U.S. Postal Service: Ending Saturday Delivery Would Reduce Costs, but Comprehensive Restructuring Is Also Needed
Published: 2011-03-29T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: The U.S. Postal Service's (USPS) financial outlook has deteriorated as customers have shifted to electronic alternatives. Mail volumes have declined over 20 percent since fiscal year 2006 and are expected to continue declining. To help its financial outlook, in March 2010, USPS presented a detailed proposal to the Postal Regulatory Commission (PRC) to move from a 6-day to a 5-day delivery schedule. USPS projected this would save about $3 billion annually and reduce mail volume by less than l percent. This proposal factors in widespread changes to USPS's workforce and networks. USPS has also asked Congress to not include language in its annual appropriation requiring 6 day-a-week delivery. As requested, GAO assessed (1) USPS's cost and volume estimates and the operational impacts associated with its 5-day delivery proposal and (2) the trade-offs and other implications associated with this proposal. GAO reviewed USPS's proposal (including its assumptions, methodologies, and conclusions) and other information from the PRC's 5-day delivery proceeding, surveyed postal employee and mailer groups, and interviewed USPS officials and postal employee groups. Because GAO previously recommended that Congress consider providing financial relief to USPS, as well as other cost-saving options, this report contains no new recommendations. USPS generally agreed with GAO's findings and provided additional context on its proposed change to end Saturday delivery.
section_title: What GAO Found
paragraphs: USPS's proposal to move to 5-day delivery by ending Saturday delivery would likely result in substantial savings; however, the extent to which it would achieve these savings depends on how effectively this proposal is implemented. USPS's $3.1 billion net cost-savings estimate is primarily based on eliminating city- and rural-carrier work hours and costs through attrition, involuntary separations, or other strategies. USPS also estimated that 5-day delivery would result in minimal mail volume decline. However, stakeholders have raised a variety of concerns about USPS's estimates, including, (1) First, USPS's cost-savings estimate assumed that most of the Saturday workload transferred to weekdays would be absorbed through more efficient delivery operations. If certain city-carrier workload would not be absorbed, USPS estimated that up to $500 million in annual savings would not be realized. (2) Second, USPS may have understated the size of the potential mail volume loss due to questions about the methodology USPS used to develop its estimates of how 5-day delivery may affect mail volumes. The extent to which USPS can achieve cost savings and mitigate volume and revenue loss depends on how well and how quickly it can realign its operations, workforce, and networks; maintain service quality; and communicate with stakeholders. USPS has spent considerable time and resources developing plans to facilitate this transition. Nevertheless, risks and uncertainties remain, such as how quickly it can realign its workforce through attrition; how effectively it can modify certain finance systems that cannot be changed until congressional approval for 5-day delivery is granted; and how mailers will respond to this change in service. Further, uncertainties remain as factors other than delivery frequency--e.g., price increases--can also affect mail volumes and revenues. USPS's proposal involves several factors that need to be considered. It would improve USPS's financial condition by reducing costs, increasing efficiency, and better aligning its delivery operations with reduced mail volumes. However, it would also reduce service; put mail volumes and revenues at risk; eliminate jobs; and, by itself, be insufficient to solve USPS's financial challenges. USPS's role in providing universal postal services can affect all American households and businesses, so fundamental changes involve key public policy decisions for Congress. If Congress decides 5-day delivery is necessary, then Congress and USPS could factor the savings into deliberations about what package of actions should be taken to restore USPS's financial viability. Conversely, if Congress maintains the mandate for 6-day delivery, Congress and USPS would need to find other ways to achieve equivalent financial savings, so that the package is sufficient to restore USPS's financial viability. This would likely entail difficult decisions with broad implications for USPS's infrastructure, workforce, and service. As GAO has reported, a package of actions by Congress and USPS is urgently needed to modernize USPS's operations, networks, and workforce.

