United States Postal Service:

A Sustainable Path Forward

Report from the Task Force on the 

United States Postal System

DECEMBER 2018
United States Postal Service:

A Sustainable Path Forward

Report from the Task Force on

the United States Postal System

December 4, 2018
DEPARTMENT OF THE TREASURY

WASHINGTON, D.C.

December 4, 2018

The Honorable Donald J. Trump

The White House

Washington, DC

Dear Mr. President:

On April 12, 2018, you signed Executive Order 13829, which established the Task Force on the 

United States Postal System to evaluate the operations and finances of the United States Postal 

Service (USPS) and develop recommendations for administrative and legislative reforms for the 

U.S. postal system. The goal of these recommendations is to identify a path for the USPS to

operate under a sustainable business model, providing necessary mail services to citizens and 

businesses, while competing fairly in commercial markets.

The Task Force conducted extensive outreach to stakeholders and performed in depth research 

and analysis in order to understand the wide range of challenges facing the USPS. 

In addition to our August 10, 2018, submission, the Task Force presents here its findings and full 

list of recommendations. We believe these are the first steps forward in creating a sustainable 

business model under which the USPS can continue to provide necessary mail services for all 

Americans.

Sincerely,

Steven T. Mnuchin

Secretary of the Treasury

Chairman, Task Force on the United States Postal System
Table of Contents

Executive Summary .................................................................................... 1

A. Task Force on the United States Postal System...............................................................1

B. Unsustainable Financial Path ...........................................................................................2

C. Scope of Work..................................................................................................................3

D. Summary of Recommendations .......................................................................................4

Introduction..................................................................................................7

A. History of the United States Postal Service ......................................................................7

B. Role of the USPS in the Economy....................................................................................9

C. Current State of the USPS..............................................................................................16

D. International Postal Models ............................................................................................29

Mission and Business Model...................................................................32

A. Historical Business Model ..............................................................................................32

B. Creation of a New Business Model.................................................................................33

Universal Service Obligation ...................................................................39

A. Overview ........................................................................................................................39

B. Background....................................................................................................................39

C. Findings and Recommendations ....................................................................................41

Mail and Package Markets........................................................................46

A. Overview ........................................................................................................................46

B. Background....................................................................................................................47

C. Findings And Recommendations....................................................................................50

Operational Structure, Governance, and Long-term Liabilities...........56

A. Overview ........................................................................................................................56

B. Background....................................................................................................................56

C. Findings and Recommendations ....................................................................................60

Appendix A – Task Force Recommendations.......................................................................64

Appendix B – Participants List...............................................................................................67

Acronyms and Abbreviations ................................................................................................69
1

Executive Summary

A. Task Force on the United States Postal System 

On April 12, 2018, President Donald J. Trump created the Task Force on the United States 

Postal System. The Task Force is chaired by the Secretary of the Treasury and includes the 

Director of the Office of Management and Budget and the Director of the Office of 

Personnel Management. The Task Force was directed to evaluate the operations and 

finances of the United States Postal Service (USPS) and submit findings and 

recommendations to the President. 

The Task Force conducted a robust analysis of the USPS’s operations and finances that was 

informed by an extensive review of information provided by the USPS, academic literature,

and industry studies; a review of legislative history and meetings with members of Congress 

and the Congressional committees of jurisdiction; and meetings with a wide range of 

stakeholders. Per the Executive Order, the Task Force studied: 

i. The expansion and pricing of the package delivery market and the USPS’s role in 

competitive markets;

ii. The decline in mail volume and its implications for USPS self-financing and the 

USPS monopoly over letter delivery and mailboxes;

iii. The definition of the “universal service obligation” in light of changes in technology, 

e-commerce, marketing practices, and customer needs;

iv. The USPS’s role in the U.S. economy and in rural areas, communities, and small 

towns; and

v. The state of the USPS business model, workforce, operations, costs, and pricing. 

The recommendations of the Task Force, presented within this document, promote 

commerce and communications throughout the United States, without shifting additional 

costs to the taxpayers, and include proposed administrative and legislative reforms to create 

a sustainable business model for the USPS.

Outreach and Research

The Task Force met with a wide range of stakeholders representing the USPS workforce;

commercial, non-profit, and residential users of the USPS’s services; and the USPS’s 

suppliers and competitors. A list of organizations and individuals that provided input to the 

Task Force in connection to this report appears in Appendix B. 
United States Postal Service: A Sustainable Path Forward

2

As directed by the Executive Order, the Task Force consulted with the Postmaster General; 

the Chairman of the Postal Regulatory Commission (PRC); the Attorney General on issues 

relating to government monopolies operating in the commercial marketplace; the Secretary 

of Labor on issues relating to workers’ compensation programs; and state, local, and tribal 

officials. The Task Force also conducted a thorough review of data, research, and published 

material from public and private sources, including from the USPS, the U.S. Government 

Accountability Office (GAO), and the USPS Office of Inspector General (OIG). 

B. Unsustainable Financial Path

The USPS is a $71 billion enterprise that collects, processes, transports, and delivers 146

billion pieces of mail and packages to nearly 159 million households and businesses 

annually.1 The mission of the USPS is broadly defined via the “universal service obligation”

(USO), which is intended to ensure that all citizens and businesses in the United States 

receive a minimum level of postal services at a reasonable price. 

The USPS has been losing money for more than a decade and is on an unsustainable 

financial path. The USPS is forecast to lose tens of billions of dollars over the next decade. 

Further, as of the end of FY 2018, the USPS balance sheet reflects $89 billion in liabilities 

against $27 billion in assets – a net deficiency of $62 billion.2 

The shift toward digital correspondence and the corresponding decline in USPS mail 

volumes have been compounded by caps on mail pricing, leading to mail revenue declines of 

around 4 percent per year. Additionally, the USPS has not been able to sufficiently reduce 

costs to offset declines in revenue, resulting in net losses totaling $69 billion between FY 

2007 and FY 2018. 

Although package volumes are increasing due to the rise of e-commerce, package revenues 

alone cannot offset the decline in mail revenues. Additionally, as the USPS delivers more 

packages, it is competing with private delivery companies and distorting overall pricing in the 

package delivery market.

The USPS’s business model – including its governance, product pricing, cost allocation, and 

labor practices – was sustainable in an era where mail revenues and volumes grew alongside 

population and economic growth. However, as the USPS’s financial condition continues to 

deteriorate, standalone proposals, such as forgiving the prefunding of post-employment 

benefits or renegotiating labor contracts, will be insufficient. The USPS’s ability to achieve 

and maintain sustainability over the long-term is dependent upon formative reforms to its 

 

1 United States Postal Service, Form 10-K for the Fiscal Year Ended September 30, 2018, available at: 

http://about.usps.com/who-we-are/financials/10k-reports/fy2018.pdf. 2 Ibid.
United States Postal Service: A Sustainable Path Forward

3

business model that will enable it to flexibly and swiftly adapt to the social, technological, 

and operational changes in the mail and package markets. 

C. Scope of Work

The Task Force’s review of the U.S. Postal System identified significant opportunities for 

reform that would enable the USPS to operate a sustainable business model and compete 

fairly in competitive markets. The Task Force considered both administrative and legislative 

reforms that take into account changes in the postal industry, the USPS’s competitive 

advantages, and areas requiring improvement through either government or private sectordriven initiatives. This report provides options that should be considered, in whole or in 

part, as the USPS and other stakeholders work to evolve the USPS’s business model and 

restore it to the long-term sustainability demanded of it by the American people.

The Task Force also considered the USPS’s particular importance to rural and remote 

locations within the United States, recognizing the USPS’s role in the U.S. economy, as both 

a service provider and employer. The USPS provides postal services across all regions and is 

one of our nation’s largest employers, with employees in nearly every community in the 

country. The Task Force strongly believes that any potential solutions considered should 

not disadvantage those living in rural or remote locations. 

Finally, as international mail and packages play a relatively small role in the overall economic 

performance of the USPS, representing 3.7 percent of total USPS revenue,

3 this report does 

not specifically address issues associated with the shipment and receipt of international mail 

and packages. However, the Task Force fully supports the August 23, 2018 Presidential 

Memorandum that instructed the Secretary of State to seek reforms to the Universal Postal 

Union (UPU) to achieve a system of fair and nondiscriminatory postal rates, and strongly 

supports the State Department’s October 17, 2018 notice of denunciation that begins the 

year-long process of United States withdrawal from the UPU. The Task Force is also 

pleased with the October 24, 2018 passage of the STOP Act, which will require the USPS to 

adopt advance electronic data for international mail shipments in order to help stop the flow 

of fentanyl, and other illegal shipments, into the United States via the USPS.

 

3 United States Postal Service, Form 10-K for the Fiscal Year Ended September 30, 2018, available at: 

http://about.usps.com/who-we-are/financials/10k-reports/fy2018.pdf.
United States Postal Service: A Sustainable Path Forward

4

D. Summary of Recommendations

The Task Force’s recommendations align with the following operating realities of the postal 

system:

• The volume of First-Class and other mail is in decline;

• Initiatives must be taken to address both the USPS’s revenues and costs; and

• Optimizing the unique franchise and monopoly value of the system is necessary. 

The Task Force recommends that the USPS and Congress work to overhaul the USPS’s

business model in order to return it to sustainability. Both administrative and legislative 

actions are needed to ensure that the USPS does not face a liquidity crisis, which could 

disrupt mail services and require an emergency infusion of taxpayer dollars. The following 

provides a summary of the Task Force’s recommendations. A full list of recommendations 

can be found in Appendix A. 

Governance

The USPS suffers from a lack of institutional governance. The USPS’s Governors are 

considered the “head of the agency” and are responsible for directing and controlling the 

USPS. Between December 2016 and August 2018, the USPS Board of Governors (the

Board) had no Governors. In August 2018, the Senate confirmed two Governors – the first 

Governors confirmed by the Senate since 2010. Without Governors, the Postmaster 

General managed the USPS’s financial and operational challenges without strategic direction 

and guidance, exacerbating management’s limited power to effect needed organizational 

change. The Board should move to create a new policy mandate that resets the USPS’s 

organizational direction and develops financial targets for the USPS. Governance should be 

strengthened with expanded Board controls and increased accountability. Moreover, if the 

USPS is unable to achieve a sustainable business model and satisfy its financial 

commitments, including those to other federal agencies, the PRC should be given stronger 

regulatory authority to take necessary revenue and expense measures. 

Universal Service Obligation

The USO is a public policy that defines what citizens and businesses need from a 

government provided postal service, representing a mission statement for a country’s postal 

system. The generally accepted attributes for defining the USO include specifying the 

geographic coverage for postal delivery, frequency of delivery, processing standards, mode 

of delivery, range of required postal products, level of access to post offices, and rules for 

affordable postal rates. 

In the United States, the USO is not clearly defined. For the USPS’s business model to 

achieve sustainability, the USO must be defined with greater specificity. The Task Force 

believes that the USO must distinguish between the types of mail and packages for which a 
United States Postal Service: A Sustainable Path Forward

5

strong social or macroeconomic rationale exists for government protection in the form of 

price caps and mandated delivery standards (“essential services”), versus those types of mail 

and packages that are commercial in nature, and therefore would not have a basis for 

government protection. This definition will provide the USPS and the PRC with a 

framework to sustainably manage pricing, costs, and products. 

Pricing 

With the rise of digital alternatives and the corresponding decline in mail volumes, acrossthe-board rate caps on mail products have become an obstacle to the USPS’s financial 

sustainability. Although the USPS does have pricing flexibility within its package delivery 

segment, packages have not been priced with profitability in mind. The USPS should have 

the authority to charge market-based prices for both mail and package items that are not 

deemed “essential services.” This will allow the USPS to optimize its income in order to 

fund its operations, capital expenditures, and long-term liabilities. 

Cost Allocation

The USPS’s current cost allocation methodology is outdated, leading to distortions in

investment and product pricing decisions. The USPS’s current cost methodology does not 

take into account that market dominant and competitive products operate under different 

regulatory and market rules, nor does it capture the cost implications that the rapid decline in 

mail volume and the rapid rise of package volume have had on the USPS’s cost structure. 

Modernizing the USPS’s cost standards and allocation methodology is a key principle needed 

to reform the USPS. This modernization will provide the USPS the information it needs to 

inform critical management decisions, government policies, and regulatory reporting. 

Operating Costs

In order to move towards a path of sustainability, the USPS must also address its rising labor 

and operating costs, including capital expenditures. The USPS’s operating costs are expected 

to continue to grow as the country’s population expands, new delivery points are added, and 

as the requirements for package delivery increase. The USPS must pursue new cost-cutting 

strategies that will enable it to meet the changing realities of its business model. These 

should include evaluating modifications to delivery processing standards, and the expanded 

use of private sector partners in areas such as processing and sortation. 

Labor Model

In FY 2018, labor costs accounted for 76 percent of the USPS’s overall operating costs.4 

Consistent with the President’s Management Agenda to modernize the government 

workforce, the Task Force recommends that the USPS more closely align wages for both its 

career and non-career workers with those of other federal employees, drawing from like 

examples in the broader labor market.

 

4 United States Postal Service, Form 10-K for the Fiscal Year Ended September 30, 2018, available at: 

http://about.usps.com/who-we-are/financials/10k-reports/fy2018.pdf.
United States Postal Service: A Sustainable Path Forward

6

Retiree Health Benefits

Congress requires the USPS to fund the retiree health benefits of its employees as part of a 

mandate for postal self-sustainability. The Task Force does not believe that this general 

policy should change or that the liability for USPS retiree health benefits should be shifted to 

the taxpayers. The Task Force believes that this obligation, including the $43 billion in prefunding payments that the USPS failed to pay into the Postal Service Retiree Health Benefits

Fund and the unfunded actuarial liability for retiree health benefits, must be restructured 

with the payments re-amortized with a new actuarial calculation based on the population of 

employees at or near retirement age.

5 

New Revenue Streams

The USPS should explore new business opportunities that will allow it to extract value from 

its existing assets and business lines. For example, the USPS should explore licensing access 

to the mailbox and providing additional government services, such as licenses for hunting 

and fishing. The USPS could also capture additional value from its existing retail offices by 

converting post offices into contract post offices or by co-locating with or renting space to

complementary retail establishments. However, given the USPS’s narrow expertise and 

capital limitations, USPS should not pursue expanding into new sectors, such as postal 

banking, where the USPS does not have a demonstrated competency or comparative 

advantage, or where balance sheet risk would be added.

 

5 United States Postal Service, Form 10-K for the Fiscal Year Ended September 30, 2018, available at: 

http://about.usps.com/who-we-are/financials/10k-reports/fy2018.pdf.
United States Postal Service: A Sustainable Path Forward

7

Introduction

A. History of the United States Postal Service 

Over the last two hundred years, the United States Postal Service (USPS) has provided 

“postal services to bind the Nation together through the... correspondence of the people.”6 

The nature of postal services in the United States has varied over time, but has trended 

towards higher levels of service.

Early Days

Prior to 1863, there was limited delivery of mail. Americans generally had to pick up mail at 

their local post offices. Long lines resulting from Civil War correspondence triggered the 

start of free mail delivery in cities and resulted in the first uniform nationwide rate for FirstClass Mail.7 In 1902, after years of pressure from farmers and other rural Americans, rural 

delivery became a permanent service of the Post Office Department.8 The extension of mail 

delivery to rural Americans prompted calls for the Post Office to deliver packages as well. 

The 1913 appropriations act for the Post Office Department created “fourth-class mail 

matter” that included packages “not exceeding eleven pounds in weight, nor greater than 

seventy-two inches in length and girth combined...”9 Within the first six months of offering 

this service, 300 million parcels were delivered.10 Parcel Post, as it was called, spurred 

dramatic growth of the mail order business, with Sears, Roebuck and Company experiencing 

a five-fold increase in orders in just one year.11 

1970 Postal Reorganization Act

By the 1960s, the business model for the Post Office Department began to break down. 

Congress set postal rates and annually appropriated funds for the Department, with 20 

 

6 39 U.S.C. § 101(a). 7 United States Congress. Thirty-Seventh Congress. Session III. Chap. 71 - An Act to amend the Laws relating 

to the Post-Office Department (March 3, 1863), Sec. 19, available at: https://www.loc.gov/law/help/statutes-atlarge/37th-congress/c37.pdf. 8 United States Postal Service, Publication 100: An American History 1775-2006, (November 2012), available at: 

https://about.usps.com/publications/pub100/pub100_024.htm. 9 United States Congress. Sixty-Second Congress. Session II. Chap. 389 - An Act making appropriations for the 

service of the Post Office Department for the fiscal year ending June thirtieth, nineteen hundred and thirteen, and for other 

purposes (August 24, 1912), Sec. 8, available at: https://www.loc.gov/law/help/statutes-at-large/62ndcongress/session-2/c62s2ch389.pdf. 10 United States Postal Service, Publication 100: An American History 1775-2006, (November 2012), available at: 

https://about.usps.com/publications/pub100/pub100_024.htm. 11 Ibid. 
United States Postal Service: A Sustainable Path Forward

8

percent of the Department’s operating budget coming from a direct taxpayer subsidy.12 

Postal facilities were woefully out of date, and the low pay for postal employees, mandated 

by Congress, meant that many postal employees in urban areas were paid at or near the 

poverty level.13,14 Labor relations and modernization failures proved intractable, as there was 

little political will in Congress to provide additional funds for either pay increases or capital 

expenditures.

Two examples showcase the magnitude of the problems. In October 1966, the world’s 

largest postal facility, the Chicago Post Office, was overwhelmed by 10 million pieces of mail 

and was forced to shut down for three weeks so that it could clear its mail backlog.15 In 

1970, labor discontent over compensation ultimately led to a “wildcat” strike that involved 

200,000 postal workers, and only ended after postal management and the Nixon 

Administration made commitments to provide retroactive raises and legislative reform.16 

In 1967, President Johnson formed a Commission on Postal Organization, the “Kappel 

Commission,” to examine the Department. The Commission’s findings served as the basis 

for the 1970 Postal Reorganization Act (PRA).17 This law (1) created the new USPS as an 

independent establishment of the executive branch of the government; (2) established a 

Board of Governors, who would select the Postmaster General; (3) directed USPS to 

become a self-funded entity, without a taxpayer subsidy; (4) retained postal employees as 

members of the civil service, but permitted postal unions to bargain over wages and benefits; 

and (5) established a new Postal Rate Commission to review and make recommendations on 

postal rates.18

2006 Postal Accountability and Enhancement Act 

Thirty years after the PRA, the USPS had again come to a crossroads. As summarized by 

President Bush’s 2003 Commission on the United States Postal Service:

 

12 Report of the President's Commission on Postal Organization entitled "toward postal excellence," (1968) 

[prepared for] Committee on Post Office and Civil Service, House of Representatives, Ninety-fourth 

Congress, second session, November 24, 1976, p. 1–6, available at: 

http://ufdc.ufl.edu/AA00024775/00001/9j. 13 Cordtz, D., “It’s Now or Never for the Post Office,” Fortune, (March 1967), p. 134-136.

