January 2001 Major Managem

Challenges and 

Program Risks

U.S. Postal Service

GAO-01-262

Page 1 GAO-01-262 U.S. Postal Se

Letter 

Overview 

Major 

Performance 

and 

Accountability 

Challenges

Related GAO 

Products

Performance 

and 

Accountability 

Series
Page 2 GAO-01-262 U.S. Postal Se
of th

Page 3 GAO-01-262 U.S. Postal Se

United States General Accounting Office

Washington, D.C. 20548

January 2001

The President of the Senate

The Speaker of the House of Representati

This report addresses the major performa

accountability challenges facing the U.S. P

as it seeks to bind the nation together thro

correspondence of the people, to provide 

communities, and to offer prompt, reliable

postal services at uniform prices. It includ

of actions that the Service has taken and t

way to address these challenges. It also o

actions that GAO believes are needed. Th

should help the new Congress and admini

out their responsibilities and improve gov

the benefit of the American people.

This report is part of a special series, first 

January 1999, entitled the Performance an

Accountability Series: Major Management 

and Program Risks. In that series, GAO a

Congress that it planned to reassess the m

and criteria used to determine which fede

government operations and functions sho

highlighted and which should be designat

risk.” GAO completed the assessment, co

comments provided on a publicly availabl

draft, and published its guidance docume

Determining Performance and Accountab

Challenges and High Risks (GAO-01-159SP

November 2000.

The full 2001 Performance and Accountab

contains separate reports on 21 agencies-

cabinet department, most major independ

and the U.S. Postal Service. The series als
Page 4 GAO-01-262 U.S. Postal Servi

governmentwide perspective on performanc

management challenges across the federal g

As a companion volume to this series, GAO i

update on those government operations and 

that its work identified as “high risk” becaus

their greater vulnerabilities to waste, fraud, a

mismanagement or major challenges associa

their economy, efficiency, or effectiveness.

David M. Walker

Comptroller General 

of the United States
Page 5 GAO-01-262 U.S. Postal Servi
Page 6 GAO-01-262 U.S. Postal Se

In fiscal year 2000, the U.S. Postal Service 

nearly one-third of the federal civilian wo

provided delivery services for almost 208 

of mail to more than 130 million househol

businesses, and earned almost $65 billion 

revenue. Both Congress and the public ex

Service to fulfill its primary mission of pro

universal postal service at reasonable rate

remaining self-supporting from postal reve

during the late 1990s the Service improve

position through net income exceeding 

$5 billion and improved the timely delivery 

Mail. Moreover, in fiscal year 2000, the Ser

productivity and implemented cost-cuttin

while generally maintaining its overnight 

Mail delivery performance. However, mail 

more slowly than expected, and postal co

difficult to restrain. Thus, the Service incu

of almost $200 million in fiscal year 2000. 

postal rates are scheduled to increase in e

Looking ahead, we have reported that the 

faces an uncertain future as competition in

communications and delivery services sec

Service has reported that it faces significa

from electronic substitution of mailed bill

payments and anticipates a financial sque

from declining First-Class Mail volumes th

postal overhead costs. Thus, a key oversig

identified for the Postal Service, Congress

American people was whether the Service 

headed for financial shortfalls that could, 

run, hinder its ability to remain self-suppo

carrying out its mission of providing affor

universal postal services that bind the nat

The potential consequences if the Service 

of large financial deficits could be increas

rates, declines in service quality, consolid

closure of some facilities, or reconsiderat

scope of postal services as well as postal 
Page 7 GAO-01-262 U.S. Postal Servi

The Postal Service is also challenged to oper

uncertain legal and regulatory environment, 

unresolved regulatory issues about the Posta

future role and an ongoing debate over whet

fundamental changes should be made to the 

regulatory system governing the Service. 

The Postmaster General recently said that th

Service is at a crossroads with regard to its a

continue to provide affordable universal serv

successful, the Service must address formida

challenges in five key areas. 

Remain selfsupporting 

We have reported that the Service faces grow

challenges from competition, notably from p

delivery companies and electronic communi

alternatives such as the Internet. The Service 

that such competition will lead to substantia

the Service’s First-Class Mail volume in the n

We have also reported that should this occur, 

will likely face unprecedented challenges as 

fulfill its primary mission of providing univer

• Remain self-supporting while providing 

affordable, high-quality universal service

• Control costs and improve productivity

• Address long-term human capital issues

• Provide complete and reliable performance 

information

• Address legal and regulatory issues
Page 8 GAO-01-262 U.S. Postal Se

service at reasonable rates while remainin

supporting from postal revenues. Althoug

to predict the timing and magnitude of fur

volume diversion to electronic alternative

potential financial consequence, the Servi

forecast calls for total First-Class Mail vol

at an average annual rate of 3.6 percent fro

2004 through 2008. 

The Service has reported that it can susta

over the next 5 years by “dramatically cut

seeking new revenue sources within the c

regulatory structure.” However, the Servi

reported that planned reductions in its co

sufficient to keep future rate increases be

especially for any mail categories that tak

burden of supporting postal infrastructure 

result of volume loss in other categories. 

Service has recognized the difficulty of ge

significant revenue from new products and 

the next 5 years. Historically, as our 1998 r

the Service’s new product and service init

underway during the mid-1990s generally 

profitable.