section_title: Letter
paragraphs: The U.S. Postal Service (USPS) has a number of challenging financial  problems, and its financial condition is on our high-risk list. Over the last  4 years, mail volumes have declined by over 20 percent (from 213 billion  pieces at the end of fiscal year 2006 to 171 billion pieces at the end of  2010) because of the economic downturn and the public’s changing use of  mail. USPS’s financial condition has deteriorated, with cumulative losses  of over $20 billion in the past 4 years. In fiscal year 2011, USPS projects a  $6.4 billion loss and expects to reach its $15 billion statutory debt limit.  Additionally, its long-term outlook is poor. USPS projects that mail  volumes will continue to decline further in the coming decade, with  volumes in fiscal year 2020 comparable to those in fiscal year 1986,  particularly for First-Class Mail. These volume shifts are having a profound  impact on USPS revenues. According to USPS, it generated $1.80 in daily  revenue contribution for each delivery point in fiscal year 2000; but by  fiscal year 2009, that number had shrunk to $1.40, and by fiscal year 2020,  it could be around $1.00. These trends raise serious concerns about  USPS’s business model, which has relied on growth in mail volume to help  cover costs.
We have reported that restructuring USPS is urgently needed to enhance  its current and long-term viability. We reported that action by Congress  and USPS is needed on a number of difficult issues so that USPS can move  toward financial viability by reducing costs, increasing efficiency, and  generating revenues. On March 2, 2010, USPS released its Action Plan that  identified strategies for addressing its financial situation. The plan  included actions that USPS could take under its existing authority, as well  as seven key areas in which it would need legislative changes or support,  one of which was moving to 5-day delivery. Specifically, USPS asked  Congress to not include the language in its annual appropriations  legislation that requires it to deliver mail 6 days a week. Later that month,  it presented a detailed 5-day delivery proposal and projected this change  would save approximately $3 billion annually and would have a minimal  effect on mail volume. On March 30, 2010, USPS sought a nonbinding  advisory opinion on its proposal from the Postal Regulatory Commission  (PRC). PRC issued its nonbinding advisory opinion on March 24, 2011;  however, since our audit work was completed in early March, this opinion  was not included in this report.
In 2010, Senator Thomas Carper introduced legislation, based on  proposals made by USPS that included a provision that would give USPS  authority to adjust delivery frequency. The recently issued Report of the  National Commission on Fiscal Responsibility and Reform also  recommended removing the 6-day delivery requirement. However, 6-day  delivery continues to be required in USPS’s annual appropriations  legislation, and some Members of Congress have raised concerns about  eliminating Saturday delivery. For example, Senator Susan Collins also  introduced legislation in 2010 to improve USPS’s financial situation and  stated that pursuing significant service reductions, including elimination of  Saturday mail delivery, was not a viable long-term solution to the  challenges confronting USPS. To assist the subcommittee in its work, GAO  was asked to review USPS’s 5-day proposal and evaluate its related  analysis. Specifically, our objectives were to assess (1) USPS’s cost and  volume estimates and the operational impacts associated with its 5-day  delivery proposal and (2) the trade-offs and other implications associated  with USPS’s 5-day delivery proposal.
To assess USPS’s cost and volume estimates and the operational impacts  associated with its 5-day proposal, we reviewed information submitted  during PRC’s proceeding to consider the proposal. This proceeding  included seven public, on-the-record hearings and generated thousands of  public comments, as well as testimony and input on the proposal from  mail users and interested members of the public. We also reviewed several  USPS plans, including its action plan; 5-day delivery proposal; operational  specific implementation and communication plans; and other financial and  operational reports. We interviewed officials from USPS, postal labor  unions, and postal management associations. We analyzed USPS’s  estimates and the operational impacts of 5-day delivery, including  reviewing the assumptions and methodologies that USPS used as the  foundation for its conclusions and estimates for cost savings and mail  volumes. We also reviewed relevant congressional hearings and  testimonies, proposed postal reform legislation, and our past work.
To gain additional insight into the financial and operational impacts  associated with USPS’s 5-day proposal, we surveyed 65 stakeholder  organizations in the summer of 2010. These organizations included the  seven major postal labor unions and management associations and 58  mailing industry associations that either (1) had formally participated in  the PRC proceeding on 5-day delivery or (2) were members of the Mailers  Technical Advisory Committee (MTAC), a venue for USPS to share  technical information with mailer associations and other organizations  related to the mailing industry and to receive their advice and  recommendations on postal matters. While these groups represent major  segments of the mailing industry and their members generate most mail  volume, they are not statistically representative of all organizations in the  industry, and therefore our survey results cannot be generalized to the  industry as a whole. Finally, to assess the trade-offs and other implications  associated with USPS’s 5-day delivery proposal, we analyzed the evidence  collected for this engagement and our past work on the need to  restructure USPS.