14 Chaifetz, Richard I., The Postal Reorganization Act: Applying the Law to the Letter, 12 B.C.L. Rev. 1151 (1971), 

available at: https://lawdigitalcommons.bc.edu/bclr/vol12/iss6/5. 15 Boyd, D., & Chen K., “The History and Experience of African Americans in America’s Postal Service, 

Chicago: A Postal Shutdown,” Smithsonian National Postal Museum, available at: 

https://postalmuseum.si.edu/AfricanAmericanhistory/p10.html. 16 Ibid. 17 P.L. 91-375, available at: https://www.gpo.gov/fdsys/pkg/STATUTE-84/pdf/STATUTE-84-Pg719.pdf. 18 Ibid.
United States Postal Service: A Sustainable Path Forward

9

The traditional mail stream will likely continue to migrate to cheaper Internetbased alternatives. Largely as a result, the Postal Service will increasingly find 

it difficult to meet its “break-even” mandate... [E]ven if postage rates continue 

to adjust for inflation, the Postal Service, over the next 15 years is likely to run 

substantial deficits. Equally discouraging, these obligations would pile on top of 

the Postal Service’s $92 billion in current debt and other unfunded obligations. 

Without significant modernization, the Postal Service will have three choices: 

dramatically roll back service, seek a rate increase of unprecedented scale, or fall 

even further into debt, potentially requiring a significant taxpayer bailout.19 

In response to these challenges, Congress enacted the 2006 Postal Accountability and 

Enhancement Act (PAEA). PAEA made four major changes to the USPS: (1) products 

were divided into monopoly (mainly mail products) or competitive (generally packages and 

express mail) products; (2) monopoly product rate increases were capped at the growth of 

the consumer price index for urban consumers (CPI-U); (3) the USPS was given latitude to 

set rates on competitive products, as long as competitive product revenue met certain 

minimum cost coverage thresholds; and (4) the USPS was required to begin prefunding 

accrued retiree health benefit liabilities.20 

A goal of PAEA was to push the USPS to find opportunities to improve its finances through 

increased efficiency, rather than through rate increases, thereby mitigating future negative 

impacts from mail volume declines.21 These changes were intended to put the USPS on a 

more stable long-term footing, given the expectation of declines in mail volumes.

B. Role of the USPS in the Economy 

The role of the USPS in the economy is set forth by Congress in federal statute:

The Postal Service shall have as its basic function the obligation to provide 

postal services to bind the Nation together through the personal, educational, 

literary, and business correspondence of the people. It shall provide prompt, 

 

19 President’s Commission on the United States Postal Service, Embracing the Future: Making the Tough Choices 

to Preserve Universal Mail Service, (July 31, 2003), available at: http://govinfo.library.unt.edu/usps/offices/domesticfinance/usps/pdf/freport.pdf. 20 United States Postal Service, Publication 100: An American History 1775-2006, (November 2012), available at: 

https://about.usps.com/publications/pub100/pub100_024.htm. 21 United States Congress. Committee on Government Reform. 109th Congress. 1st Session. Report to 

accompany H.R. 22., Rept No. 109-66, Committee Statement and Views, available at: 

https://www.congress.gov/congressional-report/109th-congress/house-report/66.
United States Postal Service: A Sustainable Path Forward

10

reliable, and efficient services to patrons in all areas and shall render postal 

services to all communities.22 

To fulfill this mission, the USPS provides postal services to commercial, non-profit, and 

residential users across all regions of the United States. The USPS has been granted two 

statutory monopolies. The first is to carry, collect, deliver, and receive letters over regular 

postal routes (the letter delivery monopoly). The second is for the delivery of mail and 

packages into mailboxes, effectively granting the USPS exclusive access to mailboxes (the 

mailbox monopoly).23 These monopolies give the USPS exclusive rights to most letter 

deliveries and provide it with an advantage in the small package delivery market.

Given these monopolies, the USPS is a significant participant in the broader mailing industry 

that includes manufacturers, mail preparers, shippers, and other delivery companies. 

Moreover, the USPS is one of the largest employers in the United States with 634,000 career 

and contract workers.24 If it were a private sector company, the USPS would rank 40th in 

the 2018 Fortune 500 and 123rd in the 2017 Global Fortune 500.25 

The USPS as a Service Provider

In FY 2018, USPS delivered 146 billion pieces of mail to 159 million delivery points, 

including to rural and remote locations.26 Private carriers charge many of these locations a 

delivery surcharge, limit the services offered to these locations, and in a few cases, offer no 

service at all. No other domestic delivery service comes close to the comprehensive network 

and frequency of delivery offered by the USPS. 

Households are by far the biggest user of the USPS – approximately 83 percent of USPS 

volume (mail and packages) is sent either to or from households.27 The most common type 

of household mail (62 percent) is advertising mail, which includes promotional and sales 

material.28 The bulk of advertising mail is sent by merchants and financial firms, which 

consider mail a better medium to track response rates than other types of media. However, 

the rise of Internet advertising has left mail with a shrinking share of total U.S. advertising 

 

22 See 39 U.S.C. § 101(a). 23 See 18 U.S.C. § 1725. 24 United States Postal Service, Form 10-K for the Fiscal Year Ended September 30, 2018, available at: 

http://about.usps.com/who-we-are/financials/10k-reports/fy2018.pdf. 25 Ibid.

26 Ibid. 27 United States Postal Service. The Household Diary Study: Mail Use and Attitudes in FY 2017, (March 2018), 

available at: https://www.prc.gov/docs/105/105134/USPS_HDS_FY17_Final%20Annual%20Report.pdf. 28 Ibid.
United States Postal Service: A Sustainable Path Forward

11

spending. Mail fell from 12 percent of advertising spending during the 1990s and 2000s to 9 

percent in 2017.29

The second most common type of household mail (31 percent) is correspondence and 

transactional mail.30 Correspondence mail includes letters, greeting cards, invitations, and 

announcements. Transactional mail includes bills, statements, payments, donations, rebates, 

and orders. The largest senders of correspondence and transactional mail are financial and 

insurance firms, utility companies, healthcare providers, and government agencies, such as 

the Social Security Administration and the Internal Revenue Service. The rise of email, 

online payments, and e-statements has caused a precipitous decline in correspondence and 

transactional mail. First-Class Mail, which facilitates most of these transactions, experienced 

a volume decline of 42 percent between 2007 and 2018.31

Periodicals (newspapers and magazines) represent 3.9 percent of the household mail 

volume.32 Most periodicals are sent by commercial institutions, but educational, 

philanthropic, and religious and other nonprofit organizations also use this medium and 

receive discounted mailing rates that are not offered by private carriers. Periodicals have 

declined almost every year since 1990, driven by a declining readership and an increasing 

number of publications that have ceased operations. 

While mail use has declined, demand for package delivery has increased sharply due to the 

rise of e-commerce. USPS package volume grew significantly between 2008 and 2018. Most 

USPS package deliveries are household orders of clothing, pharmaceuticals, household 

products, and books.33 The USPS increasingly competes with other package carriers in highvolume urban markets. However, it remains an important service provider in the package 

delivery market due both to its accessibility to all addresses across the United States and the 

capacity constraints of private carriers, especially during peak times, such as around the 

holidays. 

The USPS as a “Value Chain” Participant

The mail industry value chain consists of: origination, receipt, transportation, processing and 

delivery (see Figure 1). 

 

29 Ibid.

30 Ibid.

31 United States Postal Service, Revenue, Pieces and Weight (RPW) reports 2007-2018, available at: 

http://about.usps.com/who-we-are/financials/. 32 United States Postal Service. The Household Diary Study: Mail Use and Attitudes in FY 2017, (March 2018), 

available at: https://www.prc.gov/docs/105/105134/USPS_HDS_FY17_Final%20Annual%20Report.pdf. 33 Ibid. 
United States Postal Service: A Sustainable Path Forward

12

Figure 1: Mail "Value Chain"

Origination includes the design and printing of mail, processes in which the USPS is not 

directly involved. Receipt (also known as collection, pick-up, or “first mile”) refers to the 

collection of mail and involves multiple points of entry, including post offices, USPS owned 

processing centers, drop boxes, and household mailboxes. 

Transportation refers to the shipment of mail between collection points, processing facilities, 

and delivery facilities via truck, air, and rail. While the USPS operates its own intra-city 

transportation, it also leverages third-party long-haul service providers. The USPS contracts 

directly for air and inter-city truck transportation for both mail and packages. In FY 2018, 

USPS spent over $7.9 billion (11 percent of operating expenses) on purchased transport, the 

second largest expense after personnel costs.

34

Processing (or sortation) of mail involves the automated and manual sorting of mail into 

geographic units (region, state, 3-5-digit zip code, and carrier route). Depending on the 

specific mail product, volume levels, and mailer sophistication, either the USPS or thirdparty mail service providers (MSPs) will process the mail in their respective networks for 

transport to a postal facility for final delivery. 

Finally, delivery of mail (also known as “last mile”) involves the shipment of mail from a 

USPS delivery unit (such as a post office) to its destination.

The participants in the value chain differ somewhat between mail and packages. In the mail 

value chain, the USPS works closely with MSPs and contracts with transportation providers 

to provide key services and processes. MSPs provide origination, processing, and 

transportation services, bringing bulk mail close to the final delivery stage where it is 

transferred to the USPS at discounted postage rates for delivery.35 In FY 2014, the USPS 

reported over $29 billion in revenue from MSPs.

36 

 

34 United States Postal Service, Form 10-K for the Fiscal Year Ended September 30, 2018, available at: 

http://about.usps.com/who-we-are/financials/10k-reports/fy2018.pdf . 35 Ibid.

36 United States Postal Service, Office of Inspector General, Report Number MS-WP-15-003, Mail Service 

Providers, (August 31, 2015), available at: https://www.uspsoig.gov/sites/default/files/document-libraryfiles/2015/ms-wp-15-003.pdf.

Origination Receipt Transport Processing Delivery
United States Postal Service: A Sustainable Path Forward

13

In the package market, the USPS competes with private industry in package pickup, 

processing, transportation, and delivery. In the United States, the package market is 

dominated by three major carriers: United Parcel Service (USP), Federal Express (FedEx), 

and the USPS, but also includes regional carriers and other smaller service providers. For 

competitive end-to-end package delivery in FY 2016, UPS had a 40 percent market share, 

FedEx had a 30 percent market share, and the USPS had a 17 percent market share by 

revenue.

37,38,39 Despite its smaller overall market share, the USPS plays an especially 

important role in the delivery of lightweight packages to households. It also handles much 

of the “last mile” delivery for other carriers, as it visits every address at least six days per 

week. 

The USPS operates the nation’s largest retail network and has one of the largest vehicle 

fleets in the country.40,41,42 As part of the mail and package value chain, the USPS is linked 

to economic activity beyond its delivery functions. The value chain can include 

manufacturers of mail and package processing equipment, delivery vehicles, and mailboxes. 

The unique role of the USPS within the value chain is to provide regular delivery to every 

household in the United States.

The USPS as an Employer

The USPS is one of the largest employers in the United States. In FY 2018, it paid $56.9

billion in wages and benefits and employed 497,000 career employees and 137,000 noncareer employees.43 The overwhelming majority of these are field employees – meaning the 

USPS has an employment footprint in nearly every community in the country. 

The typical postal service worker earns a higher wage than the average U.S. worker. 

However, postal workers note that their salaries must be compared to those of their major 

competitors, UPS and FedEx, rather than the typical U.S. worker. This calculation is 

difficult given the need to adjust for similar experience, duties, and location as well as the 

lack of detailed data on wages and benefits within these companies. Based on Treasury staff 

 

37 United States Postal Service, Public Cost and Revenue Analysis FY 2016, available at: 

https://about.usps.com/who-we-are/financials/cost-revenue-analysis-reports/fy2016.pdf. 38 Federal Express, FedEx Annual Report 2016, available at: 

http://s1.q4cdn.com/714383399/files/doc_financials/annual/FedEx_2016_Annual_Report.pdf. 39 United Parcel Service, 2016 UPS Annual Report, available at: 

http://nasdaqomx.mobular.net/nasdaqomx/7/3521/5025/document_0/UPS_2016_Annual_Report-processed.pdf

40 National Retailer Federation, Top 100 Retailers Chart 2015, available at: https://nrf.com/2015/top100-table. 41 Automotive Fleet, Top 300 Commercial Fleets, available at: http://digital.automotivefleet.com/FL5002017#&pageSet=8&contentItem=0. 42 United States Postal Service, United States Postal Service FY2017 Annual Report to Congress, available at:

https://about.usps.com/who-we-are/financials/annual-reports/fy2017.pdf. 43 United States Postal Service, Form 10-K for the Fiscal Year Ended September 30, 2018, available at: 

http://about.usps.com/who-we-are/financials/10k-reports/fy2018.pdf .
United States Postal Service: A Sustainable Path Forward

14

analysis of 10-K filings, in 2017, total per-employee cost at the USPS was $85,800, compared 

to $76,200 and $53,900 at UPS and FedEx, respectively.

44,45,46

USPS’s Impact on Local Economies

On a local level, studies conclude that post offices have an important role in local economic 

development. Table 1 presents the number of active USPS employees across the fifty states 

and District of Columbia, as of September 2018.47 In the third quarter of 2018, the USPS 

employed around 630,000 employees. The states with the highest USPS employment are

California, New York, and Texas. 

Table 1: Number of Active USPS Employees as of September 28, 2018

State

Number of 

Active 

Employees

State

Number of 

Active 

Employees

Alaska 1,478 North Carolina 19,949

Alabama 9,032 North Dakota 1,838

Arkansas 5,495 Nebraska 4,644

Arizona 9,790 New Hampshire 3,348

California 64,560 New Jersey 21,444

Colorado 10,697 New Mexico 3,088

Connecticut 8,526 Nevada 4,509

Delaware 2,102 New York 44,662

Florida 35,931 Ohio 23,905

Georgia 18,064 Oklahoma 6,988

Hawaii 2,367 Oregon 6,983

Iowa 7,659 Pennsylvania 28,869

Idaho 2,622 Rhode Island 2,583

Illinois 29,383 South Carolina 8,463

Indiana 12,321 South Dakota 2,019

Kansas 6,554 Tennessee 12,689

Kentucky 7,877 Texas 43,281

Louisiana 8,368 Utah 5,477

Maine 3,356 Virginia 16,633

 

44 United States Postal Service, Form 10-K 2017. Retrieved from http://about.usps.com/who-we-are/financials/. 45 Federal Express, Form 10-K 2017, available at: http://investors.fedex.com/financial-information/secfilings/default.aspx. 46 United Parcel Service, Form 10-K 2017, available at: http://www.investors.ups.com/financials/secfilings?field_nir_sec_form_group_target_id%5B%5D=471&field_nir_sec_date_filed_value=&items_per_page=50#vie

ws-exposed-form-widget-sec-filings-table. 47 Postal Regulatory Commission, Postal Service Active Employee Statistical Summary (September 28, 2018), 

available at: https://www.prc.gov/docs/106/106755/HAT271P1-Sept%20282018%20OCR.pdf.
United States Postal Service: A Sustainable Path Forward

15

State

Number of 

Active 

Employees

State

Number of 

Active 

Employees

Maryland 13,233 Vermont 1,634

Massachusetts 16,216 Washington 12,100

Michigan 21,565 Wisconsin 11,600

Minnesota 12,403 West Virginia 3,702

Missouri 15,183 Wyoming 1,040

Mississippi 4,935 District of Columbia 5,507

Montana 2,082 TOTAL 628,754

Source: Postal Service Active Employee Statistical Summary - September 28, 2018

An exhaustive study of the USPS’s indirect effects on the economy would require an analysis 

that is beyond the scope of this report. However, qualitative and quantitative evidence 

indicate that the USPS’s economic impact is substantial in both its direct activities and in the 

broader economic activity that it enables.

USPS’s Role in Rural Communities

As of September 30, 2017, the USPS operated about 31,000 post offices, stations, and 

branches nationwide. In addition, the USPS provides services through 4,000 contract postal 

units, including 476 community post offices, and 821 village post offices as well as a network 

of commercial outlets.48 Village post offices and community post offices have the expressed 

purpose of making postal services more accessible to rural communities. Community post 

offices are contract units that provide postal services to small communities.49 Village post 

offices are located within existing communities in more rural areas in different locations such 

as convenience stores, libraries, and local businesses, and are operated by the management of 

those locations.50

Despite the closing of many post offices in the last decade that have disproportionately 

affected rural areas, the USPS continues to play a vital role in connecting urban and rural 

communities in the United States.51 In 2017, the USPS delivered mail across 229,000 routes, 

of which around 75,000 (33 percent) were rural routes. Among its 157 million total delivery 

 

48 United States Postal Service, United States Postal Service FY2017 Annual Report to Congress, available at: 

https://about.usps.com/who-we-are/financials/annual-reports/fy2017.pdf. 49 United States Postal Service, Publication 100: An American History 1775-2006, (November 2012), available at: 

https://about.usps.com/publications/pub100/pub100_024.htm. 50 United States Postal Service, Open a Village Post Office, (December 2012), available at: 

http://about.usps.com/news/electronic-press-kits/expandedaccess/assets/pdf/Fact-sheet-12-12-12.pdf. 51 Hutkins, Steve, “Post Office discontinuances and suspensions: A decade in review,” (February 26, 2018), 

available at: https://savethepostoffice.com/post-office-discontinuances-and-suspensions-a-decade-in-review/.
United States Postal Service: A Sustainable Path Forward

16

points in 2017, 43 million (27 percent) residential delivery points were services on rural 

carrier routes in addition to 1.6 million (1 percent) rural route business delivery points.