Control costs We testified in 1998 and 1999 House posta

hearings that the Service’s continued succ

depend heavily on its ability to control op

and improve productivity. As the Postal S

stakeholders have recognized, long-term i

productivity will be essential to controllin

thus keeping postage rates affordable. Nu

reports, including some by us, have noted 

in the postal system and difficulties the Se

in realizing opportunities for savings. Post

has increased only about 11 percent over 

decades, despite substantial investments 

and information technology. The Service’s 

achieve “breakthrough” productivity incre
Page 9 GAO-01-262 U.S. Postal Servi

generate $3 billion to $4 billion cost savings 

Most of the savings are to come from produc

increases in mail processing operations, whil

savings are to come from administrative acti

purchasing, transportation, and other operat

The Service’s ability to improve productivity 

costs is, however, constrained by a number o

such as its requirement to maintain a nationa

infrastructure of post offices, many of which 

and unprofitable. Despite heavy investments 

automation over the past decade, postal labo

costs continue to account for over three-quar

operating expenses. In addition, some emplo

expenses are rising and are difficult to contr

retirement, health care, and workers compen

costs. 

Human capital 

issues

We believe that with a workforce of more th

employees, the Postal Service faces difficult 

capital challenges that must be successfully 

to maintain organizational effectiveness and 

the workplace environment as well as contro

costs. These challenges include (1) restructu

postal workforce and reducing the number o

employees, (2) maintaining effective operati

executives and about half of the postal work

retirement eligibility over the next decade, a

(3) ameliorating persistent problems in the w

that have been exacerbated by decades of ad

labor-management relations. The Postal Serv

capital problems can be seen as part of a bro

pattern of human capital shortcomings that h

mission capabilities across the federal gover

our High-Risk Series: An Update (GAO-01-263

for a discussion of human capital as a newly 

governmentwide high-risk area.
Page 10 GAO-01-262 U.S. Postal Se

Progress, however, will not be easy. By law

arbitration board imposes a labor-manage

when the parties fail to agree, and binding 

has often been used to settle impasses in 

negotiations. As of December 2000, contra

expired between the Service and three of 

labor unions, and the parties had been un

agreement in contract negotiations. The S

reported that it is bound by extensive wor

other regulations that hamper flexibility a

Further, the Service has stated it is alread

problems in recruiting, motivating, and re

employees, especially in the technical, pro

managerial categories, and it will face suc

as a substantial number of managers reac

age. Moreover, as we have reported, persi

workplace problems have impeded effort

efficiency and effectiveness. One indicatio

impediments is the time and cost expende

about 146,000 pending or appealed grieva

recommended that postal management an

the postal labor unions and management 

develop a long-term framework agreemen

the workplace environment. Although the 

held a series of meetings, such a framewo

has not been developed. On the other han

has reached agreements with some of the 

address specific workplace issues such as 

of employee grievances. Further, the Serv

the “Voice of the Employee” one of its top 

corporate goal areas, established specific 

improvement, and initiated numerous pro

improve the workplace environment.

Performance 

information

We remain concerned about the quality an

transparency of the Postal Service’s perfo

information. Without complete and reliabl

data, the Service and other stakeholders c

determine the Service’s progress towards 
Page 11 GAO-01-262 U.S. Postal Servi

intended performance results. For example, w

that the Service’s financial data for its electr

commerce (e-commerce) initiatives were no

sufficiently complete and reliable to assess t

performance. The Service agreed with our 

recommendation that it provide complete an

information on its e-commerce costs and rev

said it is instituting a standard financial repo

procedure in this area. 

In addition, we recently reported that the Po

Service’s annual performance plans and perf

reports may not have been as useful to Cong

managers, and customers as they could have 

part because they contained incomplete and 

misleading explanations of some results. We 

recommended, and the Service agreed, that t

should make its future performance reports 

straightforward and clearly stated compariso

planned targets and results. In addition, we 

recommended that the Service’s future perfo

plans should have clear criteria for measurin

performance and provide more complete exp

of its goals and strategies. In response, the Se

changes that strengthened its final annual pe

plan for fiscal year 2001. 

Legal issues The Postal Service is challenged to operate i

uncertain legal and regulatory environment. 

previously reported, postal stakeholders are 

an ongoing debate over whether the Service 

allowed to compete with private companies 

under what circumstances. Congress, the Se

competitors, and others have debated funda

issues regarding the Service’s legal authority 

regulatory framework. Further, some stakeh

raised antitrust and fair competition concern

current and potential alliances and partnersh

involving the Service and others, including p
Page 12 GAO-01-262 U.S. Postal Se

sector companies such as FedEx, as well 

postal administrations. In addition, the Se

raised concerns about its lack of flexibilit

and the lengthy postal ratemaking proces

called for changes to the existing regulato

for setting domestic postal rates. Without 

consensus among postal stakeholders, Co

to be asked to consider various legislative 

concerning the Service’s role and what re

framework should apply to the Service.
Page 13 GAO-01-262 U.S. Postal Se

y g

The Postal Service, the single largest fede

agency, has a mission vital to the nation’s 

communications and commerce. As an in

establishment of the executive branch, th

charged with providing postal services to 

nation together through the personal, edu

literary, and business correspondence of t

Service has a statutory monopoly that res

private delivery of letters to enable the Se

its universal service mandates. To carry o

the Service maintains a delivery and retail 

that includes more than 235,000 city and r

routes; more than 38,000 post offices, stat

branches; and more than 350 major mail p

distribution facilities. This physical infras

continues to grow, and the Service added a

delivery points in fiscal year 2000. Further

required to break even over the long run b

a businesslike manner and currently recei

federal financial assistance to meet its pu

obligations. To change domestic postage r

Service must file a proposal with the indep

Rate Commission (PRC)—starting a comp

that is to result in a PRC-recommended d

10 months and subsequent Service action
Page 14 GAO-01-262 U.S. Postal Servi

• Total revenues of about $65 billion in fiscal 

year 2000.