We conducted this performance audit from May 2010 to March 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. Appendix I contains a detailed discussion of  our scope and methodology. We requested comments from USPS on a  draft of this report and its comments are discussed later in this report and  reproduced in appendix III.
subsections: section_title: Background
paragraphs: Mail delivery is central to USPS’s mission and role in providing postal  services to “bind the nation together through the personal, educational,  literary, and business correspondence of the people.” USPS is required by  law to provide prompt, reliable, and efficient services, as nearly as  practicable, to the entire U.S. population. USPS is also required to  maintain an efficient mail collection system. These and related  requirements are commonly referred to as the “universal service  obligation.” The PRC has reported that delivery frequency is a key element  of universal postal service. Further, provisions in annual USPS  appropriations since 1984 mandate 6-day-a-week delivery and rural mail  delivery at certain levels.
The frequency with which customers receive mail service from USPS has  evolved over time to account for changes in communication, technology,  transportation, and postal finances. As recently as 1950, residential  deliveries were made twice a day. It is useful to note that while most  current customers receive delivery service 6 days a week, some customers  receive 5-day or even 3-day-a-week delivery, including businesses that are  not open 6 days a week; resort or seasonal areas not open year-round; and  areas not easily accessible, some of which require the use of boats,  airplanes, or trucks to deliver the mail.
Mail delivery accounted for nearly one-third of USPS’s $76 billion in  expenses in fiscal year 2010. That year, USPS recorded compensation and  benefit costs of nearly $23 billion and 586 million work hours for its more  than 310,000 full- and part-time mail carriers. Delivery is labor intensive  and includes carriers manually sorting certain mail into the sequence in  which it will be delivered and delivering mail to, and collecting it from,  nearly 131 million residential and business addresses. Moreover, this  delivery network has grown on average by over 1 million addresses each  year over the last 5 years, resulting in additional personnel, fuel, and  vehicle costs. Declines in volumes, however, challenge USPS’s ability to  make corresponding cost reductions because some activities—such as  providing 6-day delivery—continue regardless of mail volume.
Former Postmaster General John Potter testified in January 2009 that 6- day delivery was becoming unaffordable and requested that Congress not  include the restriction in annual appropriations legislation so that USPS  could move to a 5-day delivery schedule. USPS had been unable to cover  its costs, many of which were difficult to cut, as mail volumes and  revenues were declining. USPS developed a cross-functional, internal task  force composed of experts across various operational areas to examine a  variety of topics, including the economic value, financial and operational  impacts, and business risk of eliminating a day of delivery. The task force  solicited input from the public, mailing industry, and postal unions and  management associations. Based on this work, the task force prepared  USPS’s March 2010 5-day delivery plan, which was approved by USPS’s  Board of Governors. Table 1 summarizes highlights of this plan. The plan  recognizes that certain customers may be negatively affected by the  proposed reduction in service; however, USPS believes the reduction is  necessary to improve its long-term financial viability. In a March 2, 2011,  testimony, the current Postmaster General Patrick Donahoe reiterated  USPS’s position on 5-day delivery, stated there is no longer enough mail  volume to support a 6-day delivery model, and said that moving to a 5-day  schedule would strengthen USPS’s future.
USPS estimated that if 5-day delivery had been in effect in fiscal year 2009,  it would have realized $3.1 billion in net savings—including $3.3 billion in  gross savings less $0.2 billion in revenue losses due to a slight volume  decline. Of these savings, $2.7 billion would have resulted from reducing  work performed by city and rural carriers. City carriers employed  specifically to handle delivery on the sixth day, as well as other part- and  full-time city carriers used to replace regular carriers on the sixth day,  would no longer be needed. USPS plans to achieve these work-hour  reductions by attrition, involuntary separations, or other strategies to  reduce work hours. Aside from these city-carrier savings, other savings  would be achieved by eliminating rural-carrier work hours that would no  longer be needed on Saturday, as well as other associated vehicle,  supervisor, and transportation costs.
USPS’s estimate of gross savings was based on “full-up savings,” which  assumed that the transition to 5-day delivery, including the associated  operational and workforce changes, had been fully implemented. USPS  has not reported how many years this transition would take, but has noted  that it would include realigning USPS’s workforce through attrition and  other changes. Tables 2, 3, and 4 summarize USPS’s gross savings, mail  volume, and net revenue estimates, including the supporting methodology  and assumptions.
