GAO-20-190, US Postal Service

United States Government Accountability Office Report to Ranking Member, Committee on Homeland Security and Governmental Affairs, U.S. Senate December 2019 U.S. POSTAL SERVICE Offering Nonpostal Services through Its Delivery Network Would Likely Present Benefits and Limitations This report was revised on December 18, 2019, to correct our summary of the United States Postal Service’s letter commenting on the draft report, on page 33, and to include that letter as appendix II, on page 45. GAO-20-190 December 2019 U.S. POSTAL SERVICE Offering Nonpostal Services through Its Delivery Network Would Likely Present Benefits and Limitations Highlights of GAO-20-190, a report to Ranking Member, Committee on Homeland Security and Governmental Affairs, U.S. Senate Why GAO Did This Study What GAO Found USPS manages a vast “last mile” Costs associated with U.S. Postal Service’s (USPS) last mile delivery network, delivery network of mail carriers and referred to as “last mile” in this report, have increased since 2008 and in 2018 delivery vehicles that move mail from a were nearly a third of USPS’s operating costs. GAO found that last mile costs— delivery unit (such as a post office) to its which consist of street delivery activities and include mail carrier compensation destination. This network is critical to and delivery vehicle maintenance—increased by 19.4 percent from fiscal years help USPS accomplish its mission of 2008 through 2018, while USPS’s modified operating costs were 0.9 percent providing postal services throughout the lower than their amounts in fiscal year 2008 (see figure). According to USPS, it country. However, USPS faces major has been able to reduce costs in other areas but is less able to reduce last mile financial challenges because costs are costs, despite a decline in mail volume, because of the requirement to deliver growing faster than revenues. Given the mail 6 days a week and the continued growth in addresses it must deliver to. ubiquity of this network, some have suggested that USPS provide new Percentage Change from Fiscal Year 2008 in U.S. Postal Service Key Last Mile Costs and in nonpostal services (i.e., services not Modified Operating Costs directly related to mail delivery) to generate revenue and enhance value to customers and communities. USPS is currently prohibited from providing many nonpostal services. GAO was asked to review costs of and opportunities for USPS’s last mile network. This report examines: (1) the costs associated with the last mile network and changes since 2008, and (2) the potential benefits and limitations Notes: Values in the line graph represent the percentage change in costs relative to their starting of new nonpostal services, among other values in 2008 and are not adjusted for inflation. Key last mile costs exclude in-office costs. topics. GAO analyzed USPS data to aIn this report, GAO made certain adjustments to USPS’s total operating expenses by excluding estimate key last mile and operating expenses that do not relate to active employees’ current compensation costs because they relate to costs for fiscal years 2008 through services performed in the past and thus do not reflect the effect of operational changes. This adjusted 2018; reviewed relevant documents and measure is referred to as “modified operating costs” in this report. reports from USPS and others; and interviewed USPS officials, postal union Providing new nonpostal services that leverage the last mile delivery network representatives, foreign postal operators could potentially generate more value—including societal benefits and possibly that have experience with nonpostal revenue—but also presents a number of limitations and would not likely services, industry stakeholders, and significantly affect USPS’s current financial condition. For example, adding officials from various federal agencies to nonpostal services to existing mail carrier activities—such as providing check-in obtain their views on the relevant services for older or homebound individuals—could help improve social isolation nonpostal services’ benefits and among at-risk populations but could distract from USPS’s primary mission of mail limitations. delivery. Attaching mobile sensors to delivery vehicles could allow USPS to collect potentially valuable data for other entities—such as mobile wireless GAO is making no recommendation in this report. USPS noted legal and other coverage and air quality information. According to officials and experts GAO constraints to offering new nonpostal spoke with, USPS could have flexibility in its level of involvement and, for services that leverage USPS’s last mile example, allow its vehicles to act as a platform for others to collect data. network. Alternatively, USPS could collect, store, and analyze these data on its own, functions that could lead to potentially greater revenues but may require large up- front costs. Given that these potential services present both benefits and View GAO-20-190. For more information, limitations, the decision to pursue them—including