• Over 900,000 employees. 

• Largest federal civilian agency.

• Ranks 2nd in employment and 8th in 

revenues compared to U.S. companies.

• Mail delivery 6 days each week.

• Uniform postal rates for First-Class letter ma

• Prompt, reliable, and efficient postal service

to patrons in all areas, including rural areas, 

communities, and small towns where post 

offices are not self-sustaining.
Page 15 GAO-01-262 U.S. Postal Se

Remain SelfSupporting While 

Providing 

Affordable, HighQuality Universal 

Service

The Postal Service expects diversion of m

payments to electronic billing and paymen

to cause a substantial decline in First-Clas

and “extreme financial pressure” for the S

financial squeeze—which has already beg

challenge the Service to remain self-suppo

providing affordable high-quality service. T

challenge, the Service’s basic strategy is a 

of aggressive cost-cutting and new revenu

In the long term, the Service will be challe

address the following questions: (1) Can t

maintain and, where necessary, improve o

of mail delivery service? (2) Can the Servi

provide affordable postal rates? (3) Can th

remain self-supporting through postal reve

the Service continue in the long term to p

current level and scope of universal posta

To put its financial and service outlook in

the late 1990s, the Postal Service improve

position through net income of about $5.5 

helped keep postal rates affordable. Over 

period, the Service also improved delivery 

as measured by on-time delivery of First-C

fiscal year 2000, the Service achieved on-t

for 94 percent of overnight First-Class Ma

percent for 2- and 3-day First-Class Mail. H

Postal Service has encountered increasing 

difficulties as its net income decreased an

fiscal years 1995 through 2000, when the S

incurred a deficit of almost $200 million−i

since fiscal year 1994 (see fig.1). Moreove

January 2000, the Service projected $500 m

income for fiscal year 2001, by October 20

projected a $480 million deficit despite a p

increase midway through the fiscal year. T

stated that increases in anticipated expens

fuel costs and cost-of-living allowances, a
Page 16 GAO-01-262 U.S. Postal Servi

than expected revenue growth accounted fo

the difference. 

Figure 1: Postal Service Net Income Is Declining 

Source: U.S. Postal Service.

Looking ahead, competition is increasing fro

delivery companies, foreign postal administr

accepting outbound international mail in the 

States, and electronic communications altern

as the Internet. As an example of trends that 

already affected the Service’s mail volumes, 

Fiscal years

-2,000

-1,500

-1,000

-500

0

500

1,000

1,500

2,000 Dollars (in millions)

1990 1991 1998 1999 1992 1993 1996 1997 2000 2001 1994 1995

Actual

Projected (2001)
Page 17 GAO-01-262 U.S. Postal Se

agencies are mandated to move as quickly 

reduce paperwork and to adopt electronic 

payment. Two-thirds of the 880 million So

checks, tax refunds, and other payments t

by the Department of the Treasury in fisca

were sent electronically, not mailed. Furth

banking industry’s mail volume was almos

lower in 1999 than it was in 1996. Accordi

Service, longer term projections suggest t

of the bills and payments that are current

eventually be replaced with electronic bil

payment alternatives. The Postal Service’s 

Strategic Plan for fiscal years 2001 through 

a baseline assumption of First-Class Mail 

declining by an average of 3.6 percent ann

fiscal years 2004 through 2008 (see fig. 2). 

would be significant because First-Class M

58 percent of the Service’s total revenues 

two-thirds of postal overhead costs in fisc
Page 18 GAO-01-262 U.S. Postal Servi

Figure 2: Postal Service Projects Decline in First-Class Mail Volume 

Source: U.S. Postal Service.

Should projected mail declines occur, one ch

the Service would be continuing to cover its 

costs that do not vary with mail volume—su

for maintaining delivery routes and post offi

Service has warned that its planned cost red

from its “breakthrough productivity” initiativ

capital investment strategies may not be suff

keep future rate increases below inflation, es

any mail categories that would assume more 

costs as volumes decline in other mail categ

-4

-2

0

2

4

6

10

8

Average annual percentage change

Fiscal years

1972-1979 1980-1989 1990-1999 2000-2003 2004-2008

USPS projections

First-Class Mail volume

Standard A mail volume (primarily advertisements)

-3.6

1.5

3.7 4.0

8.6

1.7 1.3 1.6

3.2

2.5
Page 19 GAO-01-262 U.S. Postal Se

Another challenge would be to cut mail pr

other costs that have traditionally been co

vary with volume.

