U.S. Postal Service: Foreign Posts' Strategies Could Inform U.S. Postal Service's Efforts to Modernize
Published: 2011-02-16T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: The foreign postal operators (foreign posts) in industrialized countries in GAO's review have been experiencing declining letter mail volumes and have modernized their delivery and retail networks to address this challenge. As requested, GAO reviewed the innovations and initiatives that foreign posts are using and the lessons the U.S. Postal Service (USPS) might learn to help it address plummeting mail volumes and record financial losses. This report examines initiatives foreign posts have implemented to improve mail delivery and retail networks and related results, and modernization strategies used by foreign posts that can inform consideration of proposals to improve USPS's financial condition and customer service. GAO selected foreign posts in Australia, Canada, Finland, Germany, Sweden, and Switzerland as case studies based on characteristics, such as delivery and retail changes and country size and location. GAO reviewed foreign posts' documents, including annual reports and strategic plans related to delivery and retail network changes and innovations. GAO met with foreign post officials, toured their retail facilities, received briefings on their delivery and retail networks and other areas, and met with regulators, labor unions, and mailers to obtain their views on the effects of their posts' modernization efforts. USPS generally agreed with GAO's findings and mentioned both its own modernization efforts and the barriers it faces.
section_title: What GAO Found
paragraphs: The foreign posts GAO reviewed have developed alternative delivery choices for customers that, according to the posts, have reduced costs and improved customer satisfaction and service. All of these posts now offer digital (purely electronic) or hybrid mail (a blend of physical and digital) options. Some posts offer parcel pick up at retail facilities like grocery stores, which are open longer than post offices, and are often owned and operated by businesses that partner with the posts, thus reducing costs. One post allows customers to pick up parcels from a publicly-located machine, or parcel locker, that is available 24 hours a day. The selected foreign posts have modernized their legacy brick and mortar retail networks in response to customers' changing use of the mail. For example, they have expanded retail access through alternatives such as Internet sales and partnerships with retail businesses such as grocery stores or pharmacies, while reducing the number of post-owned and -operated facilities. According to all of the posts, retail modernization has either (1) improved customer service, in some cases because the partner stays open longer, or (2) reduced operating and labor costs, by closing post-owned and -operated facilities, or both. The foreign posts faced resistance to change and challenges similar to those USPS faces, and they have used strategies that could be helpful to USPS as it moves forward with plans to modernize its own delivery and retail networks. In particular, they relied on outreach and communication strategies to inform public officials and customers of increased access to products and services and help gain acceptance for retail network changes. A few posts also developed labor transition plans or strategies under which they provided training, relocation and job search services, and financial incentives to support employees who were negatively affected by the modernizations. While USPS has taken steps in the past year to generate ideas for modernizing its retail and delivery networks, the experiences of foreign posts suggest that it will be critically important for USPS to fully develop and implement similar outreach, communication, and labor transition strategies.

section_title: Letter
paragraphs: Foreign postal operators (foreign posts) in industrialized countries have  seen mail volumes decline and electronic communication and payment  alternatives (referred to as electronic substitution of mail) take the place  of traditional mail. In addition, their legacy infrastructure remained larger  than necessary to handle declining mail volumes. Over the past 10–20  years, foreign posts have engaged in strategic efforts to modernize their  delivery and retail networks to address these challenges. For example,  they are taking advantage of technological innovations and partnerships to  facilitate new delivery services, such as offering hybrid mail, an electronic  service combining physical and digital mail delivery options. Additionally,  many foreign posts are planning to make or have already made changes to  modernize their delivery and retail networks. For example, some foreign  posts have installed parcel pick-up lockers in public locations as an  alternative to home parcel delivery, or have transitioned from traditional  post offices to partner-owned and -operated facilities. These retail and  delivery modernization efforts encompass aspects of “universal service,”  such as requirements related to delivery of the mail and other access to  postal retail services and facilities, among other areas. (See appendix I for  more information on universal service.)
Similarly, the U.S. Postal Service (USPS) faces declining mail volumes and  changing use of the mail. Mail volume fell from 213 billion pieces in fiscal  year 2006 to 171 billion pieces in fiscal year 2010—or about 20 percent.  This decline resulted from the recession as well as electronic substitution.  However, USPS has not been able to cut costs fast enough or generate  sufficient net revenue to offset the lower mail volume and revenue that  have occurred as customers have moved to electronic substitution of the  mail. USPS has introduced a number of initiatives and efforts to reduce its  costs and to try to mitigate expected future losses, but its financial  condition and future viability will continue to be a concern as electronic  substitution increases and mail volumes continue to drop.
Congress seeks to learn how USPS can effectively address its challenges  and return to financial viability. The Postal Accountability and  Enhancement Act of 2006 mandated that we report in 2011 to the  President and Congress on options and strategies for long-term structural  and operational reforms of USPS, including the experiences of other  countries. Because of concerns about USPS’s deteriorating financial  condition and future viability, we completed this work early and reported  to Congress in April 2010 with options and strategies for financial  viability. In that report, we discussed the challenges to USPS’s business  model and options to address these challenges, including improvements to  its retail, delivery, and mail processing operations. Further, we noted that  we planned to address the experiences of foreign posts in a separate  review. The subcommittee requested that we review foreign posts in order  to learn lessons for USPS related to technological innovations, as well as  cost savings and efficiencies achieved through changes in delivery and  retail networks. In accordance with this request, we addressed the  following objectives:  1.  What major initiatives have foreign posts implemented to improve or  enhance mail delivery, and what have been the results?  2.  What major initiatives have foreign posts implemented to improve or  enhance their retail networks and what have been the results?  3.  What modernization strategies have foreign posts used that could  help inform USPS and Congress as they consider proposals to  improve USPS’s financial condition and customer service?
