Postal Automation and Pricing in the 1990s

T-GGD-92-39: Published: May 12, 1992. Publicly Released: May 12, 1992.

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GAO discussed: (1) changing the United States Postal Service's (USPS) ratemaking process to permit it to meet competitive demands; and (2) USPS efforts to improve productivity and control costs through automation. GAO noted that: (1) private carriers dominate the profitable business-to-business overnight mail markets and have left USPS with the more dispersed and less profitable household market segment; (2) due to substantial rate increases since 1988, some USPS customers are actively seeking alternative means of communication, which may cause further decreases in USPS volume, reduce revenues, and generate the need for more frequent rate increases to cover revenue shortfalls; (3) in the long run, if demand-based pricing is not given more weight in ratemaking criteria, USPS could experience serious losses in its price sensitive third- and second-class market, driving up the cost of first-class postage to cover those losses; (4) the major contributor to postal costs and their growth is employee pay and benefits; (5) since USPS has little control over employee pay and benefits, it tries to make its workers more productive by making operational changes and capital improvements in equipment and facilities; (6) although USPS recognizes automation as one of the best and most efficient ways to control costs, it is unlikely that savings will keep pace with inflation; (7) notwithstanding the decrease in career employment and additional automation, 1991 operating expenses grew almost 7 percent while the volume of mail declined; and (8) annual increases in labor hour costs overwhelm work hour savings.

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