that the volume will continue to grow at rates sufficient to cover the growing costs of its mail system; (7) federal statutes and regulations give USPS a monopoly on first-class mail delivery, but USPS is facing increasing direct and indirect competition from second- and third-class private carriers and alternative nonpostal information transmission methods; and (8) USPS believes that PRC does not adequately consider demand factors in ratemaking decisions and must adopt a more practical, market-oriented approach to pricing.

Recommendations

Our recommendations from this work are listed below with a Contact for more information. Status will change from "In process" to "Open," "Closed - implemented," or "Closed - not implemented" based on our follow up work.

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