In addition to cutting costs, the Postal Ser

increase net revenues from existing produ

Priority Mail (expedited delivery service), 

forecast to grow through fiscal year 2008 

planning scenario. The Service also aims t

revenues from new products and services

in the electronic-commerce area, which g

involves products and services provided t

the Internet, the Service’s new offerings fa

traditional competitors in the delivery ser

such as FedEx and United Parcel Service 

broad range of competitors, such as techn

companies, financial institutions, and fore

administrations. However, the Service’s St

has warned that no significant new revenu

from new products and services during th

Finally, the Postal Service has noted that m

suggest that the impact on the Service fro

substitution may be even more dramatic t

Service believes. Accordingly, the Service 

rapid diversion scenario in its Strategic Pl

electronic substitutes would supplant not 

presentment and payment, but also busin

communications and direct mail. The Stra

stated that such an outcome would threate

percentage increases in postal prices and r

consideration of alternatives, such as revi

service standards, consolidating or closin

facilities, and reducing other services. Fur

Service would have to reduce its workfor

significantly higher rate than could be abs

attrition or other means. 
Page 20 GAO-01-262 U.S. Postal Servi

Control Costs and 

Improve 

Productivity

The Service has long struggled to reduce cos

increase its productivity. Adding to the diffic

task, the Service has experienced rising infra

costs of adding delivery routes and continue

total mail volume. Further, in 1998, the Servi

a moratorium on closing post offices and by 

allowed to close small post offices solely for 

at a deficit. The Service has recognized that 

aggressive cost management and anticipates 

for a “structural transformation” that is to in

among other things, achieving “breakthrough

productivity savings of $1 billion annually. To 

achieve productivity gains, the Service plans 

capital investments of over $17 billion over t

5 years in automation, modernization, and in

technology. The Service also plans to standa

improve work processes to reduce significan

in quality, productivity, and costs across the 

Service made some progress in fiscal year 20

controlling costs through reducing the numb

workhours by 0.6 percent, which was the fir

reduction since fiscal year 1992. The Service 

further reduce workhours by 1.5 percent in f

2001. 

However, as the Service has recognized, som

employee-related expenses will be difficult t

The Postal Service’s retirement-related and w

compensation expenses have increased in re

and these trends are expected to continue (s

According to the Service, its retirement expe

estimated to increase by $554 million in fisca

to $9.1 billion and are projected to reach $14

fiscal year 2010. In addition to these costs, th

has estimated that its retiree health benefit p

will increase by $114 million in fiscal year 20

$858 million, and the Service has projected t

premiums will reach about $2.0 billion in fisc

2010.
Page 21 GAO-01-262 U.S. Postal Se

The Service is also dealing with rising wo

compensation costs that have been difficu

According to the Service, its workers com

expenses are estimated to increase by $83 

estimated $1.0 billion in fiscal year 2001 a

projected to increase annually to $3.0 billi

year 2010. The Service reported making ef

workers compensation costs, such as effo

employees with work-related injuries or il

to work. For fiscal year 2001, the Service 

specific goals for improving its Occupatio

Health Administration (OSHA) injury/illne

motor vehicle accident rate, and its safety 

evaluation score.
Page 22 GAO-01-262 U.S. Postal Servi

Figure 3: Postal Service Projects Increases in Retirement-Related Costs and Worker

Compensation Costs

Source: U.S. Postal Service.

Recent reports have identified specific oppo

reducing costs. For example: 

• In March 1999, a joint mailing industry/Po

operations review concluded that it had o

system inefficiencies in both postal and m

processes that, along with other factors, 

contributed to increases in the Service’s c

1990

1992

1994

1996

1998

2000

2002

2004

2006

2008

Retirement benefits

Retirement health benefits

Worker's compensation

Dollars (in billions)

0

2

4

6

8

10

12

14

16

Fiscal years
Page 23 GAO-01-262 U.S. Postal Se

handling Periodicals mail. The Service 

mailing industry have since agreed on 

to be taken to address the recommend

review.

• In November 1999, we concluded that 

still could not ensure that it is collectin

revenue due from its business mail op

handle about half of the Service’s mail 

reported the Service had made change

generally along the lines we recommen

and its controls over the acceptance of 

appeared to have improved. However, 

the need for further improvements and 

recommended additional steps the Ser

take to ensure that Service business m

controls were working as intended. Th

acted to implement the recommendati

Stakeholders and the Service have recogn

achieving productivity gains is a key strat

costs. In March 2000, the Mailers Council, 

mailers and mailing associations, reported 

result of these factors, at a time when eve

technology is becoming less expensive, th

the nation’s mail system is becoming more 

ensure the Service’s survival, therefore, th

Council believes postal management mus

considerable skills and resources on those 

control, and thereby generate needed pro

gains.” 

Postal productivity—the relationship betw

Service’s outputs of delivering mail to an e

delivery network and resources expended 

them—increased only about 11 percent in 

decades—despite vast changes in automa

information technology (see fig. 4). In rec

Service has had difficulty making improve

postal productivity, which declined 3.3 pe

fiscal years 1993 to 1999. Although produc
Page 24 GAO-01-262 U.S. Postal Servi

increased by 2.4 percent in fiscal year 2000, i

expected to grow 0.7 percent in fiscal year 2

Service and key stakeholders have recognize

term increases in its productivity will be ess

restraining postal rate increases and thus wi

essential for the Service’s future success.

Figure 4: Postal Service Productivity Growth Since Fiscal Year 1971

Source: U.S. Postal Service.

Fiscal years

1971

1972

1973

1974

1975

1976

1977

1978

1979

1980

1981

1982

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

14 Cumulative percentage change

8

6

4

0

2

12

10
Page 25 GAO-01-262 U.S. Postal Se

Address LongTerm Human 

Capital Issues

With more than 900,000 employees, the Po

faces difficult human capital challenges th

(1) restructuring the postal workforce and 

number of employees, (2) maintaining eff

operations as most executives and about 

postal workforce reach retirement eligibil

next decade, and (3) ameliorating persiste

the workplace that have been exacerbated 

adversarial labor-management relations. T

may face a major transition in each of thes

increasingly affected by declining mail vo

rising human capital costs that are difficu

The Service has recognized the importanc

on these human capital challenges by esta

Voice of the Employee as one of its top th

goals and has implemented and planned a 

initiatives to deal with these challenges. H

successful in a competitive environment, 

and its major unions and management ass

need to find common ground to address l

problems.