These assumptions, methodologies, and conclusions have generated a  significant amount of debate since USPS requested an advisory opinion  from PRC in March 2010. USPS is required to request a PRC advisory  opinion on a service change when USPS determines that there should be a  change in the nature of postal services that will generally affect service on  a nationwide basis. The resulting PRC public proceeding has provided a  detailed record that includes, among other things, USPS’s proposal and its  supporting evidence; input provided by interested parties through oral and  written testimony and other supporting evidence; and various statements  and rebuttals submitted by USPS and interested parties. PRC issued its  nonbinding advisory opinion on March 24, 2011; however since our audit  work was completed in early March, this opinion was not included in this  report.
section_title: USPS Should Achieve Significant Cost Savings from 5-Day Delivery, but the Extent of Savings Will Depend on How Well the Change Is Implemented
subsections: section_title: Cost Savings from 5-Day Delivery Are Likely to Be Significant, but Some Savings Will Depend on Increasing City-Carriers’ Productivity
paragraphs: USPS is likely to achieve significant cost savings by reducing delivery from  6 days to 5 days because it would eliminate costs associated with carriers  traversing their routes on Saturday. During the PRC proceeding, however,  stakeholders raised a variety of criticisms about the assumptions,  methodology, and conclusions USPS used to determine its cost-savings  estimate. Exchanges have occurred between the stakeholders and USPS  about these criticisms. Our analysis of these exchanges and our  independent analysis identified a key area of concern that may have a  considerable impact on USPS’s estimate of net financial savings—how  efficiently USPS can absorb the cost of its workload transferred from  Saturday to weekdays.
USPS assumed that most of the Saturday workload transferred to  weekdays would be absorbed through more efficient operations.  According to USPS, this assumption was based on operational judgments  that excess capacity in city-delivery operations would be used to  accommodate this shifted mail volume because, among other things, the  time associated with certain carrier activities (i.e., loading mail into  mailboxes) could be performed with greater mail volumes without much  increase in work hours. USPS also assumed that a significant portion of its  delivery operations would not be substantially affected because this work  must be performed regardless of mail volumes (e.g., driving the route).   USPS stated it expects that absorbing shifted mail volumes would raise  city-carrier productivity, and in doing so, would reverse the productivity  declines experienced from shrinking mail volumes. Specifically, USPS has  reported that city-carrier productivity has decreased in recent years as  mail volume has declined. USPS stated that in a 5-day environment, with  Saturday volume transferred to weekdays, higher carrier productivities  would be reached. The National Association of Letter Carriers (NALC),  which represents city carriers, expressed concerns that this higher city- carrier productivity may not be realized. Specifically, it stated that recent  route adjustment efforts have resulted in routes that have little or no  excess capacity to absorb the transferred volumes. If certain Saturday city- carrier delivery work hours were not absorbed under 5-day delivery (when  mail is transferred to other days of the week), USPS estimated the cost  savings would be reduced by up to $500 million. To the extent to which  USPS can absorb this Saturday workload, city-carrier productivity and  cost savings should increase. We believe that USPS could realize some  increase in city carriers’ productivity under 5-day delivery, but the extent  to which such an increase would be realized and workload from Saturday  to weekdays would be absorbed between Monday and Friday would  depend on several factors. These factors would include how effectively  USPS implemented its 5-day delivery plans and managed its city carriers  and their workload based not only on 5-day delivery, but also on other  actions to increase delivery efficiency, such as adjusting delivery routes  and deploying flat-mail sorting equipment.
In addition, the Greeting Card Association raised concerns during the PRC  proceeding about the compensation rates and attrition levels USPS used in  calculating its initial work-hour savings. USPS acknowledges it will not  achieve its estimated savings from 5-day delivery within the first year of  implementation, in part because some savings are based on realigning  USPS’s workforce over time through attrition and other changes. USPS  can use workforce strategies to support its workforce transition, such as  not filling vacancies before implementing 5-day delivery or offering early- out retirement. USPS also has flexibility to reduce hours for different types  of noncareer part-time employees whose wages vary widely, but are  generally less than the wage levels USPS assumed in its cost-savings  estimates. The timing and amount of savings achieved would be influenced  by how these strategies were employed and when eligible employees  decided to retire.
