U.S. Postal Service:

Pricing Postal Services in a Competitive Environment

GGD-92-49: Published: Mar 25, 1992. Publicly Released: Mar 25, 1992.

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GAO assessed the U.S. Postal Service's (USPS) response to the competition it faces in the marketplace, focusing on the: (1) constraints and obstacles that hinder effective USPS competition; and (2) major issues of pricing postal services in the 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.

Matters for Congressional Consideration

  1. Status: Closed - Implemented

    Comments: The recommendations are being addressed in the proposed Postal Reform Act introduced by the Chairman of the House Subcommittee on the Postal Service. The proposal allows access to volume discounts on negotiated service agreements for similarly situated customers. GAO reaffirmed the recommendations in another report (GGD-96-8, November 15, 1995).

    Matter: If Congress wishes USPS to compete effectively for business customers in parcel post and Express Mail, Congress should consider reexamining the provisions of section 403(c) of the Postal Reorganization Act. Congress should determine if volume discounting by USPS, in which all customers would be given the same volume discounts, would in fact result in undue or unreasonable discrimination among mailers and undue or unreasonable preference to a mailer, given that this practice is a widely used pricing strategy by private carriers.

  2. Status: Closed - Implemented

    Comments: The recommendations are being addressed in the proposed Postal Reform Act introduced by the Chairman of the Subcommittee on the Postal Service. The proposal allows the Postal Service to set its competitive products prices according to demand factors as long as they cover attributable costs. GAO reaffirmed the recommendations in another report (GGD-96-8, November 15, 1995).

    Matter: Congress should reexamine the ratemaking criteria set forth in the Postal Reorganization Act and consider amending the criteria to state that: (1) in allocating institutional costs, demand factors, including elasticities of demand, are to be given a weight that takes into account the need to maintain the long-term viability of USPS as a nationwide full-service provider of postal services; and (2) such use of demand factors will not be inconsistent with the rate criterion requiring the establishment of a fair and equitable rate schedule as long as each mail class recovers the direct and indirect costs attributable to that service and makes some contribution to institutional costs.

 

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