To address our three objectives, we employed a case study approach and  selected from among industrialized countries six countries based on  changes in delivery and retail networks, innovations and technology (from  a literature review), rank of broadband usage per 100 inhabitants, nature  of business or diversification, convenience and cost of travel, country  population, location and size of the country, number of delivery points in  2008 (last year data were available), and 2008 mail volume (last year data  were available). We used this information to select countries that have  made changes to adapt to the changing use of mail and communication.
For each of the countries we selected—Australia, Canada, Finland,  Germany, Sweden, and Switzerland—we reviewed foreign posts’  documents, including annual reports and strategic plans related to retail  and delivery network changes and innovations. We met with the postal  operators and toured their innovation centers, retail facilities, or both. We  also received briefings on their retail and delivery networks, strategic  planning, and other matters. We observed a number of demonstrations of  the foreign posts’ innovations.  In addition, we met with regulators, labor  unions, and private sector mailers to gain their perspectives on the effects  of the modernization efforts. Following the in-country interviews, we  requested additional data and information on each foreign post’s  strategies, goals, and results related to its modernization efforts. We also  met with USPS officials to discuss innovations and strategies related to  USPS’s retail and delivery network but we did not compare these  innovations to those of foreign posts. We also did not assess whether the  foreign posts’ operational changes were profitable since that information  is either proprietary or not consistently reported. In 2009, we reported on  USPS’s efforts to reduce costs and improve delivery efficiency. We have  another ongoing review that will examine in more detail USPS’s use of and  plans for retail alternatives and the challenges it faces related to  implementing the alternatives. (See appendix II for more details on the  scope and methodology for this review.)
We conducted this performance audit from January 2010 to February 2011  in accordance with generally accepted government auditing standards.  Those standards require that we plan and perform the audit to obtain  sufficient, appropriate evidence to provide a reasonable basis for our  findings and conclusions based on our audit objectives. We believe that  the evidence obtained provides a reasonable basis for our findings and  conclusions based on our audit objectives.
subsections: section_title: Background
paragraphs: Declining letter mail volumes and increasing electronic substitution, which  have accelerated with the recent recession, have reduced postal revenues  for both the foreign posts and USPS. Additionally, foreign posts told us  they, like USPS, faced high infrastructure and workforce costs. Some  foreign posts began to modernize their delivery or retail networks, or both,  as early as the 1990s. One of the factors precipitating these changes  occurred when the European Union began to establish a timetable for the  gradual ending of monopolies of letter markets, in its 1997 Council  Directive. In 2008, the European Union directed its members to fully  “open” their domestic letter markets to competition by 2010 (i.e., remove  their monopoly on delivering letter mail). In doing so, the European Union  stated that it wanted to “allow sufficient time to put in place  the…modernization and restructuring measures required to ensure long- term viability under the new market conditions” of the posts. In all six  countries we reviewed, the posts were experiencing challenges related to  declining mail volumes or high infrastructure, labor, or operating costs, or  both, which necessitated the need for modernization. See figure l for a list  of the six foreign posts we reviewed, including how we identified them in  this report.
USPS is facing similar challenges as other industrialized nations’ posts. For  example, USPS has a brick and mortar retail infrastructure it cannot afford  to maintain. However, USPS currently manages more retail outlets— approximately 32,500—than all of the foreign posts we reviewed combined.  In addition, USPS has twice as many delivery points as any foreign post we  studied—USPS delivers to 151 million homes, businesses, and post office  boxes. Another challenge that USPS experienced was a record loss of $8.5  billion in fiscal year 2010. Thus, as we have reported, without substantial  changes to its business model, USPS’s ability to fulfill its mission through  self-supporting, businesslike operations is not sustainable.
section_title: Foreign Posts Are Offering More Alternatives to Traditional Delivery in an Effort to Increase Customer Service and Convenience and Decrease Costs
paragraphs: All of the foreign posts discussed in this report have implemented various  initiatives to complement or enhance traditional delivery by offering  customers more alternatives to send and receive letters and packages.
subsections: section_title: Traditional Mail Delivery and Challenges
paragraphs: Traditional delivery methods for foreign posts of letters, packages or  parcels, and advertising mail, can include:    carrier-to-home (to a customer’s door or mail box), and    cluster boxes (grouping of boxes for customers in a particular  neighborhood, instead of individual mail boxes at a personal residence,  which are often found within a housing development).
Although letter mail volumes have been decreasing, some foreign posts  expect parcel volumes to strengthen as economic conditions improve,  particularly with the emergence of online shopping and small business  growth. According to foreign post officials we spoke with, customers have  been increasingly changing the way they use and receive their mail. With  increasing Internet and broadband access and related changing use of the  mail, use of traditional mail has been declining as customers find more  convenient and faster ways to communicate. Several of the posts we met  with said that customers were using various electronic means to conduct  their daily business, such as paying bills online, sending postcards and  greeting cards electronically, or receiving news and other periodicals via  the Internet instead of hard copy (all referred to as e-substitution).  This  changing use of the mail was a primary factor driving changes in the way  the posts do business. In addition, foreign post officials told us they have a  significant amount of costs associated with delivering traditional letter  mail and packages. Some posts have been experiencing increases in the  number of delivery points every year, at the same time that mail volumes  overall have been declining. Australia Post and Canada Post officials told  us the number of addresses has generally grown each year by about  200,000 addresses. A few of the posts attribute a major part of their costs  to delivering the mail (also known as the “last mile”).