52

C. Current State of the USPS

The USPS’s financial condition continues to deteriorate, and it is forecast to lose tens of 

billions of dollars over the next decade. The USPS’s current business model – including its 

governance, product pricing, cost allocation, and labor practices – was sustainable in an era 

where mail volumes and revenues grew alongside population and economic growth. 

However, the shift toward digital correspondence and the corresponding effect of declining 

mail volumes has led to significant net losses. In FY 2018, the USPS reported a net loss of 

$3.9 billion, its 12th consecutive year of net losses (see Figure 2).53 

Figure 2. USPS Net Losses ($ Billions)

Source: USPS 10-K Filings, 2007-2018

 

52 United States Postal Service, United States Postal Service FY2017 Annual Report to Congress, available at:

https://about.usps.com/who-we-are/financials/annual-reports/fy2017.pdf. 53 United States Postal Service, Form 10-K Reports 2007-2018, available at: http://about.usps.com/who-weare/financials/.

-80

-70

-60

-50

-40

-30

-20

-10

0

-18

-16

-14

-12

-10

-8

-6

-4

-2

0

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Cumulative Net Loss in Billions

Annual Loss in Billions

Annual Net Loss Cumulative Net Loss
United States Postal Service: A Sustainable Path Forward

17

In 2009, the GAO added the USPS to its list of high-risk entities.54 Without appropriate 

structural reform, the USPS’s growing financial burden and its unsustainable business model 

pose an existential threat to its operations. 

Governance and Oversight

The USPS management is led by the Board of Governors. It consists of 11 members: nine 

Governors with staggered terms of seven years, appointed by the President with the advice 

and consent of the Senate; the Postmaster General, who is appointed by the Governors; and 

the Deputy Postmaster General, who is appointed by the Governors and the Postmaster 

General.55 

Board of Governors

The Board “direct[s] and control[s] the expenditures and review[s] the practices and policies 

of the Postal Service.”56 While most matters are under the control of the full 11-member 

Board, certain functions, including raising rates and appointing an Inspector General, are 

reserved for decision by the nine Governors. Between December 2016 and August 2018, 

the USPS Board had no Governors. Although several nominees for Governor have been 

put forward in this and the previous Administration, only two Governors have been 

confirmed by the Senate since 2010. 

Office of Inspector General

The USPS Office of Inspector General (OIG) is an independent law enforcement and 

oversight agency for the USPS.

57 The responsibilities of the USPS OIG include conducting 

audits and investigations; promoting economy, efficiency, and effectiveness in the conduct 

of postal programs and operations; preventing and detecting fraud and abuse; and keeping 

the Governors and Congress informed about problems, deficiencies, and corrective 

actions.58 The Inspector General is appointed to a seven-year term. Since the retirement of 

the previous Inspector General in 2015, the position has been held by an Acting Inspector 

General.

Postal Regulatory Commission

The Postal Regulatory Commission (PRC) is an independent establishment of the executive 

branch.

59 It is composed of five Commissioners who are appointed by the President with 

the advice and consent of the Senate.60 The Commission:

 

54 United States Government Accountability Office, U.S. Postal Service: Key Considerations for Restoring Fiscal 

Sustainability, GAO-17-404T, (February 7, 2017), available at https://www.gao.gov/assets/690/682534.pdf. 55 39 U.S.C. § 202.

56 39 U.S.C. § 205.

57 39 CFR § 221.3.

58 Ibid.

59 39 U.S.C. § 501.

60 39 U.S.C. § 502.
United States Postal Service: A Sustainable Path Forward

18

• Develops and maintains regulations for a modern system of rate regulation, including 

the proper allocation of costs to products and services;

• Consults with the USPS on delivery service standards and performance measures;

• Consults with the Department of State on international postal policies;

• Adjudicates rate and service complaints;

• Offers advisory opinions on proposed nationwide changes in postal services;

• Provides an annual report to the President and Congress;

• Issues an annual compliance determination to assess whether the USPS’s rates, fees, 

and services comport with the requirements of applicable law; and

• Acts on postal patrons’ appeals concerning USPS decisions to close or consolidate 

post offices.

61

 

61 39 C.F.R. § 3002.2(a).
United States Postal Service: A Sustainable Path Forward

19

Table 2: USPS Revenue, Expenditures, and Volume Trends

USPS Domestic Mail and Package Revenue and Volume Trends (in Billions)

2010 2011 2012 2013 2014 2015 2016 2017 2018

Mail

Revenue ($) 50.6 49.0 47.0 46.7 47.4 47.5 46.6 43.6 42.7

Mail

Volume (pieces) 166.9 164.1 155.4 153.7 150.5 148.7 148.2 142.7 139.9

Package 

Revenue ($) 10.3 10.7 11.6 12.6 13.8 15.1 17.5 19.5 21.5

Package

Volume (pieces) 3.1 3.3 3.5 3.7 4.0 4.5 5.2 5.7 6.2

USPS Revenue and Expenditures (Dollars in Billions)

2010 2011 2012 2013 2014 2015 2016 2017 2018

Total Revenue 67.1 65.7 65.2 67.3 67.9 69.0 71.5 69.7 70.7

Expenses 

Excluding RHB 70.1 70.8 70.1 66.7 67.7 68.3 71.3 68.2 70.0

Operating 

Income

(prior to RHB)

(3.0) (5.1) (4.8) 0.6 0.2 0.6 0.2 1.5 0.7

RHB (10-Year 

Prefunding) 5.5 0.0* 11.1* 5.6 5.7 5.7 5.8 - -

RHB (40-Year 

Amortized 

Prefunding)

- - - - - - - 1.0 0.8

Annual Accrual 

of RHB - - - - - - - 3.3 3.7

Net Income

(Including RHB) (8.5) (5.1) (15.9) (5.0) (5.5) (5.1) (5.6) (2.8) (3.9)

* The USPS failed to prefund its retiree health benefit (RHB) payments after 2010. Congress shifted the USPS’s 2011 prefunding payment 

to 2012, resulting in an $11.1 billion liability in 2012. 

Source: USPS 10-K Filings, 2007-2018
United States Postal Service: A Sustainable Path Forward

20

USPS Revenue

The USPS has witnessed an overall decline in mail revenue. This is due to a decrease in mail 

volumes driven by the rise of digital alternatives and an inability to raise prices sufficiently to 

make up for the revenue lost due to volume declines (see Table 2).62 Moreover, package 

deliveries, while growing in volume, are unable to make up for most of the lost revenue from 

the decline in mail volumes.

Mail Volume

The overall mail market in the United States consists of not only the USPS, but also private 

companies that prepare and transport mail products in partnership with the USPS. The 

USPS contributes to this market through the receipt, transport, processing, and delivery of

First-Class Mail, Marketing Mail (formerly called Standard Mail), Periodical Mail, Media Mail, 

Library Mail (i.e., books), and Bound Printed Matter (e.g., large catalogs). 

Historically, the USPS’s mail monopolies have provided the USPS with pricing power and 

protected access to the mailbox that, in an environment characterized by rising mail 

volumes, afforded the USPS a sustainable business model. However, with the rapid 

expansion of alternative communication technologies and the shift toward electronic 

transactions, the USPS’s monopoly powers have diminished and its mail volumes have 

declined. 

In 2018, the USPS delivered around 140 billion pieces of mail and 6 billion packages to 159

million delivery points. Although the number of delivery points increased 7.4 percent 

between 2007 and 2018, total mail volumes declined 33 percent (see Figure 3). Households 

received 18 pieces of mail per week in FY 2017, compared to 25 in FY 2008.63,64 

 

62 The implementation of the Market Dominant Mail Exigent Surcharge beginning in FY 2014 and ending 

mid-way through FY 2016 added approximately $4.6 billion in additional revenue over that time period. 

These additional revenues slightly offset the lost revenue from volume losses for FY 2014 and FY 2015.

63 United States Postal Service, The Household Diary Study: Mail Use and Attitudes in FY 2017, (March 2018), 

available at: https://www.prc.gov/docs/105/105134/USPS_HDS_FY17_Final%20Annual%20Report.pdf. 64 United States Postal Service, The Household Diary Study: Mail Use and Attitudes in FY 2008, (March 2009), 

available at: http://about.usps.com/studying-americans-mail-use/household-diary/usps-hds-fy08.pdf.
United States Postal Service: A Sustainable Path Forward

21

Figure 3. USPS Mail Volume and Delivery Points

Source: USPS Revenue, Pieces and Weight Reports from 2007-2017

Mail volume and revenue have been in decline since 2007 primarily due to: 1) the shift of 

communication and bill payments to electronic alternatives as a result of technological 

changes; 2) the transition of commercial communications and advertising to online services; 

and 3) the decline in print publications and magazines.65,66,67 The 2007–2009 financial crisis 

and recession contributed significantly to volume declines of both First-Class and Marketing 

Mail.68 With continued and increased reliance on internet-based communications since that 

time, the prevailing trend of declining First-Class Mail is likely to be permanent. 

 

65 United States Postal Service, Office of Inspector General, A New Reality: Correspondence Mail in the Digital 

Age, RARC-WP-18-004, (March 5, 2018), available at: https://www.uspsoig.gov/sites/default/files/documentlibrary-files/2018/RARC-WP-18-004.pdf. 66 United States Postal Service, Office of Inspector General, Transactional Mail: Implications for the Postal Service, 

RARC-WP-18-007, (April 16, 2018), available at: https://www.uspsoig.gov/sites/default/files/document-libraryfiles/2018/RARC-WP-18-007.pdf. 67 United States Government Accountability Office, U.S. Postal Service: Strategies and Options to Facilitate Progress 

toward Financial Viability, GAO-10-455, (April 12, 2010), available at: https://www.gao.gov/products/GAO-10-

455. 68 Ibid.

142

144

146

148

150

152

154

156

158

160

0

50

100

150

200

250

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Delivery Points in Millions

Mail Volumes in Billions

First-Class Marketing Mail All Other Mail Delivery Points
United States Postal Service: A Sustainable Path Forward

22

When categorized based on its primary purpose, Marketing Mail has increased modestly as a 

percentage of total mail from 61 percent to 62 percent over the past 10 years, while 

Transaction Mail as a percentage of total mail fell from 25 percent to 19 percent over the 

same period.69,70 Periodicals have been in long-term decline, peaking in 1990 at 10.7 billion 

pieces – as compared to 5.3 billion in 2017.71,72 

Package Volume

While the package market is a large and growing segment of the transportation and logistics 

sector, the USPS’s revenue growth from less profitable packages has been insufficient to 

fully replace revenue lost due to the decline in mail. Revenue from packages grew from $7.9

billion in FY 2007 to $21.5 billion in FY 2018.73 The total annual volume of domestic

package deliveries grew from 1.6 billion to 6.2 billion over that same time-period (see Figure 

4). In 2018, package products accounted for 30 percent of total USPS revenue, up from 11 

percent in 2007.74 

 

69 United States Postal Service, The Household Diary Study: Mail Use and Attitudes in FY 2008, (March 2009), 

available at: http://about.usps.com/studying-americans-mail-use/household-diary/usps-hds-fy08.pdf. 70 United States Postal Service, The Household Diary Study: Mail Use and Attitudes in FY 2017 (March 2018), 

available at https://www.prc.gov/docs/105/105134/USPS_HDS_FY17_Final%20Annual%20Report.pdf. 71 United States Postal Service, The Household Diary Study: Mail Use and Attitudes in FY 2010, (April 2011), 

available at: https://about.usps.com/studying-americans-mail-use/household-diary/2010/fullreport-pdf/usps-hdsfy10.pdf. 72 United States Postal Service, Revenue, Pieces and Weight (RPW) FY 2017, available at: 

http://about.usps.com/who-we-are/financials/revenue-pieces-weight-reports/fy2017.pdf. 73 United States Postal Service, Form 10-K Reports 2007-2018, available at: http://about.usps.com/who-weare/financials/. 74 Ibid.
United States Postal Service: A Sustainable Path Forward

23

Figure 4: Package Volume and Revenue (Billions)

Source: USPS 10-K Filings, 2007-2018

The USPS’s package services include: Priority Mail, Priority Mail Express, Retail Ground, 

Parcel Select, Parcel Return, and First-Class Package Service (retail and commercial). Parcel 

Select, the USPS’s “last mile” package delivery service, constitutes the largest segment (55 

percent) of the USPS’s package business, with 2.8 billion pieces delivered in FY 2017.75 

Parcel Select volumes have grown in parallel with e-commerce, registering a compound 

annual growth rate of 34 percent since FY 2010.76 The USPS’s other major package services 

include Priority Mail, a 1-3 business day delivery services, and First-Class Package Service, 

consisting of commercial parcels under one pound and retail parcels under 13 ounces. In 

FY 2017, USPS delivered 1.1 billion Priority Mail and 1.2 billion First-Class Package Service

packages – less than 10 percent of total U.S. domestic package volume.77 

Growing Expenses

The USPS’s financial condition is the result of a combination of declining mail revenues and 

rising expenses (see Table 2 above). While the USPS has taken measures to control costs, 

 

75 United States Postal Service, Revenue, Pieces and Weight (RPW) FY 2017, available at: 

http://about.usps.com/who-we-are/financials/revenue-pieces-weight-reports/fy2017.pdf. 76 United States Postal Service, Revenue, Pieces and Weight (RPW) Reports 2010-2017, available at: 

http://about.usps.com/who-we-are/financials/revenue-pieces-weight-reports/fy2010.pdf. 77 United States Postal Service, Revenue, Pieces and Weight (RPW) FY 2017, available at, 

http://about.usps.com/who-we-are/financials/revenue-pieces-weight-reports/fy2017.pdf.

0

5

10

15

20

25

0

1

2

3

4

5

6

7

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Revenue in $ Billions

Volumes in Billions

Package Volume Package Revenue
United States Postal Service: A Sustainable Path Forward

24

including reducing employment and workhours, reducing post office operating hours, 

consolidating mail facilities, and improving resource utilization, these measures have been 

insufficient to counter revenue losses from declining mail volumes and other rising costs. 

The USPS’s expenses are expected to continue to grow, as new delivery points are added and 

as package delivery expands.

Labor Costs

Employee compensation and benefits accounts for around 76 percent of the USPS’s total 

expenses.78 These costs represent a much higher share of the USPS’s overall costs when 

compared against other private courier companies.79,80 Between 2014 and 2017, the USPS’s 

total workforce increased by 26,247 employees (14,803 career and 11,444 non-career) – in 

sharp contrast to the decrease of over 53,973 employees between 2010 and 2013.81 The 

increase was due in large part to the increase in work hours associated with the increases in 

package deliveries. This resulted in an increase of $3.1 billion in personnel costs (not 

counting required Postal Service Retiree Health Benefits Fund contributions). Contractual 

wage and Cost of Living Allowance (COLA) raises also contributed to the increase. In 

addition to and independent of COLA, postal workers receive a 1 to 1.5 percent increase in 

wages each year, increasing hourly wages at a faster rate than other federal government 

employees and at a faster rate than the pricing rate caps on many of their products. Given 

the expected growth in package delivery services, personnel costs are expected to continue 

to increase in future years, offsetting the increase in the corresponding revenue.

Infrastructure Expenses

The USPS projects that it will need to increase average annual capital spending to $2.4 billion 

for FY 2018 - FY 2028, roughly 70 percent more than the $1.4 billion average spent during 

FY 2007 - FY 2017.82 The increased spending is needed to make critical infrastructure 

investments that have been deferred in recent years due to financial shortfalls. These include 

the acquisition of a new fleet of delivery vehicles to replace its aging existing fleet and 

purchases of new mail-processing equipment to increase efficiency. As the USPS started 

acquiring most of its existing delivery fleet in 1987, the majority of its delivery vehicles are 

several decades old. Further, according to a Government Accountability Office (GAO)

 

78 United States Postal Service, Form 10-K for the Fiscal Year Ended September 30, 2018, available at: 

http://about.usps.com/who-we-are/financials/10k-reports/fy2018.pdf. 79 Federal Express, Annual Reports 2015-2017, available at: http://investors.fedex.com/financial-information/annualreports/default.aspx. 80 United Parcel Service, Annual Reports 2015-2017, available at: http://www.investors.ups.com/financials/annualreports. 81 United States Postal Service, Annual Reports 2007-2017, available at: http://about.usps.com/who-weare/financials/. 82 United States Government Accountability Office, U.S. Postal Service: Projected Capital Spending and Processes for 

Addressing Uncertainties and Risks, GAO-18-515, (June 2018), available at: 

https://www.gao.gov/assets/700/692859.pdf.
United States Postal Service: A Sustainable Path Forward

25

analysis, 80 percent of the USPS’s projected capital spending for FY 2018 is for projects 

needed to sustain its current operations, as opposed to investments that will allow for 

increased revenues or decreased costs.83

Universal Service Obligation

A universal service obligation (USO) is generally viewed as an obligation of a mail service 

provider to give all users in an area access to basic services at affordable rates. Under 

current law, the USPS is obligated to provide an efficient system of delivery nationwide and 

a uniform rate in each letter class.84 Current statutes also prohibit the closure of small post 

offices solely for operating at a deficit.85 The PRC estimated the FY 2016 cost to the USPS 

of providing universal mail services is $4.4 billion. This includes supplying postal services to 

areas of the nation the USPS would not otherwise serve, free or reduced rates for postal 

services as required by law, and other public services or activities the USPS would not 

otherwise provide, but for the requirements of the law.86,87 This cost estimate amounts to 

over 5.5 percent of the USPS’s FY 2016 expenses.88 The GAO has recommended that 

Congress reconsider the level of services provided under the USO, based on updated 

customer needs, as a potential way to reduce the USPS’s operating costs. 

Unfunded Liabilities and Debt

The USPS’s unfunded liabilities, including retiree health benefits, workers’ compensation 

claims, pension benefits, and debt to the Federal Financing Bank, restrict its ability to make 

necessary productive investments. At the end of FY 2018, the USPS’s total unfunded 

liabilities and debt were $139.6 billion. Table 3 shows the composition of these liabilities. 

The USPS did not make required payments in FY 2018 for normal retiree health benefits 

obligations ($3.7 billion) or amortized costs for retiree health benefit unfunded liabilities 

($815 million).89 The USPS did not make required amortized payments for Federal 

Employee Retirement System (FERS) unfunded liabilities ($958 million) or Civil Service 

Retirement System (CSRS) unfunded liabilities ($1.4 billion).90 The USPS delayed making 

these payments to preserve liquidity. Further, with $13.2 billion in debt owed to the Federal 

Financing Bank, the USPS has used most of its statutory borrowing limit of $15 billion.91

 

83 Ibid. 84 39 U.S.C. §§ 403(b) and 404(c).

85 39 U.S.C. § 101(b).

