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. 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. 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.