Workforce 

Restructuring and 

Reductions

The Service’s Strategic Plan stated that th

decline in postal workload—in part due to 

and the implementation of information te

“will inevitably result in both restructurin

reduction in the workforce.” Some of the 

reductions are to be accomplished throug

staff vacancies and the work associated w

March 2000, the Postmaster General said 

career vacancies had been absorbed throu

and that number would reach at least 20,0

Service moves forward. The Service has r

options that include using contracting ser

overtime, and casual part-time employees 

hiring new employees. However, the Serv

reported that extensive work rules and oth

hamper its flexibility and innovation. 
Page 26 GAO-01-262 U.S. Postal Servi

Retirement and 

Succession Issues

With a large percentage of the postal workfo

retirement eligibility, the Postal Service will 

increasingly challenged to deal with success

continuity, and associated cost issues. This c

includes maintaining the continuity of servic

customers as many experienced managers a

retire and the Service restructures its workfo

Service has projected that among its current 

as of October 2000, in calendar years 2001 an

about 130,000 postal employees are already 

projected to reach eligibility for regular retir

including 36 percent of executives, 25 percen

managers and supervisors, and 16 percent of 

workforce. By calendar year 2010, 85 percen

executives, 74 percent of postal managers an

supervisors, and 50 percent of the career wo

reach retirement eligibility, according to Serv

projections (see fig. 5).
Page 27 GAO-01-262 U.S. Postal Se

Figure 5: A Large Percentage of the Postal Workforce Is Nearing Retirement Eligi

Source: U.S. Postal Service.

The Service has reported it faces potentia

succession problems in the managerial ra

replacing large numbers of experienced m

Service has said that executives, manager

supervisors will require new and different 

those in the past, with a premium on techn

0

20

40

60

80

100

25

24

29

20

22

12

16

25

36

85

74

50

Percentage retirement-eligible

Executives Managers

and 

supervisors

Craft

employees

Postal workforce

Calendar years 2006-2010

Calendar years 2003-2005

Calendar years 2001-2002
Page 28 GAO-01-262 U.S. Postal Servi

the ability to communicate with a more dive

workforce. The Service reported establishin

for executive succession planning to develop 

corporate needs and to foster diversity amon

leadership ranks, as well as programs for de

managers and first-line supervisors. 

Address Problems 

in the Postal 

Workplace 

We have issued several reports related to the 

standing problems in the postal workplace th

been exacerbated by adversarial labor-mana

relations. As the Service’s Strategic Plan reco

solution to the need for improved workplace 

must be found if the Postal Service and the a

postal jobs are to survive in the more compe

of the future.” The Strategic Plan said that “

Service has a long way to go to more effectiv

efficient management of the enterprise with t

of a workplace that is safe and meets employ

for dignity, respect, and opportunity.” To this 

Service has implemented a number of initiat

established specific goals to improve the wo

environment, such as (1) improve employees

security, and well-being; (2) improve workpl

relations by building leadership skills and be

(3) improve understanding of employee issu

concerns; and (4) ensure an inclusive and fa

environment with opportunities for all emplo

Our past reports have found that postal work

labor-management relations problems had ge

contributed to a sometimes contentious wor

environment and lower productivity, notably 

processing and letter delivery operations. We 

reported that the parties could not agree on 

approaches for addressing the problems, wh

prevented them from sustaining the intended 

specific improvement efforts that could help 

the workplace climate. We recommended th

management and the heads of the postal lab
Page 29 GAO-01-262 U.S. Postal Se

and management associations develop a l

framework agreement to improve the wor

environment. Although the parties have h

meetings, such a framework agreement h

developed. 

In other areas, however, the Postal Servic

taking a number of steps to improve the w

environment. For example, the Service de

national mediation program in 1999 to res

expedite employee complaints at the lowe

level. According to the Service’s General C

program, called Resolving Employee Disp

Equitable Solutions Swiftly (REDRESS), h

reduce the number of Equal Employment 

(EEO) complaints, reversing the past tren

EEO complaints. In addition, the Service 

agreements with some of the unions to ad

workplace issues, such as the handling of 

grievances. Recently, the Service reported 

progress in reducing the number of grieva

efforts such as streamlining the grievance 

placing more accountability on resolving 

the local level. We testified in September 

the end of fiscal year 1999, the Service rep

than 210,000 pending or appealed grievanc

of fiscal year 2000, the Service reported re

under 147,000 pending or appealed grieva

Provide Complete 

and Reliable 

Performance 

Information 

We remain concerned about the quality an

transparency of the Postal Service’s perfo

information, particularly in areas such as 

e-commerce initiatives. Without complete 

performance data, the Service and other s

cannot determine the Service’s progress t

meeting its intended performance results. 

stakeholders have also expressed conside

about the reliability and credibility of the 
Page 30 GAO-01-262 U.S. Postal Servi

ratemaking and performance data. As the Po

has recognized, timely, accurate, and relevan

information will be critical for effective man

well as communications with customers, Co

other stakeholders. Although the Service has 

take actions in this area, continued attention 

necessary to ensure that improvements are m

postal ratemaking and performance data are 

credible. For example:

• The Postal Service has recognized that it 

take action to address long-standing issue

the quality of data used in ratemaking. An 

study on the quality of data used by the S

ratemaking concluded that improvement

needed to ensure that ratemaking data w

sufficiently complete and accurate. The P

Service has made a good start in addressi

study’s recommendations by setting prior

identifying the necessary actions and add

resources. 