86 See, e.g., 39 U.S.C. §§ 3403 and 3406.

87 Postal Regulatory Commission, Annual Report to the President and Congress, Fiscal Year 2017 (Jan. 26, 2018), 

available at: 

https://www.prc.gov/sites/default/files/reports/PRC%20FY%202017%20Annual%20Report%20Filed.pdf. 88 United States Postal Service, United States Postal Service FY2017 Annual Report to Congress (2017), available at: 

https://about.usps.com/who-we-are/financials/annual-reports/fy2017.pdf. 89 United States Postal Service, Form 10-K for the Fiscal Year Ended September 30, 2018, available at: 

http://about.usps.com/who-we-are/financials/10k-reports/fy2018.pdf. 90 Ibid.

91 Ibid.
United States Postal Service: A Sustainable Path Forward

26

Table 3: Postal Service Long-Term Liabilities, FY 2018 ($ Billions)

Long-Term Liability Amount

Unfunded Pension Liabilities

Civil Service Retirement System (CSRS) $25.1

Federal Employees Retirement System (FERS) $18.4

Total Unfunded Pension Liabilities $43.5

Other Long-Term Liabilities

Retiree Health Benefits (RHB) $66.5

Workers’ Compensation $16.4

Debt to Federal Financing Bank $13.2

Total Long-Term Liabilities $139.6

Source: USPS 10-K Filing 2018

Prefunding of Retiree Health Benefits

Under PAEA, the USPS was required to prefund retiree health benefits through 

contributions to a Postal Service Retiree Health Benefits Fund (PSRHBF). Prefunding was 

required through payments over a 10-year period from 2007 to 2016, with cumulative 

contributions of $51.8 billion (originally, the required amount was $55.8 billion, but this was 

later reduced to $51.8 billion when the 2009 payment was reduced from $5.4 billion to $1.4 

billion after the financial crisis).92 Additionally, the USPS was required to contribute $3.0 

billion representing the required escrow amount from the legislation passed in 2003 and any 

estimated surplus determined by OPM from the Civil Service Retirement Fund attributed to 

USPS (this amounted to $17 billion as of the end of FY 2006). These payments were 

required in addition to the USPS’s required payments for current year costs, which cover the 

annual share of retiree health premiums. 

Through FY 2010, the USPS contributed $20.9 billion to the PSRHBF; however, beginning 

in 2011, the USPS did not make the required payments for FY 2011 through FY 2016 of 

$33.9 billion.93 Although the 10-year period for prefunding ended in FY 2016, the USPS is 

still required to make amortized payments to cover its unfunded retiree health benefit 

liabilities and to pay “normal costs” associated with retiree health benefits for active 

employees. However, the USPS did not make its required amortization payments of $955 

 

92 United States Postal Service, Form 10-K Reports 2007-2017, available at: http://about.usps.com/who-weare/financials/

93 Ibid.
United States Postal Service: A Sustainable Path Forward

27

million and $815 million, and its normal costs payments of $3.3 billion and $3.7 billion for 

FY 2017 and FY 2018 respectively.

94 

Statutory and Regulatory Restrictions

The letter delivery and mail monopolies give the USPS exclusive rights to most letter 

deliveries and provide it with an advantage in the delivery of smaller packages. As a 

government entity, the USPS is exempt from state and local taxes (including property taxes), 

parking tickets, and a range of other local ordinances, including state and local zoning laws

and building code requirements.

95 

However, as a government entity, the USPS faces statutory and regulatory restrictions that 

do not apply to private companies. The USPS’s ability to raise prices on classes of marketdominant mail is generally capped by the rate of change in the consumer price index for all 

urban consumers (CPI-U).

96 Other pricing regulations (such as workshare discount 

provisions) further limit pricing flexibility.97 When the USPS seeks to change service 

standards in its retail or processing networks, it is required to consult with the PRC.98 This 

process can slow or limit the USPS’s flexibility to make service standard changes. An annual 

appropriations provision, which provided approximately $35 million in revenue in 2017 (or 

less than one-sixth of one percent of 2017 revenue), bars the USPS from changing the 

frequency of mail delivery.99 Statutory restrictions that limit the top salary of the USPS’s 

critical senior management also restrict its ability to attract and keep leadership.100

Pricing Limitations

The USPS’s pricing for both mail and package products is subject to review and approval by 

the PRC. This reduced latitude to raise prices on mail products has provided price 

consistency and certainty for mail senders. However, it has limited the ability of the USPS to 

adjust its prices to meet its financial needs. Because of price controls on market-dominant 

products and low inflation rates during the recession, revenue could not be recaptured 

during the recession through price increases. Instead, adjustments could only be made 

 

94 Ibid.

95 Federal Trade Commission, Accounting for Laws that Apply Different to the United States Postal Service and its 

Private Competitors (December 2007), available at: 

https://www.ftc.gov/sites/default/files/documents/reports/accounting-laws-apply-differently-united-states-postal-service-andits-private-competitors-report/080116postal.pdf. 96 39 U.S.C. § 3622(d)(2)(A) restricts the CPI-U rate cap to a class of mail; however, different products within 

the class, such as Single-Piece First-Class, could receive a larger than CPI increase in rate, though other 

products such as presorted products could receive increases less than CPI to compensate.

97 39 U.S.C. § 3622(e).

98 39 U.S.C. § 3691.

99 U.S. Government Publishing Office, Consolidated Appropriations Act, 2017, Pub. L. No. 115-31, 131 Stat. 135, 

369 (May 5, 2017), available at: https://www.congress.gov/115/plaws/publ31/PLAW-115publ31.pdf. 100 39 U.S.C. § 3686(c).
United States Postal Service: A Sustainable Path Forward

28

through cost reductions or specific requests for PRC approval for “exigent,” or above CPIU price cap, rate increases, which proved difficult, inadequate, and time consuming. While 

prices for package products are required to cover product costs and a portion of shared 

infrastructure costs, there is no explicit ceiling for package price increases. 

To cover losses incurred during the recession, the USPS first requested a permanent

“exigent” increase in mail rates from the PRC in 2010. In December 2013, the PRC 

approved a temporary “exigent surcharge” for mail products to generate $3.2 billion in 

incremental revenue. In July 2015, the PRC authorized the surcharge to continue until USPS 

collected a total of $4.6 billion in incremental revenue estimated to have been lost during the 

2007-09 recession.101 While the PRC permitted the surcharge, it determined that the 

surcharge should be temporary and must expire once the estimated revenues, needed to 

make up for the losses incurred during the recession, were collected. The $4.6 billion limit 

was reached on April 10, 2016 and USPS reduced prices on mail rates accordingly.102 

During the PAEA required 10-year review of the price-cap regulations and in response to 

the USPS’s troubled financial condition, the PRC recently proposed a revision to its rules

that if made final would allow the USPS to raise prices by up to 3 percentage points more 

than CPI-U, provided basic service levels are met.103

New Products and Services

Market tests of new products and services also require PRC approval.104 This hinders the 

USPS’s ability to rapidly adjust to changing technology, an evolving business environment, 

or to declines in existing classes of mail volume. 

Postal Facility Closures

Although the USPS has the authority to close retail postal facilities without seeking 

legislative approval, closing facilities has proven difficult and is often unpopular. Before 

deciding to close a facility, the USPS must evaluate a set of criteria including the effect on 

the community and the facility’s employees.105 The USPS’s decision to close a post office 

can also be appealed to the PRC, which can set aside the USPS’s decision.106 Moreover, the 

USPS is barred from closing a small post office solely for running a deficit.107 In the last ten 

years, the USPS has announced three sets of retail facility closures and realignments – the 

 

101 U.S. Government Accountability Office, U.S. Postal Service: Continuing Financial Challenges and the Need for 

Postal Reform, GAO-16-651T (May 11, 2016), available at: https://www.gao.gov/products/GAO-16-651T. 102 Ibid. 

103 Postal Regulatory Commission, Notice of Proposed Rulemaking for the System for Regulating Rates and Classes for 

Market-Dominant Products, Docket No. RM2017-3 (Dec. 1, 2017), available at: 

https://www.prc.gov/docs/102/102715/Order4258.pdf. 104 39 U.S.C. § 3641; 39 C.F.R. § 3035.4.

105 39 U.S.C. § 404(d)(2)(A).

106 39 U.S.C. § 404(d)(5).

107 39 U.S.C. § 101(b).
United States Postal Service: A Sustainable Path Forward

29

first in July 2009 and the second in July 2011 – only to scale down these plans with the third 

realignment in May 2012.108 

D. International Postal Models

Despite decreasing mail volumes and changes in communication technology, postal services 

continue to play a critical role around the world. The Universal Postal Union (UPU)

governs the exchange of international mail and packages between national postal operators, 

while each country is responsible for its national postal infrastructure and operations. This 

section highlights key aspects of foreign postal services. While reviewing foreign postal 

systems is an informative exercise, the size and complexity of the U.S. system makes it 

difficult to compare the experiences of foreign postal systems with those of the United 

States Postal System. 

Privatization of Postal Services

As shown in Table 4, many industrialized countries have pursued privatization of their postal 

systems – either completely or in part – to lower costs for consumers while improving 

service quality.109 For example, in 1995 the German government incorporated the German 

mail authority, creating the company Deutsche Post, which was majority-owned by the 

German government. In 2000, Germany launched an initial public offering (IPO) of 

Deutsche Post further privatizing the institution and raising $5.6 billion.

110 

 

108 Postal Regulatory Commission, Docket No. N2009-1, Order No. 244 (Dec. 2, 2009), Docket No. N2011-

1, Order No. 778 (Nov. 4, 2011) and Docket No. N2012-2, Order No. 1361 (Aug. 23, 2012).

109 Soifer, Don, Consumer Postal Council, Universal Postal Service in Major Economies (June 2015), available at: 

http://www.postalconsumers.org/wp-content/uploads/2018/01/June-2015-CPC-Universal-Postal-Service-Report.pdf. 110 Polis, Jared, Colorado State Board of Education, Privatizing and Eliminating the Monopoly of the United States 

Postal Service (August 2001), available at: https://i2i.org/wp-content/uploads/2011/06/4-2001.pdf.
United States Postal Service: A Sustainable Path Forward

30

Table 4: Summary of Major National Postal Systems

Country USO Fund Privatized?111 Percentage of Global 

Postal Service Revenue

Germany N Y 23.50%

U.S. N Partial 21.70%

China Y N 10.50%

France Y Y 9.10%

Japan N Y 7.50%

UK N Y 4.90%

Italy Y Y 4.10%

Switzerland Y Partial 3.00%

Brazil Y N 2.30%

Canada N N 1.90%

Source: Universal Postal Service in Major Economies (June 2015)

Universal Service Obligation

As noted earlier, a USO is an obligation of a mail service provider to give all users in an area 

access to basic services at affordable rates. Even under privatized postal systems, 

governments and regulators have typically maintained a USO to ensure that all customers 

have access to certain products and services. Maintaining a USO under a competitive 

market requires a policy determination of who should carry the USO burden, how to fund it, 

and who will pay for its cost.112

For example, in New Zealand, which has a fully privatized postal system, the operator has a 

“Deed of Understanding” with the government, ensuring the provision of the USO. The 

designated operator does not receive public subsidies and cannot cross-subsidize commercial 

ventures with mail revenues.113 Sweden uses a similar structure where the designated 

operator is responsible for funding the USO without additional public funding.

Other means for funding the USO include compensation funds, contributions from 

consumers, and revenues from monopoly services. For example, France has a USO 

compensation fund, which becomes active if the postal regulatory authority determines that 

the national mail carrier bears an unfair burden to provide universal services. All licensed 

111 Privatized in this context refers to postal markets that are open to outside competition. ‘Partial’ indicates 

that third parties may perform portions of the “value chain” or that certain products are excluded from 

competition. 112 Chone, Philippe, Laurent Flochel, and Anne Perrot, International Journal of Industrial Organization, v. 20, issue 

9, “Allocating and funding universal service obligations in a competitive market,” p. 1247-1276,

(November 2002), available at: https://www.sciencedirect.com/science/article/pii/S0167718701000777. 113 Soifer, Don, Consumer Postal Council, Universal Postal Service in Major Economies (June 2015), available at: 

http://www.postalconsumers.org/wp-content/uploads/2018/01/June-2015-CPC-Universal-Postal-Service-Report.pdf.
United States Postal Service: A Sustainable Path Forward

31

postal operators contribute to the fund based on the volume of the postal items within the 

universal service area. In some instances, compensation funds are short-term solutions, 

designed to help to support the cost of delivering to high-cost routes by the designated 

carrier.114 However, they have proven costly to administer and implement. 

The USPS has limited funding options for the USO. Since the USPS has a monopoly over 

market dominant mail, funding mechanisms that rely on contributions from postal operators 

or service providers to offset costs are not relevant for products covered under the USO. In 

addition, USPS is limited in its ability to share costs with customers due to the price caps on 

monopoly products.

State funding of the USO is widely used among EU member countries. In Sweden, 

subsidies fund USO services in rural areas for aged and blind persons. The UK government 

also provides subsidies to rural post offices. The USPS receives a small subsidy from the 

federal government to provide services to the legally blind and for paper-based overseas 

ballots.115 However, the ability to determine and receive additional subsidies is largely 

legislative and complicated to administer.

 

114 Ibid.

115 United States Postal Service, Office of Inspector General, Funding the Universal Service Obligation, RARCWP-16-005 (Mar. 21, 2016), available at: https://www.uspsoig.gov/sites/default/files/document-libraryfiles/2016/RARC-WP-16-005.pdf.
United States Postal Service: A Sustainable Path Forward

32

Mission and Business Model

The USPS’s current business model has become outdated due to changes in technology, 

markets, and customer needs and preferences. It is unsustainable and must be 

fundamentally changed if the USPS is to avoid a financial collapse and a taxpayer-funded 

bailout. Under the current model, the USPS cannot survive on an operating basis, let alone 

pay for its long-term liabilities including its debt and unfunded retiree benefits. Providing 

the USPS with financial relief, such as relieving it of certain post-employment liabilities, will 

be insufficient to correct the USPS’s problems. Reforming its business model, rather than 

simply providing relief, is necessary if the USPS is to survive in the digital economy. 

The USPS’s business model has many components, starting with an implicit public policy 

goal and a value proposition for customers. It includes how the USPS defines its products 

and services, targets and markets to its customers, incurs expenses and structures costs, 

prices its offerings, and interacts with commercial firms and competing products. 

Ultimately, the business model defines the formula needed to generate sufficient revenue 

while fulfilling its mission as a government entity. 

The Task Force believes that all components of the USPS’s business model must be 

reevaluated and redefined in order to produce a new and viable business model. Updating 

some components but not others, or updating different components in isolation of others, 

will not result in a coherent, sustainable strategy. This chapter discusses the major 

components of the existing business model, the changes in technology and markets that 

have disrupted the model, and the types of reforms that must occur to establish a new 

model. These recommended reforms are expanded in the chapters that follow, detailing

findings and recommendations for the USO, mail and package businesses, and the USPS’s

operations. 

A. Historical Business Model

For the purpose of this report, the name of the current USPS business model is the 

“statutory monopoly.” It has existed in various iterations since the founding of the country 

and is based on the effectiveness of the mail monopoly as the USPS’s primary means of 

generating revenue. It assumes that legal barriers will prevent other firms from competing 

with the USPS to divert revenue, and that other products cannot be substituted for postal 

mail to weaken the USPS source of revenue. The 1970 PRA, which converted the Post 

Office Department into the USPS as a self-sustaining entity, was based on this business 

model. The 2006 PAEA assumed that the business model developed under the PRA would 

continue to be viable for the foreseeable future. Indeed, the cornerstone of PAEA is that 
United States Postal Service: A Sustainable Path Forward

33

the mail monopoly was so effective that postage rate increases could be capped and still 

generate the operating margins necessary to prefund retiree health benefits. 

In the last decade, technological changes have significantly reduced the effectiveness of the 

statutory monopoly business model by undermining the historical barriers to market 

competition and product substitution. Citizens and businesses increasingly view digital 

communications provided by private companies as a superior substitute for many uses of 

postal mail. In addition, due to the rise in e-commerce, the USPS’s package business 

increasingly competes with a robust and growing network of national, regional, and local 

delivery companies. To respond to these changes and return the USPS to financial stability, 

the USPS must adopt a new, more targeted business model that is based on providing 

essential mail and package services for which there is no cost effective, nationwide, private 

sector substitute. This proposed new business model should be based on the USPS’s role as 

a provider of “essential services.”

Policy Goal

The longstanding public policy goal in the statutory monopoly business model is to provide 

postal services as if they were a “public good.” Public goods are goods or services that are 

provided without profit to benefit all members of society. A public good is a good or 

service that one individual can consume without reducing its availability to another 

individual and from which no one is excluded from consuming. Lighthouses are an oftenused example of a public good. Public goods can be provided by a private entity, but are 

frequently provided by the government in order to promote social welfare. 

Although postal services have the characteristics of private goods (e.g., a person cannot send 

a letter without paying for it), they have historically been regarded as a public good to be 

provided by the government. Creating a single postal network as a government utility both 

reduced costs through national economies of scale and ensured that all citizens and business 

had access to communication services. This policy mandate of treating postal services as if 

they are a public good has been a central component of the USPS’s business model. 

The ability to treat postal services as a public good, however, has changed rapidly due to 

technology. Privately provided communications through email, text messaging, social media, 

websites, and mobile apps are not only less expensive than postal services, but also more 

closely approximate many public good characteristics. Anyone can consume these services 

largely without paying for them and without reducing the ability of others to do so. These 

privately provided public goods are quickly driving out the USPS’s quasi-public good. 

B. Creation of a New Business Model

The Task Force believes that the reformed USPS business model must embody a new public 

policy goal, recognizing that private products and competitive markets increasingly meet the 
United States Postal Service: A Sustainable Path Forward

34

country’s communications and commerce needs. The new policy goal should have the more 

targeted function of correcting the failures and inefficiencies of these private markets. 

Future postal strategies for products, pricing, competing, and operating should be centered 

on meeting the needs of mail and package customers who are not reasonably served by 

commercially available products.