Given all of these factors, the foreign post operators we met with have  begun to focus on adjusting or downsizing their delivery networks and  providing multi-channel approaches to give their customers more choices  in how they send and receive mail.
section_title: Foreign Posts Have Introduced a Number of Alternatives to Traditional Mail Delivery
subsections: section_title: Hybrid and Digital Mail
paragraphs: All six posts we met with offered some form of digital or hybrid means of  sending and receiving mail, and several of the posts reported increased  customer service and satisfaction as a result of these offerings. Digital mail  is communication between a sender and a recipient through completely  electronic communication (this could include personal e-mail and  electronic bills and other communication with businesses). While postal  experts have a variety of definitions for hybrid mail, there is no consensus  on the exact definition. In this report, we use the term “hybrid mail” to  describe different ways of sending and receiving mail and communication  using a blend or combination of electronic or digital mail and physical  forms. For example, an item—a bill, letter, card, or other  communication—is electronically transmitted, processed and converted  into a letter post item for physical delivery to the addressee. Figure 2  illustrates examples of digital and hybrid mail services, and figure 3 shows  examples of their availability through the six foreign posts we reviewed.
section_title: Deutsche Post DHL
paragraphs: E-Potbrief™–Allowustomer to commnicte ecrely vi the Internet.  When customer regiter for the ervice,  they re reqired to authenticte their identity y preenting n identifiction crd or passport. All commniction ent  nd received vi the E-Porief™ ecre gtewre end-to-end encrypted.  Cot i the same as for  letter.  In cas  when n E-Porief™ i ent to  recipient who i not regitered for the ervice or if the ender cho thi option, the  E-Porief™ will e printed y DP DHL nd delivered phyiclly.  Docment ent nd igned throgh E-Porief™ re  leglly inding nd confidentil. e-Letter–A hyrid mil delivery ervice thllowustomer to e-mil letter to e delivered phyiclly to non-e-mil  recipient.  Poten AB print the letter t dedicted print loction nd then deliver them phyiclly vi the pot.
SuisseID–Offer ecre identifiction nd digitignre cabilitie for itustomer.  Customer receive n  identifiction crd or USB device fter preenting proof of identifiction  Swiss Pot retil office.  SusseID us  high-grde ecrity technology for ecre login nd leglly vlid digitignre.
Swiss Pot Box–Regitered customern hve their phyicl mil received, nned, nd delivered Swiss Pot.   Customern chooe how they wold like to ccept their mil. After receiving n initinned imge of the front nd  back of  phyicl piece of mil (for exmple,  letter), ustomer cn reqt thSwiss Pot (1) open the mil, n  the entire content of the mil, nd end the content electroniclly to the customer; (2) leve the mil nopened nd  hve the mil ent to the customer’s phyicddress; or (3) hred the mil piece. “We want to change the way people think  about the last mile—as no longer physical, but  digital.”
A video depiction of Swiss Post Box, described previously, is available  here. (Accessed on Feb. 9, 2011)
While there is no consensus on a definition of hybrid mail, there does  seem to be agreement that the way customers communicate is changing,  and moving more toward a digital environment. According to Canada Post  officials, in order to stay relevant to customers, the Post began to make a  number of revisions to its corporate plans and strategies in 2005, focusing  more on electronic and hybrid options. Over the years, Canada Post has  been engaged in a number of efforts to reinvent, update, and enhance  customer use of the mail through digital alternatives. Canada Post officials  observed that some initiatives were successful, while others failed because  they may have been ahead of their time. For example, according to a  Canada Post official, epost 2.0 will be an improvement on a former digital  offering and will be introduced within the next 2 years. Some postal  officials see digital and hybrid mail as the “new last mile” and are gearing  toward incorporating more digital mail delivery options for their  customers.
Foreign postal officials told us that their digital and hybrid mail options  offered three benefits. First, some of the officials said these digital and  hybrid mail services offer enhanced security and trust. They told us that  they use their customers’ trust and loyalty in the “brand” of the postal  operator to illustrate that digital and hybrid mail communications through  the postal operator are secure. According to an Itella official, the biggest  advantage of NetPosti was mail security. The official said that a NetPosti  account was not as easily accessible as an e-mail account and its contents.  The primary concern for Itella was ensuring security of the mail. Swiss  Post created its Suisse ID to incorporate security encryption on the actual  identification card or Universal Serial Bus (USB) used by customers to  sign into their accounts. This encryption provided customers with a secure  encryption whenever they logged in. Customers must have their  identification verified in person at a post office before receiving the  SuisseID.
Second, officials at three of the six posts we spoke with offered their  customers who use digital or hybrid mail solutions the opportunity to  archive not only their digitally transmitted mail, but other documents as  well. NetPosti offered archiving of all data and documents for 7 years free  of charge. Customers could also bring into their NetPosti accounts  personal files, such as scanned receipts, for a fee. Swiss Post offered  customers the option to archive their documents.