addressing current legal contact Lori Rectanus at (202) 512-2834 or prohibitions—is dependent on the goal for providing such services and desired [email protected]. effect for USPS. ______________________________________ United States Government Accountability Office Contents Letter 1 Background 5 USPS’s Last Mile Delivery Costs Have Increased since Fiscal Year 2008 and Account for an Increasing Portion of Operating Costs 8 USPS Has Pursued Efforts to Leverage Its Last Mile Delivery Network for Nonpostal Purposes, but Outcomes Are Mixed 17 Other Selected Nonpostal Services That Could Leverage USPS’s Last Mile Network May Provide Some Benefits but Also Have Limitations 23 Agency Comments 33 Appendix I Objectives, Scope, and Methodology 35 Appendix II Comments from the United States Postal Service 45 Appendix III GAO Contact and Staff Acknowledgments 46 Tables Table 1: Comparison of Percentage Changes in Select U.S. Postal Service’s Last Mile Figures Relative to Other Operating Figures in Fiscal Years 2008 through 2014 and 2014 through 2018 15 Table 2: List of Potential Nonpostal Services for U.S. Postal Service 43 Figures Figure 1: Example of How Mail Moves through the U.S. Postal Service’s Network 6 Figure 2: Estimated U.S. Postal Service Modified Operating Costs and Key Last Mile Costs by Function, in Billions of Dollars and Percentage of Operating Costs, Fiscal Year 2018 9 Figure 3: Percentage Change from Fiscal Year 2008 in U.S. Postal Service Key Last Mile Costs and in Modified Operating Costs 11 Page i GAO-20-190 U.S. Postal Service Figure 4: U.S. Postal Service Employee Workhours—Mail Carriers’ Street Workhours and All Other Employees, Fiscal Years 2008–2018 13 Figure 5: Two Potential Nonpostal Services That Could Be Provided by U.S. Postal Service Mail Carriers 24 Figure 6: Two Potential Nonpostal Services That Could Be Provided through Mobile Sensors Attached to U.S. Postal Service Delivery Vehicles 29 Abbreviations APHIS Animal and Plant Health Inspection Service DARPA Defense Advanced Research Projects Agency FCC Federal Communications Commission EPA Environmental Protection Agency HHS Department of Health and Human Services NALC National Association of Letter Carriers PAEA Postal Accountability and Enhancement Act PRC Postal Regulatory Commission USPS United States Postal Service USPS OIG U.S. Postal Service’s Office of Inspector General This is a work of the U.S. government and is not subject to copyright protection in the United States. The published product may be reproduced and distributed in its entirety without further permission from GAO. However, because this work may contain copyrighted images or other material, permission from the copyright holder may be necessary if you wish to reproduce this material separately. Page ii GAO-20-190 U.S. Postal Service Letter 441 G St. N.W. Washington, DC 20548 December 17, 2019 The Honorable Gary C. Peters Ranking Member Committee on Homeland Security and Governmental Affairs United States Senate Dear Senator Peters: According to the Task Force on the United States Postal System, the United States Postal Service’s (USPS) delivery network “is a critical part of the nation’s infrastructure that cannot be replicated by private actors, or, for the foreseeable future, displaced by emerging delivery technologies.”1 This network, referred to as the “last mile,” involves delivering mail from a USPS facility (such as a post office) to its final destination. The last mile delivery network consists of mail carriers, delivery vehicles, and USPS’s address and routing systems, and it enables USPS to carry out its mission of providing universal postal service.2 However, for over a decade, while USPS has carried out this mission as required, it has not been operating as a self-financing entity because of reduced demand for traditional postal services as costs have continued to increase. This situation has led to significant losses—$69 billion over the last 11 fiscal years. As a result, USPS’s financial viability has been on our list of high-risk areas since 2009.3 Given the ubiquity of USPS’s network, subject matter experts and other postal stakeholders, such as postal associations, have suggested that the last mile delivery network could be leveraged to provide additional 1The Task Force, created by the president and chaired by the Secretary of the Treasury and also including the Director of the Office of Management and Budget and the Director of the Office of Personnel Management, further maintained that “maintaining this critical infrastructure as a national resource should be considered the primary business objective of the USPS.” See Task Force on the United States Postal System, United States Postal Service: A Sustainable Path Forward, Report from the Task Force on the United States Postal System (Washington, D.C.: Dec. 4, 2018). 2As part of its universal service obligation, USPS is required to provide prompt, reliable, and efficient services to patrons in all areas and …postal services to all communities.” 39 U.S.C.

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