Value Proposition

The primary value proposition of the current business model is the provision of least-cost 

communication services to the nation. The USPS and its predecessors successfully delivered 

this value for decades through the most efficient mail infrastructure in the world. As 

discussed above, however, this value proposition is increasingly less relevant to citizens and 

businesses due to the emergence of virtually free digital alternatives that deliver information 

instantly and more directly to the recipient. 

As private sector solutions provide a better overall value proposition for many 

communications, the value proposition of the USPS, as a government entity, should focus 

on needs not met by the private sector. Consistent with the public policy goal of correcting 

market inefficiencies, the USPS’s value proposition should be defined as providing a safety 

net of necessary postal services. As discussed more fully in the USO chapter, the USO 

should be clarified to give preferences to specific mail and package services for which there 

remains a compelling government interest to provide least-cost delivery services as part of 

this safety net, what we will call “essential services.” 

Business Objective

The main business objective of the traditional postal model is to promote national cohesion 

through social interaction and economic transactions. Statutes define this objective to “bind 

the Nation together” by delivering printed matter and small parcels for all public and private 

activities. Although the USPS remains central to the nation’s social structure and continues 

to process important transactional mail, particularly for the government and for small- and 

medium-sized businesses, its role in promoting national cohesion has diminished relative to 

its historical role, and it is no longer the primary institution that binds the nation. Other 

media and transportation services are increasingly fulfilling this role.

Nevertheless, the USPS’s comprehensive delivery network that covers every address in the 

country is a critical part of the nation’s infrastructure that cannot be replicated by private 

actors, or, for the foreseeable future, displaced by emerging delivery technologies. The Task 

Force believes that maintaining this critical infrastructure as a national resource should be 

considered the primary business objective of the USPS under its new business model, even 

as it adopts a narrower public policy goal and a more targeted value proposition. A business 

model that is based on serving as an essential service provider can support the stewardship 

of this infrastructure, provided that the USPS makes accommodating changes to its pricing, 

costing, customer, and revenue strategies. 
United States Postal Service: A Sustainable Path Forward

35

Competitive Strategy

The competitive strategy of the statutory monopoly business model is to (1) suppress direct 

competition by enforcing the legal barrier that prevents other firms from entering the market 

for mail delivery, and (2) generate consistent revenue based on the lack of substitutes for 

mail. This strategy has become largely irrelevant, given the displacement of the mail market 

by the digital communications market. One potential alternative strategy is to leverage the 

expanding e-commerce delivery market to offset the decline in mail revenue with increases 

in package revenue. The Task Force believes that pursuit of this alternative alone, without 

making other needed changes, will fail as a competitive strategy as the current operating 

margins in the package business are far below those in the USPS’s mail business, and the 

decline in mail volume will exceed any potentially offsetting increases in package volume for 

the foreseeable future. 

Rather, the USPS’s new competitive strategy must be consistent with a new public policy 

goal of correcting market failures. The Task Force believes that the competitive strategy of 

the new business model should leverage the USPS’s national delivery network in order to 

generate increased revenue from both mail and package transactions that are purely 

commercial, such as marketing mail and most forms of e-commerce package delivery. This 

increased revenue from purely commercial use of the USPS and its infrastructure can be 

used to help pay for the costs of mail and package delivery for which there is an essential 

service need, and therefore a strong rationale for government support, such as for household 

delivery of pharmaceuticals. 

System Subsidy Model

A subsidy model implicit in many utility services, including national postal systems, is used to 

defray the higher costs of service to sparsely populated areas through revenues generated 

from more densely populated areas that have lower costs for service. This internal subsidy 

has always existed within the U.S. Postal System and the pricing structure of the mail 

monopoly. Indeed, as long as the USPS retains a national delivery network and an 

obligation to deliver to all addresses in the country, some form of this subsidy is logical. 

Nevertheless, as mail volume has declined, the revenue from densely populated areas has 

become insufficient to offset the delivery costs in sparsely populated areas, leading to the 

USPS’s financial instability. 

The competitive strategy – that of generating more revenue from commercial mail and 

packages in order to defray the cost of delivering socially important mail and packages that 

provide essential services – introduces a second form of internal subsidy that may be more 

important to the USPS’s future business model. Many of the Task Force’s proposed 

reforms to pricing, costing, and services are designed to create such a transfer of value from 

commercially oriented products to socially oriented essential services. To achieve financial 

stability, the USPS will need to maximize this new form of value transfer. 
United States Postal Service: A Sustainable Path Forward

36

Key Products

Mail is the key product upon which the existing business model is based. For example, in 

FY 2007, mail represented approximately 89 percent of postal revenues, and parcels 

represented a secondary product constituting 11 percent of revenues.116 As a result, most 

historical decisions about the postal infrastructure and finances have been driven by mail 

product considerations. However, mail is now in structural, irreversible decline, and the 

point at which package revenue will exceed mail revenue is fast approaching.

Under the new business model, the growing package business will represent the key products 

that drive the USPS’s decisions and policies, including the structure of the fleet, labor force, 

processing facilities, cost allocation, pricing, and regulatory requirements. This shift 

represents not only a change to the USPS’s relative product focus, but also a change in 

management philosophy and culture from a monopoly activity to a more commercial 

activity. 

Key Customers

The traditional USPS business model does not identify key customers, in that the USPS 

provides services without distinguishing among the entire U.S. population of citizens, 

businesses, and governmental entities. Generally uniform products, pricing, access, and 

service standards do not allow the USPS to differentiate customers in order to generate more 

revenue or reduce operating costs. However, the presumption of uniform treatment, and 

the inability to develop strategies to differentiate customer segments, has become an obstacle 

to the USPS’s viability. 

Under the new business model, the Task Force believes that the USPS’s key customers will 

be the citizens and businesses underserved by the market, or for whom there is a strong 

rationale for government support or subsidy. Although the USPS must still serve all citizens 

and businesses in the country, its goal with respect to commercial mailers and shippers must 

be to optimize long-term revenue based on market principles, rather than to ensure access to 

a rate-regulated, uniform government service. To be clear, the USPS should not single out 

individual commercial customers for disparate treatment. Rather, it must better differentiate 

its strategies for commercial customers that use postal services based on a return on 

investment, versus customers who use postal services because they have no other delivery 

options. 

Regulatory Mandate

Under the current business model, the regulation of the USPS is needed to protect 

customers and competitors from predatory monopoly practices. Captive mail customers are 

protected through rate caps, and competitors in the package delivery industry are protected 

 

116 United States Postal Service, Form 10-K for the Fiscal Year Ended September 30, 2007, available at: 

http://about.usps.com/who-we-are/financials/10k-reports/fy2007.pdf.
United States Postal Service: A Sustainable Path Forward

37

by rate floors. However, because the postal mail monopoly is increasingly ineffective and 

the USPS is at risk of a liquidity crisis, the need to constrain the USPS’s market power is 

now less of a regulatory concern. Moreover, the USPS’s general shift from monopoly mail 

products to competitive package products has exposed gaps in the regulatory model. The 

PRC’s authority to enforce institutional cost recovery requirements for competitive products 

may be an insufficient tool to ensure that the USPS does not distort competitive markets. 

The mandate for regulating the USPS must be updated with the other components of the 

postal business model. New regulatory authorities should allow for oversight of how the 

USPS corrects market failures and implements a redefined USO. These authorities should 

also be broad enough to oversee the USPS’s growing role as a competitor to private package 

delivery firms and to prevent distortion of the e-commerce delivery market. 

Revenue

The USPS’s historical business model assumes that postal revenues are not directly subject 

to market dynamics, but rather will grow in tandem with population and GDP. This 

assumption informs many other aspects of the USPS’s business model, most importantly its 

labor model and cost structure. But, the historical correlation between the USPS’s revenues 

and overall demographic and economic forces no longer applies. Since the last recession, 

the economy has grown 18.7 percent and population 6 percent, while USPS revenues have 

fallen 6.7 percent from their peak in 2008.

117,118,119 Revenues are now largely a function of 

customer preferences and market forces, not demography. 

Mail revenue is in permanent structural decline due to the preference for digital 

correspondence, and package revenue is now generally subject to market demand and 

competing offerings from national, regional, and local delivery companies. Therefore, the 

new business model must assume that mail revenue will continue to decline until it reaches a 

theoretical floor, and that package revenue will ebb and flow, depending on the prevailing 

competitive dynamics. All other components of the model – most importantly the USPS’s 

competitive strategy and cost structure – must be adjusted accordingly to achieve long-term 

sustainability. 

Costs

The USPS’s current business model assumes that costs are a function of postal volume. 

However, because postal volume increased for the better part of two centuries along with 

the nation’s population and economy, the model also implicitly assumes that costs, on a 

 

117 Bureau of Economic Analysis, National Accounts, Gross Domestic Product, available at: 

https://www.bea.gov/data/gdp/gross-domestic-product. 118 United States Census Bureau, Annual Population Growth, available at: https://www.census.gov/programssurveys/popest/data/data-sets.html. 119 United States Postal Service, Form 10-K Reports 2007-2017, available at: http://about.usps.com/who-weare/financials/.
United States Postal Service: A Sustainable Path Forward

38

structural basis, will always trend up over time. As a result, the USPS does not have 

sufficient institutional mechanisms to control its costs in response to the historic secular 

decline in postal volume.

For the USPS to become a sustainable entity, the new business model must permit the USPS 

to actively contain and reduce its costs as its mail volume declines and as competitive 

pressures in the package markets dictate. The Task Force believes that the USPS must 

operate in a more cost-efficient manner by exercising discretion to lower service standards 

and to increase the use of third parties through additional work sharing and the use of third 

party processing and logistics providers. In addition, as postal employees are part of the U.S. 

federal civil service, their wages and benefits should be aligned to comparable U.S. federal 

employee groups, including aligning their ability to collectively bargain for wages and 

benefits with other federal employees.

Pricing

The current business model caps price increases for mail products at the consumer price 

index for all urban customers (CPI-U). This rate cap, similar to those placed on other 

monopoly utilities, was established in order to enforce cost discipline on the USPS and to 

protect captive customers at a time when volumes were near their historical peak and the 

mail monopoly was still effective in producing revenues. However, given that the USPS has 

passed the historic inflection point and volumes and revenues are in persistent decline, the 

concept of an across-the-board rate cap is less necessary to constrain predatory pricing and is 

inconsistent with a sustainable postal system. 

Under the new business model, purely commercial use of the postal system that is based on 

achieving a return on investment, such as sending marketing mail, should be priced without 

a rate cap and with the aim of optimizing long-term revenue. For non-commercial mail, 

consumer notices, and transactional mail (i.e., billing and payments), the justification for rate 

caps remains given the new public policy goal embodied in the updated business model that 

would continue to offer pricing protection for mail that represents an essential service. 

Similar to mail pricing, purely commercial use of package delivery services should be priced 

with the intent of optimizing revenue. 
United States Postal Service: A Sustainable Path Forward

39

Universal Service Obligation

A. Overview

A universal service obligation (USO) is a set of requirements meant to ensure that all users 

of a system receive a minimum level of service at a reasonable price. A USO is enacted 

when there is a concern that, without such requirements, providers would choose to cut 

services or raise prices in high-cost areas. USOs are common in regulated industries such as 

the postal, telecommunication, and electric utility industries. 

The law states that the USPS’s basic function is “to provide postal services to bind the 

Nation together” through the provision of “prompt, reliable, and efficient services to 

patrons in all areas....”120 The statute instructs the USPS to pay particular attention to 

ensuring a “maximum degree of effective and regular postal services to rural areas, 

communities, and small towns.”121 Historically, this language has been interpreted to oblige 

the USPS to provide universal postal service throughout the United States. 

B. Background

Definition of the USO

The postal system’s USO is not explicitly defined by statute. Rather, it is based on 

interpretations of various laws, regulations, operating procedures, and customs developed 

over time. The USO is understood to be an obligation of the USPS to provide affordable, 

quality postal services throughout the United States, six days a week. However, there are 

only four specific circumstances in which legislation includes language that characterizes the 

current USO:

1. To provide six-day delivery and rural delivery of mail at not less than the 1983 

level;122

 

120 39 U.S.C. § 101(a). The law also provides that the “costs of establishing and maintaining the Postal 

Service shall not be apportioned to impair the overall value of such service to the people.” 121 39 U.S.C. § 101(b). 122 U.S. Government Publishing Office, Treasury, Postal Service and General Government Appropriations Act, 1989, 

Pub. L. No. 100-440, 102 Stat. 1721 (Sep. 22 1988), available at: https://www.gpo.gov/fdsys/pkg/STATUTE102/pdf/STATUTE-102-Pg1721.pdf. For years, Congress has annually required 6-day delivery of mail and 

rural delivery to continue at not less than the 1983 level.
United States Postal Service: A Sustainable Path Forward

40

2. To provide postal services for certain types of mail at geographically uniform rates;123

3. To follow certain procedures in closing post offices;124 and

4. To price market-dominant products in accordance with price caps, subject to 

modification by the PRC.125

Beyond these requirements, postal USOs throughout the world are generally understood to 

include attributes such as geographic scope, range of products, access, frequency and mode 

of delivery, pricing, and quality. While many countries address these requirements in very 

specific terms, this is not true for the United States. For example, the law defines geographic 

scope for the USPS broadly as to “receive, transmit, and deliver throughout the United 

States, its territories, and possessions...written and printed matter....”126 U.S. law and 

regulations do not address the number of, or distance between, post offices and collection 

boxes, as is common in other countries. 

Funding the USO

Traditionally, postal monopolies have been the most common method for funding postal 

USOs around the world. In the United States, the USPS has two legal monopolies – a 

monopoly on most letter mail, and a monopoly on delivery to the mailbox. The letter 

monopoly was originally established in 1792 under the Private Express Statutes.127 The 

current statutes and regulations prohibit any entity, other than USPS, to send or carry letters 

over regular postal routes for compensation without the payment of postage at least equal to

the amount that would have been made had the USPS carried the letter.128 In 1934, 

Congress enacted a law known as the “mailbox restriction,” which prohibits any entity other 

than USPS from placing or collecting unstamped mailable items in or from customer 

mailboxes.129 What is now known as the “mailbox monopoly” was originally intended “to 

protect postal revenue by preventing delivery of unstamped matter to mailboxes, which 

reportedly was having a considerable impact on postal revenues.”130

Historically, these two monopolies have helped USPS cover the cost of its USO. However, 

declining mail volume and caps on pricing now threaten the ability of the monopoly mail 

 

123 39 U.S.C. § 404(c).

124 39 U.S.C. § 404(d).

125 39 U.S.C. § 3622. 

126 39 U.S.C. § 403(a). 127 United States Postal Service, Universal Service and the Postal Monopoly: A Brief History, (October 2008), 

available at: https://about.usps.com/universal-postal-service/universal-service-and-postal-monopoly-history.txt. 128 See 18 U.S.C. §§ 1693 – 1699; 39 C.F.R. Part 310.

129 18 U.S.C. § 1725.

130 United States General Accounting Office, U.S. Postal Service: Information About Restrictions on Mailbox Access, 

GAO/GGD-97-85 (May 1997), available at: https://www.gao.gov/assets/230/224237.pdf.
United States Postal Service: A Sustainable Path Forward

41

products to provide sufficient funding for the USO. Other countries have addressed 

declining revenues by introducing greater pricing flexibilities. However, the success of 

pricing flexibilities is dependent on customer tolerance for price increases.131 Data indicates 

that the USPS’s market-dominant products are largely price-inelastic, meaning that price 

increases (within a certain range) can boost overall revenue, as they will not be fully offset by 

demand reductions.132 As such, given current elasticity estimates, moderate price increases 

on letter mail would likely lead to an increases in revenue.

133

C. Findings and Recommendations

Without a clearly defined USO, it is difficult for the USPS to make business decisions 

in a timely and efficient manner. The USO must be clearly defined.

The USO effectively represents a mission statement for a country’s postal system, defining 

what citizens and businesses need from a government provided postal service. As noted 

above, in the United States, the USO is not specifically defined in any one document and is

subject to different interpretations. 

For the USPS’s business model to achieve sustainability, the Board should work to define 

the USO with greater specificity or seek legislation to do so. The Task Force believes that 

the most important aspect of this definition is to distinguish between the types of mail and 

packages that represent an essential service for which a strong social or macroeconomic 

rationale exists for government protection or subsidy – in the form of price caps and 

mandated delivery standards. These would be distinguished from those types of mail and 

packages that are commercial in nature, and therefore would not have a basis for similar 

government protection. This will provide a targeted definition of minimum essential 

services that the government should require the USPS to provide. For example, items 

included as essential services could consist of all personal correspondence (person-to-person 

mail), transaction mail (bills, financial statements, product recall notices), government mail 

 

131 United States Postal Service, Office of Inspector General, Funding the Universal Service Obligation, RARCWP-16-005 (Mar. 21, 2016), available at: https://www.uspsoig.gov/sites/default/files/document-libraryfiles/2016/RARC-WP-16-005.pdf. For example, the OIG notes that existing mailers of monopoly products 

who already generate most of USPS’s contribution to institutional costs may not want to take on the 

additional burden of funding the USO through price hikes. If customers have low tolerance for price 

increases, any increase may have to be combined with direct subsidy and diversified revenue streams.

132 United States Postal Service, Office of Inspector General, Analysis of Postal Price Elasticities, RARC-WP-13-

008 (May 1, 2013), available at: https://www.uspsoig.gov/sites/default/files/document-library-files/2015/rarc-wp-13-

008_0.pdf. 133 United States Postal Service, Office of Inspector General, Funding the Universal Service Obligation, RARCWP-16-005 (Mar. 21, 2016), available at: https://www.uspsoig.gov/sites/default/files/document-libraryfiles/2016/RARC-WP-16-005.pdf.
United States Postal Service: A Sustainable Path Forward

42

(election and tax related mail), parcels containing pharmaceuticals, and parcels sent from

consumer to consumer. 

With over 60 percent of counties and 14 percent of the population classified as rural, 

the geographic scope of the USO should continue to be defined to include all 

addresses in the United States.

The statute requires the USPS to receive, transmit, and deliver mail throughout the United 

States, its territories, and possessions.

134 It also requires transmission of military mail 

throughout the world.135 Eliminating these services would weaken ties between remote or 

rural areas and the rest of the nation, thus raising the private cost or public subsidy needed 

to serve rural and remote areas. 

The USO should continue to be defined to include all addresses in the country covering “the 

United States, its territories and possessions”136 irrespective of population density as well as 

transmission of military mail throughout the world. The cost of sending and delivering 

products, defined as essential services, should be standard, regardless from where the 

products are sent or delivered – similar to the current flat postage rate for First-Class Mail. 