• Our September 2000 report found deficie

financial information the Service provide

e-commerce initiatives that raised concer

accuracy and completeness. In our view, 

financial data were not sufficiently comp

reliable for assessing the Service’s progre

meeting its overall financial performance 

expectation, which is that aggregate e-co

revenues are to cover the Service’s direct 

indirect costs and contribute to overhead

Service agreed with our recommendation 

provide complete and accurate informati

e-commerce costs and revenues and said 

instituting a standard financial reporting 

in this area. 

We also recently reported that the Postal Ser

annual performance plans and performance 

under the Government Performance and Res
Page 31 GAO-01-262 U.S. Postal Se

1993 might not have been as useful to Con

managers, and customers as they could ha

Although we noted that the Service’s fisca

performance report contained several pos

we believe that it was misleading for the p

report to highlight that the Service exceed

for on-time delivery of First-Class Mail. Th

was based on performance in the second 

year 1999—excluding the peak holiday ma

when full-year performance showed on-ti

met, but did not exceed, the target for ove

Class Mail, and was one percentage point 

target for 2- and 3-day First-Class Mail. Th

performance plans and reports depends u

ability to communicate clearly and effecti

We recommended, and the Service agreed

Service should make its future performan

reflect straightforward and clearly stated 

of planned targets and results. In addition

recommended that the Service’s future pe

plans should have clear criteria for measu

performance and provide more complete 

of its goals and strategies. In response, the 

changes that strengthened its final annual 

plan for fiscal year 2001. 

Address Legal and 

Regulatory Issues

The Postal Service is challenged to operat

uncertain legal and regulatory environmen

ongoing debate over whether the Service 

allowed to compete with private compani

under what circumstances. For example, 

sector businesses believe that they are pla

competitive disadvantage because the cur

framework allows the Postal Service to de

products and enter into markets currently 

by the private sector but exempts it from 

laws and regulations that apply to private 
Page 32 GAO-01-262 U.S. Postal Servi

businesses. Further, some stakeholders have 

antitrust and fair competition concerns relat

current and potential alliances and partnersh

involving the Service and others, including p

sector companies such as FedEx. On the oth

Postal Service and some other stakeholders 

that current laws and regulatory oversight pu

Service at a competitive disadvantage and ha

for changes in the regulatory framework for 

domestic postal rates that would give the Se

increased flexibility. The debate is likely to c

over whether changes are needed to federal 

ensure that the Service can continue to fulfil

while also ensuring fair competition.

Issues Relating to 

the Postal Service’s 

Legal Authority and 

Regulatory 

Framework 

The long-standing debate over the Postal Ser

and what legal and regulatory system should 

the Service has been fueled by the changing 

environment. Since the Service was created 

independent establishment of the executive 

the Postal Reorganization Act of 1970, it has 

charged with overstepping its mandate by of

and service products that are claimed to be n

related to its primary mission. These concern

been exacerbated by vast changes in the 

communications and delivery sectors. When 

was created in the early 1970s, it faced little 

competition. For example, FedEx did not ex

World Wide Web had not been developed. No

Service faces growing competition from priv

companies, foreign postal administrations, a

electronic communications alternatives. Mor

Service has ventured into new areas of comp

offering new electronic products and service

other nonpostal products, such as telephone 

cards and retail merchandise. In this context

Service’s private sector competitors and oth

repeatedly raised concerns to regulatory aut
Page 33 GAO-01-262 U.S. Postal Se

including the independent Postal Rate Co

well as to Congress.

Some competitors and others contend tha

Service should refrain from entering mark

being served by the private sector and sho

activities to providing traditional mail del

In addition, some stakeholders assert that 

Service is to compete in these markets, th

be changed so that they apply equally to t

its competitors. For example, some privat

businesses believe that they are placed at 

disadvantage because federal law exempt

from taxes and some of the laws and regu

apply to private sector businesses. On the 

the Postal Service and some other stakeh

said that current laws and regulatory over

Service at a competitive disadvantage and 

for changes to give the Service increased 

Service has reported that its disadvantage

“heavy government oversight and regulati

limitations and restrictions on income, inv

pricing and employment, and many other 

including maintaining facilities in location

not self supporting.” 

Debate continues about the Service’s role 

compete directly with the private sector, s

e-commerce area. The Postal Service, som

and others have conflicting views on the e

Service’s legal authority to offer e-comme

and services and under what circumstanc

offer such services. For example, the Pres

of the Computer & Communications Indu

Association recently objected to the Servi

competitive e-commerce products and se

grounds that with an infrastructure establ

taxpayer subsidies and its government-spo

monopoly, the Service’s entrance into thes

would be unfair and detrimental to compe
Page 34 GAO-01-262 U.S. Postal Servi

innovation. The Service has responded that i

extensive history of applying the latest techn

that it makes sense to use the Internet in the 

to contribute to the accomplishment of its m

the American people. To this end, the Servic

that it approves only e-commerce initiatives 

within the context of its mission and enable 

to better serve its customers. 