section_title: Five-Day Delivery Will Likely Result in Volume Loss and Concerns Have Been Raised that USPS May Have Understated these Losses
paragraphs: USPS and many others agree that 5-day delivery will produce some volume  loss as mailers and customers see service reduced with the elimination of  Saturday delivery. Concerns have been raised, however, that USPS may  have understated the potential volume losses based on questions about the  methodology USPS used to develop its estimate and the impact of other  factors that can affect mail volumes. During the PRC proceeding, for  example, some stakeholders raised questions about USPS’s methodology  for adjusting mailers’ estimates of how 5-day delivery would affect their  mail volumes. USPS adjusted these estimates in one direction which could  lead to estimates that would underestimate potential volume loss in a 5- day environment. For example    Example using USPS methodology. If a business mailer estimated (1) a  50,000-piece volume loss and (2) it was 50 percent likely to modify its mail  volume under 5-day delivery, USPS adjusted the mailer estimate and  incorporated a 25,000-piece volume loss into its analysis.
Alternative methodology. If a business mailer estimated (1) a 50,000-piece  volume loss and (2) it was 50 percent likely to modify its mail volume  under 5-day delivery, it may have been more appropriate to adjust the  estimated loss in both directions. Under this methodology, the analysis  could incorporate losses of 25,000 and 75,000 pieces.
Alternative methodology. Make no adjustments and incorporate the mailer  estimates at face value.
Although USPS indicated that its method of adjusting mailer estimates was  a standard industry practice, decision makers may find it useful to have an  analysis that reflects adjustments in each direction or just takes the mailer  estimates at face value. In addition, some stakeholders expressed concern  about potential bias in USPS’s mailer surveys supporting its estimate of a  0.71 percent volume loss resulting from a shift to 5-day delivery—some  said that the questionnaire language elicited overstatements of volume  loss, while others said that it elicited understatements of volume loss.  USPS stated that its estimate likely overstated the volume and revenue  losses that would result from its 5-day delivery proposal because  respondents were asked about service cutbacks that USPS subsequently  dropped after conducting the survey. According to NALC, however,  aspects of the questionnaire language encouraged respondents to  understate the degree to which 5-day delivery would affect their future  mail volumes. USPS responded that the questionnaire was designed to  address potential biases and was carried out in a manner that avoided  them.
In addition to these methodological issues, information collected from our  survey of mailer groups in the summer of 2010 suggests that these groups  are somewhat uncertain about how 5-day delivery would affect future mail  volumes. For example, when asked “do the members of your  organization expect USPS’s proposal for 5-day delivery to affect the mail  volumes that they or their customers send?” 51 percent of respondents  answered “yes,” 29 percent “no,” and 20 percent “not sure” (see app. II for  survey results). Five-day service is only one factor among many others,  such as postage prices, the availability of electronic alternatives,  competition, the cost-effectiveness of mail, quality of service, and ease of  use that residential and business customers consider as they plan their  current and future use of mail. Changes in any of these key factors may  affect future mail volume, particularly given the uncertainty about the  effects of 5-day delivery.
section_title: Addressing Operational Concerns Would be Key To Successfully Im plementing 5-Day Delivery
paragraphs: Implementing 5-day delivery would require USPS to realign its operations  network to increase efficiency, maintain service, and address man y of the  operational issues raised by stakeholders. To its credit, USPS has  dedicated a substantial amount of staff time and other resources to s the staff, system, network, and operational realignments needed to  transition to a 5-day environment and has developed communication and  implementation plans to support this effort. Risks remain, however, tha could threaten US financial targets.
PS’s ability to implement these plans and achieve its  Stakeholders have raised a variety of operational issues about USPS’s proposal, such as the extent to which USPS will be able to maintain high- quality service; align its processing, retail, and delivery network with  changes in workload; and communicate changes with stakeholders. These  operational issues would have a direct impact on its ability to capture its  estimated cost savings and retain volumes. To address these issues, USPS  has developed  ommunication plans for internal and external stakeholders, including  employees, mailers, and the public, and  escribe the major tasks, milestones, and time frames needed to transition  implementation plans across functional areas, such as delivery,  transportation, mail processing, and post office operations. Th d to 5-day delivery within 6 months of congressional approval.