Statutes impose generic, minimal requirements for access to the postal system, but 

do not require a certain number of post offices or collection boxes. The USPS needs 

a clearly defined USO standard for delivery.

Current law only obligates the USPS to establish and maintain postal facilities of such 

character and in such locations so that “postal patrons” have “ready access to postal 

services” that is “consistent with reasonable economies.”137 The specific parameters of this 

obligation are not clearly defined. Currently, mailers access universal postal services by one 

of three methods: 1) depositing mail at a post office or postal facility, 2) depositing mail in a 

public collection box, or 3) placing mail in a private mailbox for collection by a mail carrier. 

Although USPS has the authority to determine the need for post offices and is authorized to 

close and consolidate post offices when they are no longer needed, current law provides that 

“no small post office shall be closed solely for operating at a deficit.”138 

The Task Force believes that there should be a clearly defined USO standard for access. 

The USPS should have the flexibility to determine the number of post offices and collection 

boxes as long as it meets the defined standard of access and is consistent with a financially 

sustainable business model. 

 

134 39 U.S.C. § 403.

135 39 U.S.C. § 406.

136 39 U.S.C. § 403.

137 Ibid.

138 39 U.S.C. § 101(b).
United States Postal Service: A Sustainable Path Forward

43

Although the USPS has broad discretion over the mode of delivery, Congress 

annually mandates that USPS deliver mail six days per week. USPS should have 

greater flexibility for determining delivery frequency.

The statutes are silent on the frequency of delivery which the USPS is obliged to provide. 

This broad discretion is constrained by one provision, which has been included in the USPS

annual appropriation for years: a requirement to maintain “six-day delivery and rural delivery 

of mail...at not less than the 1983 level.” Unfortunately, there is no readily-available data 

regarding what constitutes the “1983 level.” In 2013, the USPS and the Congressional 

Budget Office (CBO) each estimated that the annual savings from moving mail delivery (not 

including packages) from six-days to five-days a week would save $1.5 billion and $1.2 billion 

respectively.139 The expected savings, if calculated today, would likely be less than previous 

estimates due to changes in the USPS’s labor model (driven primarily by the utilization of

more non-career employees) and the trend toward faster and more frequent delivery

standards (within the parcel market in particular). 

Given changing preferences for delivery frequency, the Task Force believes that the USPS 

should have greater flexibility to determine what its delivery frequency should be. Delivery 

frequency could differ depending upon the product. For example, for items deemed 

essential services, the USPS should determine a delivery frequency that is commensurate 

with the social and economic needs specified for those items. For items not deemed 

essential services, the USPS should determine a delivery frequency that optimizes the 

generation of net income, while still achieving customer expectations. 

Current statutes afford the USPS the discretion to determine the delivery mode, 

based on reasonableness and efficiency, including door-to-door, curbside, and 

centralized delivery. The USPS should maintain and use its discretion to determine 

the mode of delivery that is consistent with developing and maintaining a financially 

sustainable business model. 

The specific parameters of delivery modes are not clearly defined in existing law. Currently, 

delivery of mail occurs door-to door, via curbside mailboxes, or via centralized delivery such 

as cluster boxes or post office boxes.

The Task Force believes that the USPS should have the discretion to determine delivery 

mode. However, the USPS should be required to make the procedures and requirements for 

delivery modes transparent and public. The choice of delivery mode should be consistent 

with developing and maintaining a financially sustainable business model for the USPS and 

should take into consideration customer needs. 

 

139 Congressional Budget Office, Cost Estimate of H.R. 2748 Postal Reform Act of 2013, (June 23, 204), available 

at: https://www.cbo.gov/sites/default/files/113th-congress-2013-2014/costestimate/hr27482.pdf.
United States Postal Service: A Sustainable Path Forward

44

As speed of processing is less important to mailers than geographic coverage,

predictability, and frequency of delivery, the USPS should retain discretion to 

determine processing speed.

The law requires the USPS to provide “adequate and efficient postal services” and “prompt, 

reliable, and efficient services.”140 PAEA requires the USPS to promulgate “modern service 

standards,” which has been interpreted as publishing “stated goals” for transit times of 

different products.141

The Task Force’s outreach with major mailers revealed that geographic coverage, 

predictability on timing of delivery, and six-day delivery are more important than the speed 

of delivery. Mailers can, in many cases, adjust drop-off dates to accommodate slower or 

faster delivery. As such, the Task Force recommends that processing standards be 

transparent, public, and measurable, with the USPS determining processing standards that 

are consistent with a financially sustainable business model. 

Although the USO has historically been funded by the mail monopoly, revenue 

generation outside of the mail monopoly will continue to become increasingly 

important. The USPS should determine ways to optimize activities to cover the costs 

of the USO.

Although codified in federal criminal code provisions, the USPS’s letter monopoly and 

mailbox monopoly serve to protect USPS’s revenues from private competitors, thereby 

enabling the USPS it to fulfill its USO, while operating as a self-financing, independent 

establishment in the executive branch. The monopolies allow the USPS to earn increased 

revenues by charging a higher markup on monopoly products in order to offset the costs 

imposed on it by the USO. Substantially all of the USPS’s USO operating costs are paid for 

by customers through postage stamps and services. The USPS also receives a relatively small 

annual appropriation from the government that is funded by taxpayers, amounting to less 

than one-half of one percent of the USPS’s entire annual operating budget. These funds are 

appropriated to reimburse the USPS for revenue forgone for providing postage-free mailing 

services for the legally-blind and for the overseas mailing of paper election ballots.142 

In a 2016 report on the USO, the USPS OIG noted that it has become increasingly difficult 

for the USPS to earn enough revenue through the letter and mailbox monopolies to fund the 

USO.143 The USPS’s ability to fund the USO through these monopolies has eroded over the 

 

140 39 U.S.C. §§ 101(a) and 403(a).

141 39 U.S.C. § 3691.

142 39 U.S.C. §§ 2401(c), 3403, and 3406. See also Don Soifer, Consumer Postal Council, Universal Postal 

Service in Major Economies (June 2015), available at: http://www.postalconsumers.org/wpcontent/uploads/2018/01/June-2015-CPC-Universal-Postal-Service-Report.pdf. 143 United States Postal Service, Office of Inspector General, Funding the Universal Service Obligation, RARCWP-16-005, (March 2016), available at: https://www.uspsoig.gov/sites/default/files/document-libraryfiles/2016/RARC-WP-16-005.pdf.
United States Postal Service: A Sustainable Path Forward

45

last 10 years, during which time the decline in the volume of letter mail, the price-caps on 

monopoly products, and other statutory restrictions on the USPS have led to declining 

revenues from monopoly products, particularly First-Class Mail. 

The Task Force believes that the USPS should optimize revenue and costs on products and 

activities not deemed essential services, in order to provide a funding mechanism for the 

USO. 
United States Postal Service: A Sustainable Path Forward

46

Mail and Package Markets

A. Overview

The USPS projects a significant decline in mail volumes over the next ten years. The 

availability of e-substitutes, combined with pricing restrictions, has placed burdens on the 

USPS’s mail revenue, while an expanding population base has led to an increase in delivery 

points and additional expense.

Although electronic communications have reduced mail volume and revenue, e-commerce 

has contributed greatly to the growth of the USPS’s package volume and revenue. Pitney 

Bowes estimated the U.S. parcel market revenue at $107 billion of revenue with shipment 

volumes of 11.9 billion packages in 2017.144 Where business-to-business (B2B) shipments 

once constituted the vast majority of package deliveries, today, the majority of shipments are 

business-to-consumer (B2C).

These trends have driven the USPS toward income deficits and limited its ability to update 

its infrastructure with needed capital expenditures. Moreover, the USPS’s business model 

now subsidizes an industry of mail preparers, consolidators, and direct marketers whose 

business models are largely dependent on rate-capped mail delivery. Entire industries have 

been created and nurtured via the postal system, including: 1) a paper-based direct mail 

marketing industry that can access rates that are lower than First-Class Mail and that are 

significantly lower than equivalent mail rates in foreign countries; and 2) the Mail Service 

Provider (MSP) industry that serves as a middleman, providing a range of services such as 

printing, list management, transportation, and pre-sortation of mailers (for the financial 

services, insurance, and other industries) to the USPS. 

Under the USPS’s current operating model, the projected declines in mail revenue and 

income will not be fully offset by the projected increases in revenues resulting from 

increased package volumes, given the margins currently associated with each segment. Also, 

without a clearly defined USO, and significant changes to the USPS’s mail segment pricing 

model, expense controls, and cost allocation methods, the USPS’s long-term sustainability is 

in question. 

 

144 Pitney Bowes, Pitney Bowes Parcel Shipping Index, available at: https://www.pitneybowes.com/us/shippingindex.html.
United States Postal Service: A Sustainable Path Forward

47

B. Background

Key Mail Trends

Although Marketing Mail volume is expected to continue to increase over the next ten years

as a share of total mail, First-Class Mail is projected to continue to decline.145,146 This 

decrease in First-Class Mail, which represents the majority of USPS revenue, is irreversible. 

As the migration from paper to electronic communication continues to evolve, trends in 

mail usage are likely to have a significant adverse effect on USPS’s cash flows. 

There is a widely held perception that, as a greater number of digital alternatives to mail 

become available, postal demand sensitivity to price should increase. However, there is 

insufficient data to fully predict consumer responses to price changes of mail products, and 

there is disagreement on the methodology and impact on product price elasticities. The 

USPS OIG found that demand for mail products and services has not been getting more 

elastic over time, which implies it is possible to raise revenue through price increases on 

letter mail.147 The OIG’s study showed that for Single Piece Letters, Flats, and Parcels,

demand has been stably inelastic. Rather, the reduced mail volumes has been the result of 

other factors, such as the availability of digital alternatives, and is not likely tied to postage 

price increases. The mailers who continue to utilize conventional mail do so because they 

are either traditionalists or do not have an effective alternative, irrespective of price.

Competition and Workshare

The USPS does not have formal competition in the mail market due to its letter and mailbox 

monopoly. However, several of the USPS’s competitors and partners service portions of the 

mail value chain (i.e., through worksharing). These firms also have nationwide printing, 

transportation, and processing networks that rival those of the USPS. 

As described by the PRC: “Workshare discounts provide reduced prices for mail that is 

prepared or entered in a manner that avoids certain activities the Postal Service would 

otherwise have to perform. These discounts are based on the estimated avoided costs that 

 

145 United States Postal Service, United States Postal Service FY2017 Annual Report to Congress, available at: 

https://about.usps.com/who-we-are/financials/annual-reports/fy2017.pdf. 146 United States Postal Service, Accomplishing Postal Reform in the 115th Congress – H.R. 756, the Postal Service 

Reform Act of 2017: Hearings before the House Oversight and Government Reform Committee Hearing, United States 

House of Representatives, 115th Congress, Testimony of USPS Postmaster General and Chief Executive 

Office, Megan J. Brennan (Feb. 7, 2017), available at: 

https://about.usps.com/news/testimony/2017/pr17_pmg0207.pdf. 147 United States Postal Service, Office of Inspector General, Funding the Universal Service Obligation, RARCWP-16-005, (March 21, 2016), available at: https://www.uspsoig.gov/sites/default/files/document-libraryfiles/2016/RARC-WP-16-005.pdf.
United States Postal Service: A Sustainable Path Forward

48

result from the mailer performing the activity instead of the Postal Service.”148 For example, 

MSPs provide services that enable access to the mail, including designing, printing, 

transporting, and preparing of mailings. 

The USPS also contracts directly with third parties for key value chain processes such as 

transport. Private companies carry USPS mail, all packages that travel by air, and almost all 

packages that travel by inter-city truck transportation. From FY 2008 to 2017, the USPS 

revenue generated from workshared mail products, as a percent of total mail revenue,

increased from 65 percent to 70 percent, and the volume of workshared mail products, as a 

percent of total mail products, increased from 80 percent to 85 percent.149 

Other participants with the capability to participate in the mail market include newspapers 

and package delivery companies. Package delivery companies (e.g., UPS, FedEx, and 

LaserShip) have established national or regional networks and, with acquisitions of 

automated mail processing machinery, could conceivably participate in multiple parts of the 

mail value chain without violating the USPS’s monopoly.

Key Package Trends

The USPS remains an important service provider for traditional person-to-person package 

delivery. This includes 418 million packages sent by households through the USPS in FY

2017 (either to other households or to businesses).150 Although households receive about 

ten times more packages than they send, the USPS is especially critical to households that 

operate small-scale businesses (e.g., through eBay and Etsy). 

With the growth of e-commerce, market participants are increasingly focused on expanding 

their urban, B2C delivery businesses. Growth in the B2C market has stretched the capacity 

of existing package delivery companies and attracted new entrants to the market. It has also 

led to the development of new transportation and package processing technologies, such as

delivery drones, mobile package lockers, and advanced package processing capabilities. The 

USPS has invested in some technologies such as GoPost lockers and autonomous mobile 

robots for mail and package sorting.

151 However, the USPS cost allocation methods and its 

 

148 Postal Regulatory Commission, United States Postal Service FY 2017 Annual Compliance Determination Report, 

available at: https://www.prc.gov/docs/104/104398/2017_ACD.pdf. 149 United States Postal Service, Revenue, Pieces and Weight (RPW) Reports 2008-2017, available at: 

http://about.usps.com/who-we-are/financials/. 150 United States Postal Service, The Household Diary Study: Mail Use and Attitudes in FY 2017, (March 2018), 

available at: from https://www.prc.gov/docs/105/105134/USPS_HDS_FY17_Final%20Annual%20Report.pdf. 151 United States Postal Service, Office of Inspector General, Autonomous Mobile Robots and the Postal Service

RARC-WP-18-006, (April 9, 2018), available at: https://www.uspsoig.gov/sites/default/files/document-libraryfiles/2018/RARC-WP-18-006.pdf.
United States Postal Service: A Sustainable Path Forward

49

current and projected liquidity constraints limit its ability to compete with the private sector 

in the development and implementation of new delivery technologies.

152 

Package size and weight have become more standardized as e-commerce markets have 

grown, resulting in market participants investing in infrastructure, such as delivery vehicles 

and processing systems of their own. The growth in delivery densities, determined by a 

combination of the time and distance between delivery points and the volume of products 

delivered, has also prompted technological innovations, such as mobile package lockers and 

drone delivery. Notably, several companies focus on same-day delivery services for timesensitive products, such as groceries and pharmaceuticals. 

In addition, the USPS has negotiated service agreements (NSAs) in place with many small 

businesses for delivery services. These agreements allow small businesses to achieve some 

economies of scale in delivery, as they are typically unable to do so through their own 

delivery network. 

Seasonal Capacity Constraints

Package carriers are struggling to provide the needed capacity to handle the rapid growth in 

package markets, especially in the October through December seasonal market. As package 

markets have shifted away from shipments between businesses (B2B) and toward ecommerce delivery (B2C), package volume has become characterized by greater seasonality. 

Over 30 percent of USPS package shipments occur in the last quarter of the year, reflecting 

holiday sales.153 During holiday periods, shippers are often required to add capacity to meet 

demand, such as by adding Sunday delivery services or hiring additional non-career, 

temporary employees. Private package delivery companies often rely on the USPS’s Parcel 

Select service to meet their seasonal demand. The USPS’s Parcel Select volumes are about 

20 percent higher on average in the last quarter of the calendar year.

154 

Customer Expectations

Customers increasingly expect faster and more frequent e-commerce delivery. In the early 

2000s, a customer’s expectations for free delivery from a retailer typically meant receiving a 

package in 7-10 days. Today, many major retailers offer free two-day delivery for a range of 

purchases. Warehouses and fulfillment centers have been decentralized and located closer to 

local markets, and companies are increasingly expanding weekend delivery services, package 

tracking, and route optimization in order to better fulfill customer demand.

 

152 United States Postal Service, Form 10-K for the Fiscal Year Ended September 30, 2017, available at: 

http://about.usps.com/who-we-are/financials/10k-reports/fy2017.pdf. 153 United States Postal Service. Revenue, Pieces and Weight (RPW) Reports 2012-2017, available at: 

http://about.usps.com/who-we-are/financials/. 154 United States Postal Service. (2017). Revenue, Pieces and Weight (RPW) FY 2017, available at: 

http://about.usps.com/who-we-are/financials/.
United States Postal Service: A Sustainable Path Forward

50

However, there are limits to how much consumers are willing to pay for delivery. In general, 

e-commerce consumers remain highly sensitive to delivery costs. Roughly 70 percent of 

consumers choose their delivery option and location (e.g., to a package locker) based on 

price, or choose the cheapest option for home delivery, as opposed to choosing based on 

speed of service.155 This often means 2-5-day delivery. Consumers also prefer home 

delivery over delivery to parcel lockers or other central locations.156 

C. Findings and Recommendations

The USPS mail business is not sustainable under the existing operating model. 

USPS should develop a new model for setting rates and controlling costs to achieve 

sustainability.

In general, statutory price caps and pricing uniformity are inappropriate constraints if the 

mail business is no longer able to function as a monopoly. In the current declining mail 

volume environment, price caps prevent the USPS from making needed adjustments that 

could alleviate the increasing gap between the USPS’s costs and revenues. In FY 2017, 

several mail products did not generate income sufficient to cover attributable costs.157 As 

such, increases in attributable costs and expenses, combined with declining revenues, led to 

significant declines in mail products’ contribution to the USPS’s institutional costs. Simply 

raising rates on mail products within the USPS’s current model would be insufficient. 

A floor likely exists below which First-Class Mail per capita will not fall, as one would expect 

a subset of steady users of marketing mailers, consumer and business correspondence, and 

government communications, to ensure a minimum level of mail. For example: 

• Non-profit organizations rely heavily on donations received through traditional mail, 

and their attempts to replace mail with online solicitations have yet to result in levels 

of donations commensurate with traditional mail.

• For consumer and business mail recipients, a subset will continue to demand that 

paper bills and statements be delivered (i.e., to possess a hard copy record, 

irrespective of any online mechanism). 

 

155 McKinsey & Company, Parcel delivery: The future of last mile, (September 2016), available at: 

https://www.mckinsey.com/~/media/mckinsey/industries/travel%20transport%20and%20logistics/our%20insights/ho

w%20customer%20demands%20are%20reshaping%20last%20mile%20delivery/parcel_delivery_the_future_of_last_mile.

ashx. 156 Ibid.