Third, three of the six foreign posts offered hybrid mail options combined  with a “platform of services.” This platform offered integration between  the sending and receipt of mail (letters, bills, cards, etc.) in a mixture of  electronic and physical forms, along with other electronic capabilities  such as archiving data for the customer (including the mail itself, as  mentioned above), and financial services, such as bill presentment or bill  pay and bill consolidation. For example, Swiss Post offered its Suisse ID  customers a number of options, including bill pay and receipt, marketing  services, and electronic archiving.
Posts reported that these digital and hybrid mail initiatives have resulted  in increased convenience and customer satisfaction, primarily because  they make mail more accessible. A number of the foreign posts mentioned  wanting to be where their customers shop or work, a goal that affected  posts’ decisions about where to locate services. Officials with Swiss Post  stated that their products are not only about making money but also about  decreasing the cost of delivering the mail, which for Swiss Post they  estimated was more than 50 percent of its operating costs.
subsections: section_title: Pick Up at Retail Store Counter
paragraphs: Several of the posts we spoke with have partnered with major retailers as  well as individual stores and shops, such as grocery and drug stores, to  provide a number of postal products and services to their customers,  including parcel pick up. These stores offer more convenient locations and  longer hours than traditional post offices. This partnering was part of a  major transformation in the foreign posts’ retail networks, and part of an  approach to provide multiple alternatives and choices for customers. In  Sweden, Posten AB customers receive a notice, sent as a text message or a  hard copy by the letter carrier, that they have a package available for pick  up at a retail store counter convenient to them. They then take the paper  notice to show the text to a postal retail partner outlet, such as a grocery  store, and pick up the package. Posten AB officials noted that customer  service has improved, evidenced by customers’ more timely pick up of  these packages and parcels (reduced from an average of about 10 days to  about 3), longer hours of access to these services, and an increased  number of service points.
Canada Post offers a variation on alternative parcel pick up with its  community boxes, similar to cluster boxes (see fig. 4). Some community  boxes have parcel boxes built in. Carriers leave a note along with a key in  the private box of a customer with a parcel delivery, and leave the parcel  itself in the parcel section of the community box. If there is no parcel  section, the carriers leave the parcel elsewhere for customer pick up (for  example, at a convenient retail outlet).
Swiss Post customers can use Swiss Post’s PickPost service at no  additional cost. With PickPost, customers can select a time and place most  convenient for them to pick up their parcels. Customers register online  and receive a personal customer number. When customers place an order,  for example, for a parcel delivery, they provide the sender with the  address of their chosen PickPost collection point (there are approximately  350 countrywide). The customers are then notified by text or e-mail as  soon as the item has been delivered. They have 7 days to retrieve the  parcel from the location.
Four of the posts we spoke with use partnerships or contracts with private  sector businesses and shops to offer their customers parcel pick up. Both  Posten AB and Australia Post use retail partners to offer postal products  and services in place of traditional post offices. Canada Post has a  network of authorized dealers it contracts with to offer postal products  and services.
As mentioned previously, foreign post officials told us they improved  customer service by offering parcel pick up at more convenient locations  with later hours and realized some reduction in costs due to, for example,  offering services and products through shops that were nonpost-owned.
This helped posts to decrease their infrastructure costs and rightsize their  workforces to accommodate changes in their networks.
section_title: Parcel Delivery Machines
paragraphs: In 2002, DP DHL introduced its “Packstation,” a set of automated, stand- alone lockers where packages are sent and received, and as of 2010 had  2,500 nationwide. Packstations are typically located in high-traffic, public  locations such as train stations. Fig. 5 shows an example of a DP DHL  Packstation. Customers can sign up for delivery (free of charge to both the  sender and the receiver) and have their identity verified in person by the  Post. When customers want to receive parcels at a Packstation, they can  give the Packstation as the delivery address (instead of their home  address). The parcel is then delivered to the Packstation and the  customers are notified via text message or e-mail that they have a package.  Delivery to a Packstation eliminates the need for home parcel delivery for  the postal operator and allows customers to pick up their parcels more  conveniently, according to DP DHL. Packstations can also be used to  dispatch small packets and parcels 24 hours a day, 7 days a week. As of  the end of January 2011, DP DHL had more than 1 million registered users  who could collect or send parcels. According to the DP DHL officials, self- service parcel pick up machines have enhanced customer service and  convenience because customers can use them at any hour of the day.  We  observed a demonstration of DP DHL’s Packstation at its Innovation  Center.  According to DP DHL officials, DP DHL created its Innovation  Center in part, for specialists from academic, industrial, and technological  fields to exchange information about logistics solutions. The center offers  a method for networking and development of solutions from start to  finish, and visitors to the center can view DP DHL’s developments.
Swiss Post also offered a parcel locker-style delivery option for its  customers. Customers could receive their parcels at a parcel box, which is  a large, lockable storage box at the entrance to a neighborhood. Both DP  DHL and Swiss Post noted that their parcel locker options were aimed at  increasing customer service and convenience, and decreasing costs  related to delivering packages (the last mile).