Another area of recent controversy has invo

application of antitrust and fair competition 

to the Postal Service’s activities. For example

Rate Commission (PRC) recently considered 

application of antitrust and fair competition 

to a proposed test of a postal product called 

Online, which allows mailers to electronicall

material that is printed out and mailed close

destination. PRC found that competition and 

laws were relevant to its decision and conclu

Mailing Online, as recommended by the term

decision, would not constitute unfair compe

result in an unfair competitive advantage for 

Service. 

Concerns Relating 

to Postal Service 

Alliances and 

Partnerships

Some stakeholders have raised additional an

fair competition concerns relating to current 

potential alliances and partnerships involvin

Service and other private sector companies, 

FedEx. For example, some stakeholders, inc

members of Congress, have raised antitrust 

competition concerns relating to the implica

regulatory review of a potential Postal Servic

with FedEx that was under discussion during 

December 2000, it was unclear whether the p

would reach an alliance and, if so, what regu

review might take place. In addition, UPS fil

complaint in October 1998 with PRC regardi

Service electronic commerce service called 

that is the product of an alliance between th
Page 35 GAO-01-262 U.S. Postal Se

and the postal administrations of Canada a

of December 2000, this complaint remaine

review.

These antitrust issues are being raised as 

between public and private providers of p

are blurring, with globalization of delivery 

privatization of some foreign postal admin

the integration of fulfillment, just-in-time 

e-commerce services with traditional post

For example, the German postal administ

Deutsche Post, is partially privatized, expa

through acquisitions in Europe and the Un

and offers a range of services including po

delivery, fulfillment, logistics, and e-comm

Also, the TNT Post Group NV of the Nethe

publicly traded company that includes the 

administration, has recently signed an agr

form a global joint venture with the Britis

Singapore postal administrations to delive

mail.

The Postal Service has stated that alliance

partnerships will be an important part of i

grow revenues in the domestic package m

example, the Service recently developed p

Airborne and Emery to enable their custo

packages to households using the Postal S

Service is also partnering with Mailboxes

provide postal package services. In the in

area, the Service has partnered with DHL 

certain packages sent abroad from the Un

Finally, the Service has also discussed a p

alliance with FedEx in which FedEx wou

deliver certain packages originating with 

Service, while the Service would reported

certain FedEx packages to their final dest
Page 36 GAO-01-262 U.S. Postal Servi

More broadly, one recent study of the parcel 

industry in the United States concluded that 

traditional structure of governmental policym

planning, and regulation is increasingly mism

the freight transportation system. The study 

parcel delivery services have grown to be a m

in the transportation field, as large or larger t

the major traditional elements of the freight 

transportation system—airlines, pipelines, ra

etc. According to the study, parcel delivery s

exemplify the trend to integrating different 

transportation modes to meet different spee

service requirements. For government, the s

that policies and programs based on the olde

view of transportation will need to change to 

trend into account and to adapt to the chang

landscape of globalization, mass customizati

rapid customer response.

Issues Involving 

Regulation of Postal 

Rates

Congress, the Postal Service, some competit

other stakeholders have debated whether ch

needed in the regulatory framework for settin

postal rates and, if so, what changes should 

The Postal Service has called for changing th

establishing the regulatory framework for ch

rates for existing domestic postal products a

establishing rates for new postal products. T

has long contended that it has been hampere

flexibility to set prices and by a lengthy post

ratemaking process. The Postmaster Genera

regulatory reform “an absolute requirement,” 

“we are going to wind up with an inferior Po

in the future if we do not change the regulato

environment.” 

The Service cannot change its prices for exis

domestic postal products or establish rates f

domestic postal products without prior regu

review. Under the current ratemaking proces
Page 37 GAO-01-262 U.S. Postal Se

Service is required to file a request with P

recommended decision on proposed chan

domestic postal services. PRC decisions a

must be based on evidentiary records dev

administrative hearings that are quasi-jud

adversarial in nature. All interested partie

the Service’s competitors, have the oppor

examine the Service’s proposals and expre

PRC is required to issue a recommended d

Service’s Board of Governors on proposed 

10 months, and the Board of Governors m

decision. 

Although the Postal Service, some mailer 

others have called for changing the curren

regulating postal rates to give the Service 

flexibility, some stakeholders, such as UP

Newspaper Association of America, have 

concern about giving the Postal Service, a 

entity with monopoly powers, additional p

flexibility. Both have said that PRC’s auth

be strengthened under the current rateset

The Continuing 

Debate Over the 

Legal and 

Regulatory 

Framework

Fundamental issues concerning the Posta

and authority have been raised in Congres

stakeholders have called for changing its 

regulatory framework. Key questions that 

raised, and are likely to persist, include:

• What are the appropriate mission and 

Postal Service? Should “universal pos

defined and, if so, how? Should the Se

privatized? Should the postal monopol

or ended?

• Should the Postal Service be allowed t

areas served by the private sector and

what circumstances? To what extent s

Service be subject to the same laws as 

competitors?
Page 38 GAO-01-262 U.S. Postal Servi

• What should be the related regulatory fra

providing oversight in the areas of pricing

postal products, and fair competition? Ho

PRC and other pertinent regulatory autho

exercise oversight with respect to compe

antitrust issues?

