USPS grades poorly on loss-making products and service standards
US regulators said today that 10 loss-making market dominant products contributed “substantially” to the Postal Service’s $5.1bn loss in the 2011 financial year. The latest annual compliance determination (ACD) report from the Postal Regulatory Commission said USPS products priced below-cost accounted for $1.6bn in losses for the federal agency last year.
Two of the major offenders were Standard Mail Flats and Periodicals.
Standard Mail Flats saw its losses increase from $577m in the 2010 financial year to $643m in the 12 months up to the end of September 2011. Periodicals made a $609m loss in 2011, while Standard Mail Parcels/Not-Flat Machinables made a $112m loss.
The Commission said the USPS had “repeatedly failed” to use its available pricing powers to address the growing cross-subsidisation of the Standard Mail Flats services. The issue of Standard Mail Flats is currently the subject of a judicial review.
Among various proposals for postal reform at the moment, there have been calls around Washington to force through a sudden price increase to ensure “underwater” postal products do recoup their costs. However, there are fears that such a move could drive more mailers away from the physical mail channel.
The Commission said 35 discounts offered for mail processed by third-party “work share” partners were above the level of avoided cost for those services, with 16 that did not meet the requirements in US postal law.
USPS competitive products – its parcel shipping and express services – had generated a profit as a whole, the Commission said, although two international products and one special services product failed to cover their costs.
Failed service standards
Chairman Ruth Goldway and her Commission said they did not believe the situation at USPS would improve in the near future
Elsewhere in the Commission’s annual grading of the Postal Service, it said service standards were met by USPS during the year for its single-piece First Class Mail and Special Services, but most of the Postal Service’s monopoly services did not meet their targets.
In particular, the ACD report flagged up problems with delivery speed as something USPS must resolve this year, although this could prove difficult as the Postal Service looks to dramatically reduce the size of its processing and delivery networks.
The Commission also criticised “significant issues” in the new USPS tracking system, the Intelligent Mail barcode system, saying that the technology had not yet fulfilled its potential.
“Without improvement, the Commission will review its decision to allow the use of this hybrid system for service performance measurement,” it warned.
Overall, the Commission said USPS was “largely” in compliance with the requirements of US postal law, but noted the continuing deterioration of both revenues and mail volumes.
“The Postal Service continues to experience severe financial losses, with improvement unlikely in the near future,” said Commission Chairman Ruth Goldway, adding that the analysis within the ACD report should help Congress as it continues to consider postal reform legislation.
Last year saw mail volumes fall by a further 5bn pieces, adding to the woes of USPS, which has made cumulative losses of $23.5bn in the last five years. Much of the cash flow crisis was related to Congressional requirements for USPS to pre-fund its future retiree healthcare liabilities, the regulators pointed out.
The Commission said there was “little reason” to believe the situation will improve for USPS any time soon.
A USPS spokesman said the Postal Service was currently reviewing the Commission’s findings.