Perhaps one of the most dramatic examples of changes to delivery  frequency and hybrid mail offerings was Itella’s Antilla Living Lab trial.  Antilla is a small village in the countryside near Porvoo, Finland, where  Itella was testing new ideas for service in remote areas. Changes in  customers’ use of the mail and digitization, among other reasons,  motivated Itella to begin this trial, which involved 124 households and 17  small companies. Mail was physically delivered to customers’ homes or  businesses 2 days a week. On the 3 other days that mail was delivered, it  was placed in assigned post lockers located near the Antilla village main  shop. Customers received a text message daily letting them know if they  had mail, so they could decide whether to travel to the postal locker and  retrieve their mail. Any mail not retrieved was delivered to the customer  on 1 of the 2 days when mail was delivered to the home or business. First  and second class letters were scanned and then delivered electronically to  the customer’s NetPosti digital account. These letters were then placed  back in their envelopes and delivered in paper form. Customers could also  receive letters directly to NetPosti from selected senders digitally without  having to convert the letter to physical format.
section_title: Foreign Posts’ Modernized Retail Networks Have Increased Access to Products and Services, Improved Customer Service, and Reduced Costs
paragraphs: All of the foreign posts we met with have modernized their legacy brick  and mortar retail networks in response to customers’ changing use of the  mail.
subsections: section_title: All Posts Have Increased Access to Alternative Retail Points
paragraphs: All of the foreign posts we met with offer increased access to retail  products and services. As communication has changed and broadband  usage increased, foreign posts have adapted their offerings to better fit  their customers’ needs. Alternative retail points are points of service other  than traditional postal retail facilities or post offices owned and operated  by the postal operator. Examples include postal counters at retail partners  such as a grocery store in Sweden or a pharmacy in Canada, as well as the  postal operators’ Web sites, among others.
subsections: section_title: Internet Access and New Mobile Applications
paragraphs: All of the posts we met with provided customer access to online services.  The six posts offered a range of services on their Web sites, from sales of  stamps and other products to online bill payment. Figure 6 shows Swiss  Post’s online store where a customer can buy stamps and chocolate,  create postcards, and perform numerous other transactions, such as  subscribe to magazines and register for Swiss Post Box, described  previously.
In addition to online offerings, all six of the foreign post we reviewed have  developed postal applications for mobile devices.
section_title: Partnerships with Private Firms Offer Posts Increased Access to Postal Products and Services and Decreased Postal Costs
paragraphs: Foreign posts told us they have decreased operating costs (largely facility-  and labor-related) by forming partnerships with private-sector entities that  own and operate retail sites. As table 1 indicates, the majority of the  foreign posts we met with maintained a network with a majority of  partner-owned and -operated retail facilities rather than their own  traditional post offices. For example, in 2009, about 98 percent of DP  DHL’s retail network was owned and operated by partners.
Posten AB in Sweden has dramatically changed its postal retail network  since 2001, replacing all traditional brick and mortar post-owned and           -operated post offices with partner-owned and -operated retail facilities.  In visiting a postal retail partner outlet at a grocery store in Stockholm, a  sign in front clearly displayed the services offered inside (see fig. 7). Four  or five of the store’s 20–25 employees were trained to work at the postal  counter. One employee said he spent about 4 hours a day selling postal  services and products and the rest of the time he sold nonpostal items. We  witnessed him moving back and forth, like a photo counter clerk at a  drugstore. If he had questions, he could call a Posten AB-operated phone  assistance service line. He said he liked the work because there was little  down time.
Figure 8 depicts another example of a partnership between a postal  operator and a private business.
All of the posts we interviewed reported positive results as a result of  retail modernization in one or both of two key areas: (1) customer service,  which has improved because, for example, the retail partner is open for  more hours during a day and open on a weekend versus a traditional post  office, and (2) savings in operating and labor costs achieved by closing  post-owned and -operated facilities.
In Australia, 81 percent of retail facilities were owned and operated by  partners and were mostly located in commercial areas. When Australia  Post modernized its retail network, some post offices were moved to  newer, lower-cost smaller structures, such as facilities in a commercial  area “where the shoppers are.” For example, we visited an Australia Post  partner’s retail facility (licensed post office) in Kilmore, Australia that was  relocated from the outskirts of town to a strip mall and Australia Post  officials said the move saved the Post 20 percent in operating costs.
section_title: Foreign Posts Have Experienced Mixed Results from Nonpostal Retail Products and Services
paragraphs: Some foreign posts have traditionally offered banking or financial  services, while others no longer do. Three of the posts that we visited were  continuing or seeking to expand these services. For example, Swiss Post  and Australia Post, which have traditionally offered financial or banking  services, offered in-person bill paying services. Swiss Post also provided  some financial services and was seeking a banking license. Australia Post  provided banking services as an agent for more than 70 banks and  financial institutions. Similarly, DP DHL and its partners offer banking and  financial services. Other posts—Itella and Posten AB—have experienced  mixed results from offering nonpostal services.
Several foreign posts made government services available. Australia Post  and Itella offered government services in their retail facilities, including  those in remote or rural areas where citizens may have difficulty traveling  to a large city. For example, Itella offered voter registration services as  well as fishing licenses. Itella and the Finnish Ministry of Justice first  established a framework for the voter registration service under which  local government officials could choose whether to make advance voting  available in post offices in their municipalities. Itella officials reported that  in 2010 Itella offered this service to 127 post offices and its goal was for 93  post offices to provide this service. Australia Post reported its identity  verification service was used, for example, when applying for a  government service or to open a bank account. This service was a  successful revenue-generator, according to Australia Post, leveraging the  trusted brand of the Post and provided a needed government service in  rural areas. For example, citizens seeking to work with children could fill  out an identity verification application in order to initiate a required  background check. A senior official noted that services such as assisting a  customer with a passport application would generally need to be provided  in person, with assistance, rather than online. Figure 9 depicts a retail  employee in Australia assisting a customer with questions related to  nonpostal services.