Key Contact Bernard L. Ungar, Director

Physical Infrastructure Team

(202) 512-8387 

ungarb@gao.gov
Page 39 GAO-01-262 U.S. Postal Se

Remain SelfSupporting While 

Providing 

Affordable HighQuality Service

U.S. Postal Service: Sustained Attention t

Remains Critical (GAO/T-GGD-00-206, Sep

U.S. Postal Service: Challenges to Sustain

Performance Improvements Remain Form

Brink of the 21st Century (GAO/T-GGD-00-

1999).

U.S. Postal Service: Development and Inv

Products (GAO/GGD-99-15, Nov. 24, 1998)

Control Costs and 

Improve 

Productivity

U.S. Postal Service: Changes Made to Imp

Acceptance Controls for Business Mail (G

31, Nov. 9, 1999).

U.S. Postal Service: Stronger Mail Accept

Could Help Prevent Revenue Losses (GAO

June 25, 1996).

Address LongTerm Human 

Capital Issues

U.S. Postal Service: Diversity in District M

Level Positions (GAO/GGD-00-142, June 3

U.S. Postal Service: Diversity in the Posta

Executive Service (GAO/GGD-00-76, Mar. 

U.S. Postal Service: Diversity in High-Lev

Positions (GAO/GGD-99-26, Feb. 26, 1999)

U.S. Postal Service: Little Progress Made 

Persistent Labor-Management Problems

(GAO/GGD-98-1, Oct. 1, 1997).

U.S. Postal Service: Labor-Management P

Persist on the Workroom Floor (GAO/GG

Sept. 29, 1994).
Page 40 GAO-01-262 U.S. Postal Se

Provide Complete 

and Reliable 

Performance 

Information

U.S. Postal Service: Enhancements Need

Performance Planning and Reporting (GAO

Sept. 19, 2000).

Breast Cancer Research Stamp: Millions 

Research, but Better Cost Recovery Crite

(GAO/GGD-00-80, Apr. 28, 2000).

Equal Employment Opportunity: The Pos

Needs to Better Ensure the Quality of EEO 

Data (GAO/GGD-99-167, Sept. 28, 1999).

The Results Act: Observations on the Pos

Preliminary Performance Plan for Fiscal Y

(GAO/GGD-99-72R, Apr. 30, 1999).

Address Legal and 

Regulatory Issues

U.S. Postal Service: Postal Activities and 

to Electronic Commerce (GAO/GGD-00-18

2000)
Page 41 GAO-01-262 U.S. Postal Se

Major Management Challenges and Progr

Governmentwide Perspective (GAO-01-24

Major Management Challenges and Progr

Department of Agriculture (GAO-01-242)

Major Management Challenges and Progr

Department of Commerce (GAO-01-243)

Major Management Challenges and Progr

Department of Defense (GAO-01-244)

Major Management Challenges and Progr

Department of Education (GAO-01-245)

Major Management Challenges and Progr

Department of Energy (GAO-01-246)

Major Management Challenges and Progr

Department of Health and Human Service

(GAO-01-247)

Major Management Challenges and Progr

Department of Housing and Urban Develo

(GAO-01-248)

Major Management Challenges and Progr

Department of the Interior (GAO-01-249)

Major Management Challenges and Progr

Department of Justice (GAO-01-250)

Major Management Challenges and Progr

Department of Labor (GAO-01-251)

Major Management Challenges and Progr

Department of State (GAO-01-252)
Page 42 GAO-01-262 U.S. Postal Servi

Major Management Challenges and Program 

Department of Transportation (GAO-01-253)

Major Management Challenges and Program 

Department of the Treasury (GAO-01-254)

Major Management Challenges and Program 

Department of Veterans Affairs (GAO-01-255

Major Management Challenges and Program 

Agency for International Development (GAO

Major Management Challenges and Program 

Environmental Protection Agency (GAO-01-2

Major Management Challenges and Program 

National Aeronautics and Space Administrat

(GAO-01-258)

Major Management Challenges and Program 

Nuclear Regulatory Commission (GAO-01-25

Major Management Challenges and Program 

Small Business Administration (GAO-01-260

Major Management Challenges and Program 

Social Security Administration (GAO-01-261)

Major Management Challenges and Program 

U.S. Postal Service (GAO-01-262)

High-Risk Series: An Update (GAO-01-263)
Ordering 

Information

The first copy of each GAO report is free. Addi

reports are $2 each. A check or money order sh

out to the Superintendent of Documents. VISA 

credit cards are accepted, also.

Orders for 100 or more copies to be mailed to a 

are discounted 25 percent.

Orders by mail:

U.S. General Accounting Office

P.O. Box 37050

Washington, DC 20013

Orders by visiting:

Room 1100

700 4th St. NW (corner of 4th and G Sts. NW)

U.S. General Accounting Office

Washington, DC

Orders by phone:

(202) 512-6000

fax: (202) 512-6061

TDD (202) 512-2537

Each day, GAO issues a list of newly available r

testimony. To receive facsimile copies of the dai

from the past 30 days, please call (202) 512-60

touchtone phone. A recorded menu will provide 

how to obtain these lists.

Orders by Internet:

For information on how to access GAO reports 

send an e-mail message with “info” in the body 

info@www.gao.gov

or visit GAO’s World Wide Web home page at: 

http://www.gao.gov

To Report Fraud, 

Waste, or Abuse in 

Federal Programs

Contact one:

• Web site: http://www.gao.gov/fraudnet/fraud

• e-mail: fraudnet@gao.gov

• 1-800-424-5454 (automated answering syst

Official Business

Penalty for Private Use $300

Address Correction Requested