157 Postal Regulatory Commission, Fiscal Year 2017 Financial Analysis of the United States Postal Service, Financial 

Results and 10-K Statement, available at: 

https://www.prc.gov/docs/104/104498/PRC%20FY2017%20FINANCIAL%20REPORT%20FINAL.pdf.
United States Postal Service: A Sustainable Path Forward

51

• Small and local businesses may still see the value of mail relative to television and 

digital advertising due to reduced mailbox competition. 

• Certain federal and local governmental communications and transactions, such as 

local taxes, registrations, or other national mailings for investment and regulatory 

filings, will likely continue. 

The USPS’s data indicates that mail is largely price-inelastic, meaning that modest price 

increases can boost overall revenue because they would not lead to less demand for the 

products or services. Given this fact, the Task Force recommends that the PRC use the full 

extent of their authorities to establish a new system for regulating rates and classes for 

market dominant products for the purpose of enabling rate increases that would increase the 

USPS’s net income. 

The benefits of the USPS monopolies continue to diminish. The USPS must pursue 

price increases, reduce service costs, or exit the business line for any class of mail 

that falls outside of the determined essential services and that does not cover 

attributable costs.

With the erosion of monopoly benefits due to the emergence of substitutes to USPS mail 

products, historical concerns of pricing abuse by the USPS are diminished, as is the need for 

price regulation. Specifically, rate caps should be eliminated for Marketing Mail and any mail

outside of the defined essential services. Although Marketing Mail generates a positive net 

income, it is still subject to price caps. There is little public policy justification for the federal 

government to maintain price caps on commercial marketing solicitations. An opportunity 

exists to eliminate or relax prices caps and appropriately price Marketing Mail, thereby 

increasing the USPS’s net income in order to compensate for losses associated with other 

products, deemed essential services, where a strong social or macroeconomic rationale exists 

for government protection or subsidy 

The Task Force recommends that the USPS be required to price any mail not deemed to be 

an essential service at a market rate in order to generate income that would fund the USO, 

capital expenditures, and other long-term liabilities. The USPS should incorporate minimum 

“essential” package services into the definition of the USO, such as for the delivery of 

pharmaceuticals and non-commercial, person-to-person packages. Redefining the mandate 

for USPS package delivery business will provide a funding mechanism for the USO. 

USPS categorizes products by type rather than purpose. Mail product classes should be 

redefined by creating products that are defined by the type of sender and the purpose (e.g., 

correspondence, transaction mail) of the mail item. 

USPS manages, prices, and tracks data based on products that are defined by their physical 

characteristics (i.e., shape and weight), rather than making decisions based on the purpose 

and end uses of mail (i.e., marketing mail, household correspondence, legally required 

correspondence). The USPS conducts an annual survey of households in order to determine 
United States Postal Service: A Sustainable Path Forward

52

the contents of mail and packages sent and received. Data collected by the USPS in this

annual household survey on consumer and business mailing behavior does not play a 

significant role in the cost-assessment or pricing of USPS products. 

The USPS OIG notes that understanding what mail recipients want to receive could 

generate significant benefits for all participants in the postal market: mailers would get better 

responses to targeted mailing through improved information on customer preferences, 

recipients would benefit from receiving mail that better serves customer needs, and the 

USPS would benefit from higher value mail products.158 

The Task Force recommends that the USPS should be required to improve its data tracking 

systems to track the purposes and uses of mail, allowing for better cost allocation, targeted 

pricing, and detailed business intelligence. 

Despite the mail monopoly, the end-to-end mail value chain (origination, pickup/collection, processing, transportation, and delivery) is divisible and has many 

suppliers and competitors. To achieve more cost efficiencies, the USPS should 

expand third-party relationships.

With improvements in technology and supply chain logistics, the current mail value chain 

continues to evolve from one that was solely owned and operated by the USPS to one that is 

operated with partners and suppliers, often within discrete elements of the supply chain. For 

example, pick-up and delivery, while currently covered by the letter and mailbox monopoly 

and performed with internal USPS staff and equipment, has an ecosystem that is

complementary to package companies. Given the opportunity, these companies could also 

pick-up and deliver mail products given the opportunity.

Third-party providers process and transport mail more efficiently than the USPS. For 

example, MSPs already: 1) produce (print, manage lists, sort) much of the pre-sort volume 

down to 3- and 5-digit zip codes for the USPS; 2) have numerous facilities that provide 

downstream printing and processing; 3) use and sometimes manufacture the same 

equipment to pre-sort mail that the USPS uses to process it; and 4) can acquire trucks and 

drivers. 

The USPS’s greatest comparative advantage is in the delivery of letter and flat products at 

lower costs than their competitors, given the obligation to stop by every mailbox, six days 

per week. The Task Force recommends that the USPS continue to expand its use of thirdparty relationships in order to provide services in a more cost-efficient manner (e.g., mid-

 

158 United States Postal Service, Office of Inspector General, Strengthening Advertising Mail by Building a Digital 

Information Market, RARC-WP-14-002, (December 11, 2013), available at: 

https://www.uspsoig.gov/sites/default/files/document-library-files/2015/rarc-wp-14-002_0.pdf.
United States Postal Service: A Sustainable Path Forward

53

stream logistics and processing). For example, roughly 85 percent of USPS mail volume 

already utilizes some level of third-party mid-stream processing and sortation.159

The legal mailbox monopoly remains highly valuable. As a means of generating 

more income, the mailbox monopoly could be monetized. 

The USPS’s exclusive access rights to mailboxes protects customers from theft, obstruction, 

fraud, and other mail-related criminal activity while protecting the personal privacy of 

consumers.160 The mailbox monopoly also provides advantages to the USPS for the delivery 

of packages small enough to fit in a mailbox. As MSPs and package delivery companies 

continue to expand offerings to multiple parts of the value chain, it is reasonable to expect a 

willingness to pay for access to USPS mailboxes. By franchising the mailbox, the USPS

could expand its revenue and income opportunities without necessitating any change to its 

current mail products.

The Task Force recommends that the USPS explore franchising the mailbox as a means of 

generating revenue. This could be done by retaining the mailbox monopoly and allowing 

regulated access, for a fee, to certified private companies. These “franchisees” would be 

granted access to the mailbox for the delivery of mail and small parcels. 

The USPS has a dominant market position in B2C e-commerce segments and can 

take advantage of lower delivery costs and mailbox access. The USPS should price 

these competitive products to generate income rather than maximize volume.

The USPS’s delivery costs are generally lower than those of other carriers due to an ability to 

share infrastructure costs between package and mail delivery. The bulk of the USPS’s 

package delivery volume consists of small parcels and “last mile” delivery, where packages 

are delivered to a local USPS distribution facility in bulk, for final delivery. 

As package markets grow, delivery densities are increasing in urban and suburban areas, 

reducing delivery costs to those markets. As delivery densities rise and delivery costs fall, the 

USPS’s cost advantage from shared mail and package delivery infrastructure will continue to 

decline, and could even fully disappear. As a result, areas with higher delivery density tend 

to be characterized by higher levels of competition and a greater diversity of delivery 

options. 

However, in rural areas with greater distances between delivery points and fewer packages 

per stop, the USPS continues to fulfill most deliveries. The proximity of local post offices 

 

159 United States Postal Service, Revenue, Pieces and Weight (RPW) FY 2017, available at: 

http://about.usps.com/who-we-are/financials/revenue-pieces-weight-reports/fy2017.pdf

160 ILO Institute, The Mailbox Monopoly: A New Look at the Last Mile, (February 8, 2008), available at:

https://about.usps.com/universal-postal-service/ilo-report.pdf
United States Postal Service: A Sustainable Path Forward

54

across the country also increases the convenience of package pickup and drop-off in rural 

areas when home delivery is not viable. 

The Task Force recommends that USPS price its competitive products in a manner that is 

not geared simply toward maximizing volume, but instead toward generating income that 

can be used to fund its capital expenditures and long-term liabilities. Alternatively, the Task 

Force recommends that in any of its pricing decisions, the USPS consider the potential 

market distortions that could drive industry participants out of the market.

While there is no direct financial subsidy of competitive products, mail products and 

the mailbox monopoly allow for an indirect delivery subsidy. The USPS needs to 

provide full price transparency and fully distribute costs.

The letter monopoly permits the USPS to share delivery costs between the USPS’s package 

and mail segments without full cost allocation, reducing package delivery costs. Additionally, 

the USPS’s subsidization of unprofitable mail routes with profitable ones is widely known 

and supported. The USPS’s competitors argue that USPS leverages cross-subsidization to 

create unfair competition, inhibiting private sector innovation and therefore preventing 

lower prices for customers. The USPS’s ability to price last mile delivery and the delivery of 

small packages below those of private sector competitors distorts package markets. The 

USPS can also distort markets through negotiated service agreements with individual 

shippers, providing lower-priced services to some shippers and not to others. 

Under PAEA, market-dominant products (mainly mail) are not permitted to subsidize 

competitive products (mainly packages). To calculate whether market-dominant products 

provide a subsidy to competitive products, the USPS must separate costs for the two 

product lines. “Attributable costs” represent the costs which can be directly linked to a 

product line. “Institutional costs” are costs which cannot be directly linked to a product 

line, and which are shared between market-dominant and competitive products, such as 

shared post office space and shared delivery vehicles. Prices for competitive products must 

cover their attributable costs plus a portion of institutional costs in order to avoid 

classification as “subsidized.” 

The PRC set the minimum requirement for competitive products’ institutional cost coverage 

at 5.5 percent in 2007, matching the share of institutional costs covered by competitive 

products at that time.161 The requirement has remained at 5.5 percent since 2007, even as 

 

161 Postal Regulatory Commission, Order Establishing Ratemaking Regulations for Market Dominant and Competitive 

Products, Docket No. RM2007-1, (October 29, 2007), available at: 

https://www.prc.gov/docs/58/58026/FinalRuleswithTOC.pdf.
United States Postal Service: A Sustainable Path Forward

55

package growth has enabled institutional cost coverage at around 23 percent in FY 2017.162 

Appropriate institutional cost allocation is needed to ensure sufficient funding for 

investment in infrastructure and new technologies, as well as to ensure that there is no crosssubsidization between mail and packages. 

The PRC’s 2016 cost allocation model163 was upheld by the U.S. Court of Appeals in May 

2018.164 The PRC has proposed a rule on the share of competitive product institutional cost 

coverage under Docket No. RM2017-1.165 The rulemaking proposes that the minimum 

share be calculated annually according to market conditions. Specifically, the share would be 

calculated from a formula that is based on the size of the competitive market and the USPS’s 

share of that market.

The Task Force recommends that the USPS be required to provide full price transparency 

for all package services in order to reduce market distortion. The Task Force further 

recommends that the USPS and the PRC develop a new cost allocation model with fully 

distributed costs to all products, services, and activities. 

The USPS should retain the package business but establish a separate balance sheet 

for packages to help prevent cross-subsidization between the mail and package 

business units.

Separating and spinning off a package business from the USPS may be difficult to 

accomplish, given the USPS’s unified labor and physical resources. Property and equipment 

account for 54 percent of the USPS’s assets, which are often shared between mail and 

package functions.166 Given the current structure and capacity constraints of the package 

market, the Task Force recommends continuing a government-supported package delivery 

service (at least in the short-term) to ensure that small and medium e-commerce vendors can 

exist alongside large e-commerce vendors. 

 

162 Postal Regulatory Commission, Order Concerning United Parcel Service, Inc.'s Proposed Changes to Postal Service 

Costing Methodologies (UPS Proposals One, Two, and Three), Docket No. RM2016-2, Order No. 3506, 

(September 9, 2016), available at: https://www.prc.gov/docs/97/97114/Order3506.pdf. 163 Postal Regulatory Commission, Order Establishing Ratemaking Regulations for Market Dominant and Competitive 

Products, Docket No. RM2007-1, (October 29, 2007), available at: 

https://www.prc.gov/docs/58/58026/FinalRuleswithTOC.pdf. 164 United States Court of Appeals for the District of Columbia Circuit, United Parcel Service, Inc. v. Postal 

Regulatory Commission, 890 F.3d 1053, (Decided May 22, 2018), available at: 

https://www.cadc.uscourts.gov/internet/opinions.nsf/E9845DA7ACC1A2CD85258295004D5A06/$file/16-1354-

1732076.pdf. 165 Postal Regulatory Commission, Notice of Proposed Rulemaking to Evaluate the Institutional Cost Contribution 

Requirement for competitive Products, Docket No. RM2017-1, (February 8, 2018), available at: 

https://www.prc.gov/docs/103/103724/Order%20No.%204402.docx. 166 United States Postal Service, Revenue, Pieces and Weight (RPW) FY 2017, available at: 

http://about.usps.com/who-we-are/financials/revenue-pieces-weight-reports/fy2017.pdf.
United States Postal Service: A Sustainable Path Forward

56

Operational Structure, Governance, and 

Long-term Liabilities

A. Overview

The size and complexity of the USPS, coupled with its unique, corporate-like structure as an 

“independent establishment of the executive branch” that is subject to various federal 

statutes and regulations, has resulted in significant operational challenges.

167 The current 

operational structure assumes that mail volume and revenue will increase with population 

and economic growth, as they did for two centuries. The USPS is facing several significant 

long-term challenges, including declining First-Class and Standard Mail, the annual increase 

in the number of addresses to which the USPS must deliver, and the ongoing growth in 

long-term liabilities. This section will discuss the USPS’s operational structure, governance

and regulation, and long-term liabilities, and provide recommendations to help to ensure the 

financial health of the USPS is restored. 

B. Background

Operational Structure

The USPS’s operational structure enables the USPS to fulfill its mandate to “bind the Nation 

together.” To do so, the USPS delivers 146 billion pieces of mail and packages to more than 

159 million households and businesses annually. The USPS employs approximately 634,000

people, which account for around 76 percent of the USPS’s operating costs, and operates 

more than 35,000 retail locations and 370 mail processing facilities.

168,169

Operating Costs

The USPS’s operating costs are expected to continue to grow as new delivery points are 

added and as the requirements for package delivery expand. The USPS projects that it will 

need to increase its average annual capital spending by approximately 70 percent over the 

 

16739 U.S.C. § 201.

168 United States Postal Service, Form 10-K for the Fiscal Year Ended September 30, 2018, available at: 

http://about.usps.com/who-we-are/financials/10k-reports/fy2018.pdf. 169 United States Postal Service Form 10-K reports for years 2015-2017, available at: http://about.usps.com/who-weare/financials/.
United States Postal Service: A Sustainable Path Forward

57

next 10 years.170 The increased spending is needed not only to account for the USPS’s 

shifting business model, but also in order to make many critical infrastructure investments

that have been deferred in recent years due to financial shortfalls. These investments include 

the acquisition of new delivery vehicles to replace its aging existing fleet and processing 

equipment that will enable the USPS to improve its efficiency.

Labor Costs

Current law specifies that the officers and employees of USPS “shall be in the postal career 

service, which shall be part of the civil service.”171 Career postal employees are represented 

by nine unions and two management associations. Postal workers, like most federal civil 

service employees, participate in the Civil Service Retirement System (CSRS) or the Federal 

Employees Retirement System (FERS), as well as in the Federal Employees Health Benefits 

Program (FEHB), and are covered by the Federal Employees Compensation Act for 

workers’ compensation claims. However, unlike other federal workers, the PRA authorizes 

collective bargaining on compensation, some benefits, and conditions of employment, and 

postal unions are therefore able to negotiate compensation, benefits, and working 

conditions.172 Given their federal employee status and the role that the USPS plays in the 

economy, USPS employees maintain a unique collective bargaining position. They can

bargain for wages and benefits as private sector unions do, without the same level of risk 

that their company will go out of business. 

In recent years, the USPS has been able to achieve limited labor reforms. Postal salaries 

have risen at slower rates than those in the private sector, collective bargaining agreements 

have gradually transferred a portion of health premiums from the USPS to individual 

workers, and the USPS has been able to lower the number of employees, from a high of 

over 905,000 in 1999 to around 634,000 in 2018, relying more heavily on non-career 

employees. However, the USPS’s labor costs continue to represent a significantly higher 

proportion of total operating costs than its private sector competitors. Additionally, “no 

layoff” clauses exist in many of the USPS’s collective bargaining agreements, limiting 

management’s ability to adapt the USPS’s business model.

New Revenue Streams

The USPS’s ability to expand into competitive markets is limited. Legislation is required for 

the USPS to offer new non-postal or non-governmental products and services and new 

experimental postal products and services require PRC approval as well as extensive market 

testing.

173,174 

 

170 United States Government Accountability Office, U.S. Postal Service: Projected Capital Spending and Processes for 

Addressing Uncertainties and Risks, GAO-18-515, (June 2018), available at: 

https://www.gao.gov/assets/700/692859.pdf. 171 39 U.S.C. § 1001(b). 172 39 U.S.C. § 1005(f).

173 See 39 U.S.C. § 404(e).

174 39 U.S.C. § 3641; 39 C.F.R. § 3035.5.
United States Postal Service: A Sustainable Path Forward

58

Governance and Regulation 

There are three elements of the governance structure of the USPS, including the Governors, 

the PRC, and the Postmaster General.

The Governors are considered the “head of the agency” and are responsible for directing the 

operations of the USPS and appointing the Postmaster General. There are nine Governor 

positions, with staggered, seven year terms, of which no more than five can be from the 

same political party, and of which four must have experience overseeing large organizations. 

The Governors are appointed by the President and must be confirmed by the U.S. Senate.

Between December 2016 and August 2018, the Board had no Governors. In August 2018, 

the Senate confirmed two Governors, who were the first Governors confirmed by the 

Senate since 2010. A third Governor is awaiting confirmation by the Senate. Without 

Governors, the Postmaster General managed the USPS’s financial and operational 

challenges without strategic direction and guidance, exacerbating management’s limited 

power to effect needed organizational change. 

The PRC is an independent agency that exercises regulatory oversight of the USPS price

changes, costs allocations, and certain operations. It does not have regulatory authority over 

the full range of USPS operations. There are five Commissioner positions, of which no 

more than three can be from the same political party. Commissioners are appointed by the 

President and must be confirmed by the U.S. Senate. There are currently four PRC 

Commissioners, with a fifth pending confirmation by the U.S. Senate. 