Because USPS field officials will play a major role in making these  changes, USPS headquarters officials are working with field-staff  representatives to develop implementation guidance. This guidance, wh lized in March 2011, will include checklists of key steps that  is to be fina field managers will have to complete to be adequately prepared for the  transition.
section_title: Five-Day Delivery Would Provide Cost Savings, but Additional Restructuring Actions Are Also Needed
subsections: section_title: Five-Day Delivery Involves Difficult Trade-offs
paragraphs: USPS’s 5-day delivery proposal involves both positive and negative effects.  Key benefits would include improving USPS’s financial condition by  reducing costs; reducing the size of its workforce; and increasing  efficiency by better aligning delivery operations with reduced mail  volumes. On the minus side, it would reduce service; put mail volumes and  revenues at risk; eliminate jobs; decrease USPS advantages over  competitors that do not have Saturday delivery; and, by itself, be  insufficient to solve USPS’s financial challenges. Table 6 summarizes these  and other key trade-offs.
Moving to 5-day delivery would not, by itself, resolve USPS’s considerable  financial challenges. We have reported that a variety of actions are needed  for USPS to adapt more quickly to changes in the public’s use of mail and  to achieve financial viability. USPS’s 5-day proposal should be considered  in the context of other restructuring strategies both within and outside the  delivery network. In April 2010, we discussed strategies and options  across multiple operational and financial areas targeted at reducing  operational costs and improving efficiency, including the following:    Delivery operations—expand use of more cost-efficient delivery, such as  cluster boxes.
Retail operations—optimize the retail facility network, move more retail  services to private stores and self-service locations, and close unneeded  facilities.
Mail processing operations—close unneeded facilities or relax delivery  standards to facilitate closures or consolidations.
We have also reported on other actions that could improve USPS’s overall  financial condition, including the following  revising retiree health benefits funding requirements, reducing compensation and benefit costs, and   generating revenues through product and pricing flexibility.
Mailer, business, and public use of the mail is changing as technology and  alternatives evolve. Five-day service is one factor among many others,  such as postage prices, the availability of electronic alternatives,  competition, the cost-effectiveness of mail, quality of service, and ease of  use that residential and business customers consider as they plan their  current and future use of the mail. Through our survey of mailer groups  and major postal labor unions and management associations, conducted in  the summer of 2010, we found that they were divided over the merits of 5- day delivery, with the groups offering diverse perspectives on the potential  effects on mail volume and members’ finances. Asked about USPS’s  proposal for 5-day delivery, about half of those surveyed did not express  an overall view, with some explaining that their members had differing  views on the matter. Of those surveyed, 22 percent favored USPS’s  proposal, including some who said it would lower USPS’s costs and thus  help keep rates down. Some other proponents qualified their support, such  as by stating they would favor 5-day delivery only as part of a package of  changes to improve USPS’s financial condition. Twenty-eight percent  opposed USPS’s proposal, often stating it would reduce mail volume and  harm USPS’s business. Some mailer groups said the change would  negatively affect customers and increase their costs, while others said they  would prefer other options to improve USPS’s financial condition. Postal  labor unions and management associations raised similar objections. One  employee organization expressed concern that 5-day delivery would  negatively affect vulnerable populations, such as rural residents, the  homebound, the elderly, and small businesses that depend on the mail.  Another employee organization expressed concerns that 5-day delivery  would negatively affect Saturday retail service and efficiency, as well as  reduce support for USPS and its monopoly on delivering mail to  mailboxes. See appendix II for tabulations of the responses to our survey.
section_title: A Decision on 5-Day Delivery Should Be Made in Conjunction With Additional Restructuring Actions
paragraphs: The status quo is unsustainable as USPS is unable to finance its current  operations and service levels. Action by Congress and USPS is urgently  needed to comprehensively restructure USPS’s operations, networks, and  workforce and to modernize its organization. We recently reported that  Congress and USPS urgently need to reach agreement on a package of  actions to restore USPS’s financial viability and enable it to begin making  necessary changes. We also stated that Congress should consider any  and all options available to reduce USPS’s costs, and that one option for  Congress is to not include appropriations language requiring 6-day  delivery. When fully implemented, 5-day delivery would provide USPS with  needed cost savings, although the extent of those savings is uncertain.  Additional uncertainties remain as factors other than delivery frequency— e.g., price increases—can also affect mail volumes and revenues. USPS’s  role in providing universal postal services can affect all American  households and businesses, so fundamental changes to universal postal  services involve key public policy issues for Congress to decide. Some  questions for Congress to consider include the following:    What aspects of universal postal service, including frequency of mail  delivery, are appropriate in light of fundamental changes in the use of  mail?