All foreign posts have traditionally sold postal products, such as stamps  and envelopes at their retail facilities. In the past 5 years, several posts  began selling other retail products as a means to increase revenue. For  example, Itella exclusively partnered with a major Finnish design firm to  license merchandise including designed packaging, gift wrapping,  postcards, and gift items, resulting in what it reported as a successful  partnership. Itella officials noted that sales of other nonpostal products,  such as jewelry and candy, have not been as successful. They said selling  luxury items such as jewelry required focused work by the salespeople to  make the sale. In addition, they said the market for luxury items was  limited. Officials reported that although candy was inexpensive, sales have  not been successful because candy was available for purchase in so many  other places. Figure 10 depicts nonpostal items for sale.
In Australia, officials told us some nonpostal products such as children’s  books sold well. However, their future plans place less emphasis on selling  products and more on selling services, including identity and financial  services. Both Posten AB and Canada Post introduced alternative retail  products. Canada Post officials stated they discontinued many of the sales  because the products were not making money. However, a number of the  services—including the selling of money transfers, wireless prepaid, and  long distance services, among other government services—have been  maintained and are growing.
In most cases, we were unable to determine the revenue generated from  retail products and services because the information was proprietary or it  was not reported.
section_title: Strategies Used by Foreign Posts to Modernize Delivery and Retail Networks Could Help Inform USPS Modernization Efforts
paragraphs: Foreign posts have faced resistance to change and challenges similar to  those USPS faces, and they have developed communication, outreach, and  labor transition strategies to address stakeholder concerns and address  resistance to changes.
subsections: section_title: Key Lessons of Foreign Posts’ Modernization Efforts
paragraphs: Lessons to be learned from foreign posts’ experiences modernizing their  retail and delivery networks include the following:  1.  Strategic outreach and coordination with governments can  address political resistance.  Foreign posts have developed public  relations campaigns to inform both national and local government  officials as well as the public about the need for modernization and the  benefits of improved access to services. They have also coordinated  with local governments to resolve concerns raised by communities  affected by facility closures.
For example, Sweden’s Posten AB developed a comprehensive public  campaign and communication effort to inform its stakeholders of what  is perhaps one of the most expansive and earliest examples of retail  network transformations of any of the posts we met with. (Video of  Sweden’s national campaign effort, courtesy of Posten AB.) Part of this  communication effort was intended to help change the perception of  “the post as a place” to “the post as a service.”  Despite this extensive  and planned effort, Posten AB officials said the Post’s brand and  customer satisfaction ratings suffered, taking 10 years to recover.  2.  Strategic communication and outreach with mailers, small  businesses, and retail customers. Foreign posts communicated with  and reached out to customers to increase acceptance of changes and to  better meet customers’ needs, including providing alternatives before   implementing major retail network changes. In some cases, they have  established ongoing outreach with their customers to determine how  they can best serve them. In addition, when adjustments to the posts’  retail networks meant that alternative facilities would be further away  for some customers than their traditional post offices, the posts  emphasized that the new locations would have extended operating  hours.
Posten AB and DP DHL officials, in Sweden and Germany respectively,  told us they made efforts to show customers and other stakeholders  that although post-owned and -operated retail facilities were closing,  the new retail partnerships offered more access points and made  postal products and services more convenient to obtain.
If Swiss Post planned to close, replace, or relocate a post office, the  Post was required by law to attempt to reach an agreement with the  affected community, according to officials. Typically, Swiss Post  approached the area officials first and offered a variety of solutions,  such as creating an alternative retail access point if a partner could be  found. The Post negotiated with the local community on the best way  to address closures or moves. Although Swiss Post owned 88 percent  of retail facilities at the end of 2009, it reported that it was considering  increasing the number of nonpost-owned facilities. In some cases, such  as in Australia, when closures or relocation were planned, the affected  community first had an opportunity to propose an alternative.   3.  A labor relations strategy can ease transition. Foreign posts also  anticipated employee resistance and developed strategies to address  how changes could affect employees and to assist employees in  making the necessary transition to changes in operations. For  example, for retail network changes—such as closures—strategies  were developed to assist employees in making the necessary transition  to any downsizing. Foreign postal officials told us that although they  viewed the modernization efforts as necessary, some of the labor  changes were unpopular; however, they also said that support for  affected employees helped alleviate some of the resistance the posts  faced. In most cases, either the foreign posts negotiated changes with  the labor unions or created industrial relations (labor relations)  strategies to help transition the workforce, or both. For example:    Australia Post created a labor relations policy that was central to  how it managed structural change, which involved reducing excess  staff. This policy was known as the RRR Agreement:    Redeployment to other areas of the business. Australia Post  sometimes needed to retain and attract more employees in  certain areas. To do this, Australia Post could redeploy an  employee from one area to another job or facility.
Retraining to provide skills required in new positions. In  some cases, if employees were not redeployed, Australia Post  could retrain the employees.