The Postmaster General is appointed by the Governors, under a term of service determined 

by the Governors, to lead the day-to-day operations of the USPS. The Postmaster General 

and Deputy Postmaster General are members of the Board of Governors. The current 

Postmaster General has held the position since 2015.

Long-Term Liabilities

Despite the USPS’s attempts to contain labor costs, each of its three major benefit programs 

imposes a large long-term liability on the USPS unrelated to either the productivity of its 

workforce or the “profitability” of the USPS. While the USPS can negotiate some of the 

cost sharing of these benefits, the provision of these benefits is governed by statute.175 The 

USPS has over $126 billion in unfunded worker liabilities stemming from its pensions ($43.5

 

175 39 U.S.C. § 1005(c), (d), and (f).
United States Postal Service: A Sustainable Path Forward

59

billion), retiree health benefits ($66.5 billion), and the federal workers’ compensation 

program ($16.4 billion).176 

Pensions

As noted above, Postal workers, like most federal civil service employees, participate in the 

Civil Service Retirement System (CSRS) or the Federal Employees Retirement System 

(FERS). The combined USPS unfunded liability for these programs was $43.5 billion as of 

the end of FY 2018.177 The USPS, like federal agencies, cannot change the structure of these 

benefits. Although the 1974 Employee Retirement Income Security Act prevents private 

companies from taking away pension benefits that workers have already earned, it allows 

them to end all accruals going forward, even for current employees. There is an ongoing 

trend for private companies to either end future accruals or terminate their defined benefit 

plans altogether to reduce the amount of long-term liabilities on their books. 

Retiree Health Benefits

The Office of Personnel Management (OPM) operates the Federal Employees Health 

Benefits (FEHB) Program, which provides health benefits for retired federal employees, 

including retired USPS employees. As a general rule, OPM pays for part of these retiree 

health benefits, rather than the federal agency that previously employed the retiree. These 

payments are made from an appropriation to OPM, meaning that the general taxpayer funds 

the federal government’s FEHB contribution.

178 The exception to this funding rule is for 

the retiree health benefits of retired USPS employees. For years, the USPS has been the one 

civilian entity that is statutorily required to pay OPM directly for the cost of its retiree health 

benefits.179

In managing the government wide program, OPM pays only the current year premiums for 

retiree health benefits, paying on a pay-as-you-go basis. OPM does not make contributions 

into a fund for future federal employee retiree health benefits, meaning that the future 

liability for federal employee health benefits is not pre-funded. An exception to this funding 

practice exists for the USPS. Since passage of PAEA, the USPS has been statutorily required 

to make annual contributions into the Postal Service Retiree Health Benefits Fund 

(PSRHBF), which is administered by OPM, to cover the liability for future USPS retiree 

health benefits.180 Based on the balance in the PSRHBF at the end of FY 2017, this future 

liability is only 44 percent funded. 

 

176 United States Postal Service, Form 10-K reports from 2007-2018, available at: http://about.usps.com/who-weare/financials/. 177 United States Postal Service, Form 10-K for the Fiscal Year Ended September 30, 2018, available at: 

http://about.usps.com/who-we-are/financials/10k-reports/fy2018.pdf. 178 The law provides that the federal government’s contribution may not exceed 75 percent of the 

“subscription charge.” 5 U.S.C. § 8906(b)(2). This means that most federal annuitants pay at least 25 

percent of the cost of their health insurance.

179 See 5 U.S.C. § 8906(g).

180 5 U.S.C. § 8909a.
United States Postal Service: A Sustainable Path Forward

60

Although the USPS made $21 billion in contributions to the PSRHBF for its future retiree 

health benefits from 2007 through 2010, as required by law, the USPS has failed to make its 

required annual contributions since that time. The USPS has used nonpayment of its 

statutorily required contributions to the PSRHBF as its primary means to maintain sufficient 

cash balances needed to continue day-to-day postal operations. As a result of the missed 

contributions, the USPS maintains a payable and OPM, as administrator of the PSRHBF, 

has a corresponding receivable of $43 billion for unfunded USPS retiree health benefits. 

Congress required the USPS, rather than the general taxpayer, to fund the retiree health 

benefits of its employees as part of a mandate for postal self-sustainability under which the 

USPS functions as an off-budget entity. The USPS is exempt from any general limitations 

on expenditures imposed on the United States Government. It is permanently allowed to 

spend its revenues without fiscal year limitation and it maintains limited borrowing 

authority.181 

Federal Workers’ Compensation Program

The USPS participates in the federal workers’ compensation program administered by the 

Department of Labor (DOL).

182 When an injured employee receives a favorable ruling for 

disability claims, the USPS lists the discounted value of all future payments as a liability on 

its books. Most payments are made in installments, and as a result, the liability remains on 

the USPS books until the payments stop. As of the end of FY 2018, the total liability for 

disability claims amounted to $16 billion. 

C. Findings and Recommendations

Operations

USPS’s dual-labor model – combining private sector collective bargaining law with 

government employee compensation law – creates unsustainable labor costs. USPS 

employee rights should be more closely aligned with other federal employee rights 

by eliminating collective bargaining over compensation.

The Task Force recommends that the Federal Service Labor-Management Relations Act be 

amended to apply to the USPS and its employees, and remove USPS compensation from 

collective bargaining. Doing so would enable the USPS to address the costs and 

complications with its current labor system, and allow for better workforce planning and 

cost control within its rapidly evolving business model. In the meantime, the USPS should 

take immediate action where current statutory authority exists, including, but not limited to, 

 

181 39 U.S.C. §§ 2003(a), 2005, and 2011(a)(2).

182 39 U.S.C. § 1005(c); and 5 U.S.C. § 8101 et seq.
United States Postal Service: A Sustainable Path Forward

61

aligning collective bargaining agreements with these principles. USPS employees should not 

be afforded protections and rights not enjoyed by other federal employees. 

USPS employee wages should be reformed in a manner consistent with proposed 

reforms pertaining to the broader federal workforce outlined in the President’s 

Management Agenda. 

Although the USPS has reduced the total number of its employees since 2000, the USPS’s 

labor costs continue to represent a significantly higher proportion of total operating costs 

when compared to its private sector competitors. USPS employees enjoy a pay and benefits 

premium over their private sector counterparts, although the size of this premium is likely 

falling. Consistent with the President’s Management Agenda to modernize the government 

workforce and better align the compensation of federal employees with the labor market, the 

Task Force recommends that the USPS more closely align compensation for both its career 

and non-career workers with peers in the broader labor market. 

The USPS should explore new business opportunities that allow it to extract value 

from its existing assets and business lines. 

In addition to franchising the mailbox, the USPS should explore supplying services for 

Federal, State, and local government entities that have substantial scale, would generate 

revenue, and would not present a balance sheet risk to the USPS. For example, the USPS 

could expand government services by processing certain licenses, such as those for hunting 

and fishing. The USPS could also capture additional value from its existing retail offices by 

converting post offices into contract post offices or by co-locating with or renting space to 

complementary retail establishments. 

Given the USPS’s narrow expertise and capital limitations, expanding into sectors where the 

USPS does not have a comparative advantage or where balance sheet risk might arise, such 

as postal banking, should not be pursued.

Governance and Regulation

The USPS suffers from a lack of institutional governance, both in authority and in 

practice, and there is an immediate need for the U.S. Senate to confirm Governors.

The Governors have the authority to select the Postmaster General and Inspector General, 

as well as to approve and oversee the practices and policies of the USPS. However, their 

ability to direct USPS activities is limited by law and subject to oversight by other authorities 

such as Congress, the PRC, arbitrators, and GAO.183 

 

183 United States Postal Service, Office of Inspector General, Governance of the U.S. Postal Service, RARC-WP17-002, (November 10, 2016), available at: https://www.uspsoig.gov/sites/default/files/document-libraryfiles/2016/RARC-WP-17-002.pdf.
United States Postal Service: A Sustainable Path Forward

62

Further, there are only two Governors confirmed, severely limiting the Board of Governor’s 

ability to effectively direct and control USPS expenditures and review the practices and 

policies of the USPS. There is an immediate need for the U.S. Senate to confirm additional 

Governors. The Board of Governors should move to create a new policy mandate that 

resets the USPS’s organizational direction and develops financial targets that move the USPS 

toward the achievement of a sustainable business model. Governance should be 

strengthened with expanded Board controls and increased accountability. Moreover, if the 

USPS is unable to achieve a sustainable business model and satisfy its financial commitments 

to other federal agencies, the PRC should be given stronger regulatory authority to take 

necessary revenue and expense measures.

The Postal Regulatory Commission authorities are limited, leaving gaps in the 

supervision of significant USPS monopoly and competitive activities. 

The PRC exercises regulatory oversight of the USPS’s price changes, cost allocations, and 

certain operations. It does not have regulatory authority over the full range of USPS 

operations. While the PRC can recommend changes to service standards, it cannot direct 

USPS to make these changes; however, the PRC can take action to ensure that the USPS 

complies with existing service standards following the receipt of a valid complaint. The PRC 

generally cannot force the USPS to make major changes in its operations or to make capital 

investments to meet a service standard.184 As a result, many aspects of the USPS’s 

operations lack independent regulatory oversight. 

The Task Force recommends strengthening the regulatory oversight role of the PRC, 

providing them with expanded controls, imposing increased accountability on the USPS.

Benefits

USPS represents approximately 46 percent of the federal government’s workers 

compensation cost.185 The Federal Employees Compensation Act should be 

reformed as proposed in the President’s FY 2019 Budget.

Postal workers are more likely to be injured on-the-job due to the physical and outdoor 

nature of their work, as contrasted with the sedentary office work of most other federal 

employees. The Task Force recommends pursuing reforms to the Federal Employees 

 

184 PRC has robust enforcement authority. It can order fines in cases of deliberate noncompliance; it has 

subpoena authority; and it can bring suit in federal district court to enforce and enjoin and restrain the 

USPS from violating its orders. 39 U.S.C. §§ 3662 and 3664. 

185 United States Department of Labor, Office of Workers’ Compensation Programs, Annual Report to the 

Congress, Fiscal Years 2013, 2014 and 2015, (2017), available at 

https://www.dol.gov/owcp/AnnualReportOWCPFY201320142015.pdf.
United States Postal Service: A Sustainable Path Forward

63

Compensation Act, that were included in the President’s FY 2019 Budget with an estimated 

net savings of $117 million over ten years.186

While the USPS pension liabilities are better funded than those of the rest of the 

federal government, they would benefit from further reform. 

USPS has funded 87 percent of its CSRS liabilities and 88 percent of its FERS liabilities, 

compared to 14 percent and 83 percent, respectively, for the federal government.187,188 

Notwithstanding USPS’s positive funded percentages, reforms are needed for the Federal 

Employee Retirement System, in which USPS employees participate, to increase employee 

contributions and to convert, where possible, to a defined contribution system. These 

would require legislative changes.

The USPS, not the taxpayer, is responsible for funding the USPS’s retiree health 

costs and the Task Force believes that it should remain this way.

As noted above, Congress required the USPS, rather than the general taxpayer, to fund the 

retiree health benefits of its employees as part of a mandate for postal self-sustainability 

under which the USPS functions as an off-budget entity. The Task Force does not believe 

that this general policy should change or that the liability for USPS retiree health benefits 

should be shifted to the general taxpayer, either directly or through future federal 

appropriations. 

However, as a further principle of reform, the Task Force believes that the obligation, 

including the $43 billion in pre-funding payments that the USPS failed to pay into the 

PSRHBF and the unfunded actuarial liability, must be restructured with the payments reamortized with a new actuarial calculation based on the population of employees at or near 

retirement age. 

 

186 Office of Management and Budget, Budget of the U.S. Government: 2019, available at: 

https://www.whitehouse.gov/wp-content/uploads/2018/02/msar-fy2019.pdf. 187 United States Postal Service, Form 10-K for the Fiscal Year Ended September 30, 2017, available at: 

http://about.usps.com/who-we-are/financials/10k-reports/fy2017.pdf. 188 United States Office of Personnel Management, Civil Service Retirement and Disability Fund Annual Report, 

Fiscal Year Ended September 30, 2017, available at: https://www.opm.gov/about-us/budget-performance/otherreports/fy-2017-csrdf-annual-report.pdf.
United States Postal Service: A Sustainable Path Forward

64

Appendix A – Task Force Recommendations

 

189 39 U.S.C. § 403. Section 403(a) provides that the USPS “shall serve as nearly as practicable the entire 

population of the United States.”

Recommendation Policy Action

Universal Service Obligation (USO)

Definition

Clearly define the USO. Provide a targeted definition of minimum, essential 

postal services, that due to specific social and economic needs have a basis 

for government protection. 

Administrative

Geographic Scope

Keep current practice, which designates that the USO includes all addresses 

in the country covering “the United States, its territories and possessions,”189

irrespective of population density.

Administrative

Number and Density of Post Offices and Collection Boxes

Establish a rule that specifies that access to the postal system must only be 

sufficient to implement defined USO standards for delivery. 

Administrative

Delivery Frequency

Provide greater flexibility to determine mail and package delivery frequency. Legislative

Mode of Delivery

Maintain current discretion to determine mode of delivery consistent with a 

financially sustainable business model. Administrative

Processing Standards

Keep current practices, which allow the USPS to manage processing 

standards. Administrative

USO Funding

Review and determine if income generated by activities defined to be outside 

of the USO could be optimized to cover the costs of funding the USO. Administrative
United States Postal Service: A Sustainable Path Forward

65

Recommendation Policy Action

Mail and Package Markets

Business Model

Develop a new model that can be used to both set rates and control costs to 

achieve sustainability. Administrative

Require price increases, reduce service costs, or exit the business for any mail 

products that are not deemed an essential service and do not cover their direct 

costs. 

Administrative

Product Classes

Redefine mail classes by creating products defined by the type of sender and 

the declared purpose of the mail item. Administrative

Change USPS systems in order to track the purposes and uses of mail, to allow 

for better cost allocation, targeted pricing, and more business intelligence.

Administrative

Strategic Options

Evaluate areas of USPS operations where the USPS could expand third party 

relationships in order to provide services in a more cost efficient manner (e.g., 

mid-stream logistics and processing). 

Administrative

As a means of generating more income, the mailbox monopoly could be 

monetized. Administrative

Price competitive products in a manner that maximizes revenues and 

generates income that can be used to fund capital expenditures and long-term 

liabilities.

Administrative

Costing Options

Develop a new cost allocation model to establish full price transparency and 

fully distribute costs. Administrative

Establish a separate balance sheet for packages to help prevent crosssubsidization between the mail and package business units. Administrative
United States Postal Service: A Sustainable Path Forward

66

Recommendation Policy Action

Operating Model

Operations

Align USPS employee rights with other federal employee rights by 

eliminating collective bargaining over compensation for USPS employees. Legislative

Pursue reforms to USPS employee wages consistent with those proposed for 

the broader federal workforce in the President’s Management Agenda. Legislative

Explore and implement new business lines that generate revenue, and that 

present no balance sheet risk to the USPS. Legislative

Governance and Oversight

Strengthen the governance and regulatory oversight of USPS. This could be 

achieved through reforming, but maintaining, the existing institutional 

structures or by changing the institutional structures, which would require 

legislation. 

Legislative

Institute a new policy mandate for management that sets organizational 

direction and financial targets, which align with a sustainable business model

and establish an enforcement mechanism if the existing Board is unable to 

meet these targets. 

Legislative

Strengthen the regulatory oversight role of the PRC, providing the PRC with 

expanded controls, imposing increased accountability on the USPS. Legislative

Benefits

Pursue reforms proposed to the Federal Employees Compensation Act that 

are included in the President’s FY 2019 Budget. Legislative

Pursue reform of the Federal Employee Retirement System that would 

increase employee contributions and move toward a defined contribution 

system.

Legislative

Maintain but restructure the retiree health benefits liability, including the $43 

billion in pre-funding payments that the USPS failed to pay into the Postal 

Service Retiree Health Benefits Fund and the unfunded actuarial liability, 

with the total liability re-amortized with a new actuarial calculation based on 

the population of employees at or near retirement age. 

Legislative
United States Postal Service: A Sustainable Path Forward

67

Appendix B – Participants List

USPS Employee Organizations

American Postal Workers Union 

National Active and Retired Federal Employees Association

National Association of Letter Carriers

National Association of Postal Supervisors 

National Postal Mail Handlers Union

National Rural Letter Carriers’ Association 

United Postmasters of America 

Associations

Association for Postal Commerce 

Association for Print Technologies

Association of Magazine Mailers

Alliance of Nonprofit Mailers

Association of United States Postal Lessors

American Forest and Paper Association 

American Bankers Association

Coalition for a 21st Century Postal Service

Data & Marketing Association 

Data-Mail Inc.

Envelope Manufacturers Association

Greeting Card Association

International Mailers Advisory Group 

IWCO Direct

Major Mailers Association 

Meredith Corporation

National Association of Presort Mailers

National Newspaper Association

Parcel Shippers Association

Printing Industries of America

Publishers Clearinghouse
United States Postal Service: A Sustainable Path Forward

68

Private Sector

Amazon

DHL

Express Scripts

eBay 

FedEx

Hallmark

International Paper

Quad Graphics 

Pitney Bowes

RR Donnelley

UPS

Consumer Groups

Consumer Action

Citizens Against Government Waste 

State, Local, and Tribal

National Association of Counties

National Congress of American Indians

National Governor’s Association

National League of Cities 
United States Postal Service: A Sustainable Path Forward

69

Acronyms and Abbreviations

B2B Business-to-Business

B2C Business-to-Consumer

COLA Cost of Living Allowance

CPI-U Consumer Price Index for all Urban Consumers

CSRS Civil Service Retirement System

Department Post Office Department

FEHB Federal Employees Health Benefits Program

FERS Federal Employees Retirement System

GAO U.S. Government Accountability Office

Governors USPS Board of Governors

MSP Mail Service Providers

NSA Negotiated Service Agreement

OIG Office of Inspector General

OMB Office of Management and Budget

OPM Office of Personnel Management

PAEA Postal Accountability and Enhancement Act of 2006

PRA Postal Reorganization Act 

PRC Postal Regulatory Commission

PSRHBF Postal Service Retiree Health Benefits Fund

UPU Universal Postal Union

USO Universal Service Obligation

USPS United States Postal Service

Task Force Secretary of the Treasury, Director of the Office of Management and 

Budget, Director of the Office of Personnel Management

Treasury U.S. Department of the Treasury

Acronyms and 

Abbreviations Terms