How much postal service does the nation need and what restructuring of  USPS’s operations is needed for USPS to become more efficient, cover its  costs, keep rates affordable, and meet changing customer needs?
What incentives and oversight mechanisms are needed to ensure an  appropriate balance between providing USPS with more flexibility and  ensuring sufficient transparency, oversight, and accountability?
Congressional decision-making actions on USPS’s 5-day delivery proposal  will be informed not only by this report but also by PRC’s public  proceedings and advisory opinion on the proposal. If Congress decides 5- day delivery is necessary, Congress and USPS could factor the savings  from 5-day delivery into deliberations about what package of actions  should be taken to restore USPS’s financial viability. Conversely, if  Congress maintains the mandate for 6-day delivery, Congress and USPS  would need to find other ways for USPS to achieve other substantial  financial savings. This would entail difficult decisions with implications  for USPS’s infrastructure, workforce, and service.
USPS’s financial crisis is nearing a tipping point as USPS anticipates  having insufficient cash at the end of fiscal year 2011 to meet all of its  obligations, as well as reaching its $15 billion statutory debt limit.  Addressing USPS’s financial viability is critical, since USPS plays a vital  role in the U.S. economy and provides postal services to all communities.  Because GAO previously recommended that Congress consider providing  USPS with financial relief, and in doing so, consider all options available  to reduce costs, this report contains no new recommendations.
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 Vice President, Corporate  Communications, dated March 18, 2011. These comments are presented in  appendix III. USPS also provided technical comments, which we  incorporated where appropriate. USPS generally agreed with our findings,  but provided additional context for these findings. USPS said that the net  cost savings from ending Saturday delivery would be significant given its  operations and cost structure. USPS also stated that it agrees with the  findings in our report that said there are always risks and uncertainties in  modifying information systems. However, USPS noted that most of its  information systems that need to be modified to support 5-day delivery  have already passed rigorous testing and there is no appreciable risk or  uncertainty relating to these systems. Finally, USPS commented that a  change to 5-day delivery is needed because there is no longer sufficient  volume to sustain 6-day delivery, and that moving to 5-day delivery is one  of the fundamental business model changes needed to help it close the gap  between revenues and costs.
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 about 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: Objectives, Scope, and Methodology
paragraphs: The objectives of our work were to assess (1) the U.S. Postal Service’s  (USPS) cost and volume estimates and the operational impacts associated  with its 5-day delivery proposal and (2) the trade-offs and other  implications associated with this proposal.
To assess these estimates and impacts, we reviewed documents and  testimonies from a wide variety of postal stakeholders, including USPS,  the Postal Regulatory Commission (PRC), mailers, unions, management  associations, economists, and concerned citizens. Much of this  information was submitted as part of PRC’s review of USPS’s proposal to  move to 5-day delivery. We also reviewed USPS’s action plan entitled  Ensuring a Viable Postal Service for America: An Action Plan for the  Future; a 5-day delivery plan entitled Delivering the Future: A Balanced  Approach, Five-Day Delivery Is Part of the Solution; operational-specific  communication and implementation plans; and other financial and  operational information contained in USPS’s annual reports, integrated  financial plans, and comprehensive statements. We also reviewed reports  from PRC, the USPS Office of Inspector General, the Congressional  Research Service, the Congressional Budget Office, and the National  Commission on Fiscal Responsibility and Reform; relevant congressional  hearings and testimonies; laws requiring 6-day delivery; pending postal  reform legislation; and our past work. We interviewed officials from USPS,  including officials on its 5-day delivery task force, postal labor unions, and  postal management associations.
In conducting our analysis of the estimates and operational impacts of 5- day delivery, we also reviewed the assumptions and methodologies that  USPS used as the foundation for its conclusions and estimates for cost  reduction and mail-volume impact. We reviewed the multiple exchanges  before PRC about issues or criticisms that stakeholders had raised about  USPS’s assumptions, methodology, operational issues, and conclusions  and USPS’s corresponding responses. In assessing the estimates  themselves and these various exchanges, we considered the following  criteria for conducting these types of reviews: the magnitude of criticism  on the overall estimate; the internal consistency; consistency with social  science best practices; the reasoning or support behind the methodology;  and the presence of agreement and/or disagreement among stakeholders.