Redundancy. When Australia Post needed to reduce the number  of positions, it tried to obtain them through voluntary means,  using incentives to encourage employees to retire.
Itella reported a number of ways in which it supported its  employees through changes in Finland:    Career consultants worked with employees to find new  placements within Itella when they would lose their jobs.
Job-seeking training was provided in collaboration with the  Finnish government’s employment office, which helped  employees fill out job applications and search for jobs.
Outplacement services within Itella helped employees find new  jobs in other companies or helped employees set up their own  business.
Monetary support measures helped to alleviate the effects on the  individual in case of redundancy, relocation, or a change from  full-time to a part-time employment.
Posten AB officials noted that labor was not as resistant to changes  in Sweden as in some other countries, in part, because labor was  represented on Posten AB’s governing board, which ultimately  helped the relationship between management and labor.
section_title: Strategies Used by Foreign Posts Could Help USPS Gain Critically Needed Support as It Plans and Implements Network Modernization Efforts
paragraphs: USPS has taken steps to modernize its retail and delivery networks, but, as  we have previously reported, it faces ongoing challenges related to  legislative restrictions and stakeholder resistance to changes. Some  stakeholders have been concerned about how USPS’s network changes  might affect jobs, services, employees, and communities, particularly in  small towns or rural areas. According to some members of Congress, and  others, post offices are an important aspect of small towns, providing  them with an economic and social anchor. Another concern is that  inadequate USPS financial resources could impede efforts to optimize  postal mail processing, retail, and delivery networks by limiting available  funding for transition costs. In addition, concerns have been raised about  whether USPS should be allowed to introduce new products and services  that are not directly related to postal activities. Some of the steps USPS  has taken to modernize include the following:  1.  Issued an action plan that outlined a general modernization  strategy. USPS issued a plan on March 2, 2010, that identified  modernization strategies for addressing financial challenges associated  with declining letter mail volumes. Among other changes, USPS  requested flexibility to    Change delivery frequency. Adjust delivery days to better reflect  current mail volumes and customer usage.
Expand access. Modernize customer access by providing services  “where the customers are.” Increase and enhance customer access  through partnerships, kiosks, and improved online offerings, while  reducing costs.
Expand products and services. Permit USPS to evaluate and  introduce more new products consistent with its mission, and  allowing it to better respond to changing customer needs.  2.  Identified the need for legislative clarification and changes.
After issuing its action plan, USPS developed legislative proposals for  changes needed to implement its action plan. In September 2010,  Senator Carper introduced a bill that included some of USPS’s  legislative proposals related to these areas. Senator Collins  introduced another bill that included a provision to encourage USPS to  enhance its retail presence and consider the impact of any changes to  retail facilities on small communities and rural areas.  3.  Conducted initial outreach to stakeholders and is developing a  more detailed long-term strategy for modernizing its retail  network and services. Senior USPS officials we met with stated that  they are continuing to work on developing strategies for modernizing  their retail and delivery networks. USPS plans to make these details  public in early 2011. USPS has held a number of meetings to involve  stakeholders in this ongoing discussion, such as a 2010 innovation  symposium whose goal was to discuss potential initiatives to help  address its financial sustainability. Similarly, USPS has begun a  dialogue with its customers, including major mailers, through its  previously mentioned innovation efforts.
As USPS moves forward with its modernization efforts, the experiences of  foreign posts suggest that outreach and communication strategies will be  critically important to help it address concerns raised by the public,  Congress, postal unions, and the Postal Regulatory Commission. In recent  testimony we discussed some of the public policy questions related to  legislative proposals that require congressional decisions to determine  how USPS should modernize to achieve sustainable financial viability.  For example:    Should USPS have greater flexibility to rightsize its retail network and  workforce, which may involve closing post offices and moving retail  services to alternative commercial locations that are often open more days  and longer hours?
Should it retain retail facilities and provide new nonpostal products and  services to help it cover costs and generate net revenues?
Foreign posts did not plan and implement changes to their networks, nor  realize results, overnight. In many cases they planned for the  modernization 10–20 years in advance, and were met with a great deal of  stakeholder resistance. Thus, Congress and USPS urgently need to make  critical decisions about actions USPS will take to restore its financial  viability. In doing so, they can potentially learn from a number of  strategies that foreign posts have used to modernize their networks.
section_title: Agency Comments and Our Evaluation
paragraphs: We provided a draft of this report to USPS for review and comment. USPS  provided comments in a letter from the Chief Financial Officer/Executive  Vice President dated February 4, 2011.  These comments are presented in  appendix III and our evaluation of them is summarized below. USPS also  provided technical comments, which we incorporated where appropriate.
USPS generally agreed with our conclusion that it must pursue  modernization and that modernization could be more quickly and  effectively instituted if legal and political barriers are removed.  USPS  suggested that we use the word “improve,” rather than “modernize”, when  discussing its retail and delivery networks. USPS believes some  stakeholders interpret modernize to mean automate.  Further, USPS stated  that many of its modernization and optimization efforts in the areas of  delivery, networks, access, and products and services have been underway  for some time and that political barriers have slowed these efforts.  We  recognize that USPS has made changes to its retail networks by  transitioning to alternative retail locations, and we are evaluating these  efforts in an ongoing review.  However, in this report we focused not only  on delivery and retail changes made by foreign posts, but also on the  strategies used to address resistance to change.  We thus use the term  modernization to emphasize much more than automation. USPS also  stated that incremental steps are not going to get the USPS where it needs  to be to serve its customers in the 21st century.  USPS listed some  modernization efforts it described as similar to those mentioned in this  report.  Finally, we share USPS’s view that there is an urgent need for  actions that will restore its financial viability and modernize it to meet the  challenges of the 21st century.