After applying these criteria, we further analyzed two issues that may  significantly affect USPS’s net financial savings estimate—(1) USPS’s  assumption and judgment that most of the Saturday workload transferred  to weekdays would be absorbed through more efficient city delivery  operations and (2) USPS’s methodology for estimating the effect of its 5- day delivery proposal on mail volume, including reducing mailers’  estimates based on their responses to the question asking about the  likelihood that their mail volumes would change if USPS implemented its  proposal.
We surveyed 65 selected stakeholders in the summer of 2010 about their  views on USPS’s proposal for 5-day delivery, including implementation  issues, concerns, and questions; their views on whether the  implementation of USPS’s 5-day proposal would affect mail volume and  mailers’ financial conditions; and their overall position on USPS’s 5-day  proposal. Stakeholders we identified included all seven major postal labor  unions and management associations and 58 mailing industry associations  that either (1) formally participated in PRC’s proceeding on 5-day delivery  or (2) were members of the Mailers Technical Advisory Committee  (MTAC). MTAC is a venue for USPS to share technical information with  mailers and to receive advice and recommendations from mailers on  matters concerning mail-related products and services. MTAC members  include mailer associations and other associations and organizations  related to the mailing industry. MTAC organizations represent major  segments of the mailing industry and members of MTAC organizations that  generate most mail volume. However, MTAC organizations are not  statistically representative of all organizations in the mailing industry and,  therefore, our survey results cannot be generalized to the industry as a  whole. We received responses from five major postal labor unions and  management associations and 45 mailing industry associations, for a  combined response rate of about 77 percent.
Our work to assess the trade-offs and other implications associated with  USPS’s 5-day delivery proposal was based on analyzing the evidence  collected for this engagement and our past work on restructuring options  and strategies for USPS.
We conducted this performance audit from May 2010 to March 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 II: Results of GAO’s Survey of Mailer and USPS Employee Groups
paragraphs: Tabulations of the 50 responses to our survey from five major postal labor  unions and management associations and 45 mailing industry associations  follow. Some questions in the survey were asked of all organizations; other  questions applied only to mailer groups.
Not sure Mailer Group Quetion: Do the memer of yor orgniztion expect USPS' proposal for 5-dy delivery to ffect  the mil volme tht they or their customer end?
Not sure Mailer Group Quetion: How wold USPS' proposal for 5-dy delivery ffect the finncil condition (i.e., co  nd/or reven) of yor memer?
No wer Mailer/USPS Employee Group Quetion: Doe yor orgniztion fvor, oppoe, or hve no poition on USPS'  proposal to redce delivery to 5 d  week?
section_title: Appendix III: Comments from the United States Postal Service
section_title: Appendix IV: GAO Contact and Staff Acknowledgments
subsections: section_title: Staff Acknowledgments
paragraphs: In addition to the individual named above, Teresa Anderson, Brittany  Alfonso-Guerrero, Joshua Bartzen, Patrick Dudley, Heather Frevert,  Brandon Haller, Kenneth John, Hannah Laufe, and Crystal Wesco made  key contributions to this report.
section_title: Related GAO Products
paragraphs: High-Risk Series: An Update. GAO-11-278. February 2011.
U.S. Postal Service: Foreign Posts’ Strategies Could Inform U.S. Postal  Service’s Efforts to Modernize. GAO-11-282. February 16, 2011.
U.S. Postal Service: Legislation Needed to Address Key Challenges.  GAO-11-244T. December 2, 2010.
U.S. Postal Service: Action Needed to Facilitate Financial Viability.  GAO-10-601T. April 22, 2010.
U.S. Postal Service: Action Needed to Facilitate Financial Viability.  GAO-10-624T. April 15, 2010.
U.S. Postal Service: Strategies and Options to Facilitate Progress toward  Financial Viability. GAO-10-455. April 12, 2010.
U.S. Postal Service: Financial Crisis Demands Aggressive Action.   GAO-10-538T. March 18, 2010.
U.S. Postal Service: Financial Challenges Continue, with Relatively  Limited Results from Recent Revenue-Generation Efforts. GAO-10-191T.  November 5, 2009.
U.S. Postal Service: Restructuring Urgently Needed to Achieve Financial  Viability. GAO-09-958T. August 6, 2009.
U.S. Postal Service: Broad Restructuring Needed to Address  Deteriorating Finances. GAO-09-790T. July 30, 2009.
High-Risk Series: Restructuring the U.S. Postal Service to Achieve  Sustainable Financial Viability. GAO-09-937SP. July 28, 2009.