We are sending copies of this report to the appropriate congressional  committees, the Postmaster General, the Chairman of the Postal  Regulatory Commission, and other interested parties. In addition, the  report will be available at no charge on GAO’s Web site at  http://www.gao.gov.
If you or your staffs have any questions regarding this report, please  contact me at (202) 512-2834 or herrp@gao.gov. Contact points for our  Offices of Congressional Relations and Public Affairs may be found on the  last page of this report. GAO staff who made key contributions to this  report are listed in appendix IV.
section_title: Appendix I: Overview of Foreign Posts’ Universal Service Obligations
paragraphs: Retail and delivery modernization efforts of postal operators encompass  aspects of “universal service” or “community service,” such as  requirements related to delivery of the mail and access to postal retail  services and facilities, among other areas. In the United States, annual  appropriations language mandates mail delivery 6 days a week. The Postal  Reorganization Act of 1970 placed requirements on delivery and retail  access standards by mandating that the USPS provide “prompt, reliable,  and efficient services to patrons in all areas and shall render postal  services to all communities” as well as “…a maximum degree of effective  and regular postal services to rural areas, communities, and small towns  where post offices are not self-sustaining.”
section_title: Appendix II: Objectives, Scope, and Methodology
paragraphs: The objectives of our work were to describe (1) what major initiatives  foreign postal operators (foreign posts) have implemented to improve or  enhance mail delivery, and what have been the results; (2) what key  initiatives foreign posts have implemented to improve or enhance their  retail network and what have been the results and (3) what strategies used  by foreign posts in their modernization efforts can help U.S. Postal Service  (USPS) as it tries to improve its financial condition and customer service.
To describe the major initiatives implemented by foreign posts in mail  delivery and retail networks, and the results of those initiatives, we  initially reviewed documents, presentations, and articles from a variety of  postal experts, trade journals, and textbooks, related to postal innovations  in the digital, retail and delivery areas. We also conducted interviews with  experts in the international postal field.
We then employed a case study approach to select six countries from  among industrialized countries, using the following criteria:    change in delivery frequency,    change in retail network,    use of innovations and technology,  rank of broadband usage per 100 inhabitants, and    convenience and cost of travel.
In addition to the above criteria, we also considered the following to  ensure that our selection of the countries included a range of  characteristics:  location and size of the country,    number of delivery points in 2008 (last year data were available),    2008 mail volume (last year data were available), and  regulatory framework and business model.
After applying these criteria we selected six countries—Australia, Canada,  Finland, Germany, Sweden, and Switzerland—and conducted site visits to  each, where we met with the foreign posts and a number of postal  stakeholders to gain their perspectives on the effects of modernization  efforts. These stakeholders included:    private sector companies and businesses with partnerships with foreign    mailer and marketing associations,    private sector mailers, and  labor unions.
In addition, we observed a number of demonstrations of foreign posts’  innovations, toured their retail facilities, and received briefings on their  retail and delivery networks, strategic planning, innovation strategies, and  other areas.
We reviewed foreign post documentation including annual reports from  2006 to 2010, strategic plans related to retail and delivery network changes  and innovations, reports on postal services and products, fact sheets on  foreign post innovations and initiatives, and sustainability reports and  strategic reviews. In addition, we also reviewed documentation from  foreign posts’ stakeholders such as foreign post regulator studies; and  position papers related to foreign posts’ modernization efforts.
We also distributed a request for information to the six foreign posts we  reviewed, to gain additional information regarding goals, strategies, and  results of the initiatives implemented by the posts. Some of the  information we received from the foreign posts in response to our request  for information was not complete, and most data we requested was not  quantified by the posts. In addition, the information we received was not  consistent across the six foreign posts. We did not assess whether the  foreign posts’ operational changes were profitable since that information  is either proprietary or not consistently reported.
To describe how the strategies used by foreign posts could help USPS, we  reviewed USPS’s action plan entitled Ensuring a Viable Postal Service for  America: An Action Plan for the Future, reports from the USPS Office of  Inspector General and the Congressional Research Service, relevant  congressional testimonies, pending postal reform legislation, and our past  work. We also interviewed key officials from USPS to address innovations  and strategies related to their retail and delivery network.
We conducted this performance audit from January 2010 to February 2011  in accordance with generally accepted government auditing standards.  Those standards require that we plan and perform the audit to obtain  sufficient, appropriate evidence to provide a reasonable basis for our  findings and conclusions based on our audit objectives. We believe that  the evidence obtained provides a reasonable basis for our findings and  conclusions based on our audit objectives.
section_title: Appendix III: Comments from the United States Postal Service
section_title: Appendix IV: GAO Contact and Staff Acknowledgments
subsections: section_title: GAO Contact
section_title: Staff Acknowledgments
paragraphs: In addition to the individual named above, Teresa Anderson (Assistant  Director), Tonnyé Conner-White, Elizabeth Eisenstadt, Brandon Haller,  Armetha Liles, Margaret McDavid, Sarah McGrath, Joshua Ormond, and  Crystal Wesco made key contributions to this report.