Half way  through fiscal year 2011, USPS reported a net loss of $2.6 billion. Specifically, USPS said that absent legislative change  it will be forced to default on payments to the federal government,  including a $5.5 billion pre-funding payment for retiree health benefits due  on September 30, 2011. While USPS’s financial condition continues to deteriorate, we and USPS  have presented options to improve the agency’s financial condition. Specifically, we have reported that Congress and USPS need to reach  agreement on a package of actions to restore USPS’s financial viability,  which will enable USPS to align its costs with revenues, manage its  growing debt, and generate sufficient funding for capital investment. Delivery Fleet Primarily Consists of Aging Long-Life Vehicles and Alternative Fuel Vehicles Acquired to Meet Requirements, Which Have Presented Cost and Infrastructure Challenges

As shown in figure 1, there are three principal components of USPS’s  delivery fleet:    about 141,000 “long-life vehicles” (LLV)—custom-built, right-hand-drive,  light duty trucks with an aluminum body 16 to 23 years old, that are  approaching the end of their expected 24-year operational lives;   about 21,000 flex-fuel vehicles (FFV), also custom-built with right-hand  drive, 9 and 10 years old, that are approaching the mid-point of their  expected 24-year operational lives; and   about 22,000 commercially-available, left-hand drive minivans that range in  age from 2 to 13 years and have an expected operational life of 10 years. USPS is subject to certain legislative requirements governing the federal  fleet. Since 2000, USPS has consistently purchased  delivery vehicles that can operate on gasoline or a mixture of gasoline and  85 percent ethanol (E85) to satisfy this requirement. Apart from its experiences with E85-capable vehicles, USPS has a variety  of limited experiences with other types of alternative fuel delivery  vehicles. This is largely because any potential fuel savings from alternative  fuel vehicles would be unlikely to offset generally higher acquisition costs  over the vehicles’ operating lives, given that USPS’s delivery vehicles on  average travel about 17 miles and its LLVs use the equivalent of about 2  gallons of gasoline per day. USPS’s Approach for Addressing Its Delivery Fleet Needs Has Financial and Environmental Trade- offs

USPS’s current approach is to sustain operations of its delivery fleet— through continued maintenance—for the next several years, while  planning how to address its longer term delivery fleet needs. Our analysis of a custom query of  USPS’s vehicle database found that delivery vehicles’ direct maintenance  costs averaged about $2,450 per vehicle in fiscal year 2007 and just under  $2,600 per vehicle in fiscal year 2010 (in constant 2010 dollars). USPS’s approach has trade-offs, including relatively high costs to maintain  some delivery vehicles. Another trade off of its current strategy is that USPS is increasingly  incurring costs for unscheduled maintenance because of breakdowns. However, in fiscal  year 2010, at least 31 percent of its vehicle maintenance costs were for  unscheduled maintenance, 11 percentage points over its 20 percent goal. Without Significant Improvement in USPS’s Financial Condition, There Are No Clear Options to Fund a Major Vehicle Replacement

USPS’s financial condition poses a significant barrier to its ability to fund a  major acquisition of its delivery fleet. Further, officials from USPS, DOE, and an  environmental organization, and operators of private fleets see little  potential to finance a fleet replacement through grants or partnerships. If Congress and USPS reach agreement on a package of actions to move  USPS toward financial viability, depending on the specific actions  adopted, USPS’s follow-up, and the results, such an agreement could  enhance USPS’s ability to invest in new delivery vehicles. In the report that this testimony is based on, we recommend that USPS  develop a strategy and timeline for addressing its delivery fleet needs. USPS agreed with our findings and  recommendation.
Why GAO Did This Study

The United States Postal Service (USPS) is in financial crisis. It also has the world's largest civilian fleet, with many of its delivery vehicles reaching the end of their expected 24- year operational lives. USPS is subject to certain legislative requirements governing the federal fleet, including a requirement that 75 percent of USPS's vehicle acquisitions be capable of operating on an alternative fuel other than gasoline. This testimony addresses (1) USPS's financial condition; (2) USPS's delivery fleet profile, including how USPS has responded to alternative fuel vehicle requirements and its experiences with these vehicles; (3) trade-offs of USPS's approach for addressing its delivery fleet needs; and (4) options to fund a major acquisition of delivery vehicles. This testimony is primarily based on GAO-11-386 , which is being released today. For that report, GAO analyzed USPS data, visited USPS facilities, and interviewed USPS and other officials. GAO recommended in that report that USPS should develop a strategy for addressing its delivery fleet needs that considers the effects of likely operational changes, legislative fleet requirements, and other factors. USPS agreed with the recommendation. For this testimony, GAO also drew upon past and ongoing work on USPS's financial condition and updated USPS financial information.

What GAO Found

USPS's financial condition continues to deteriorate. For the first 6 months of fiscal year 2011, USPS reported a net loss of $2.6 billion--worse than it expected--and that, absent legislative change, it will have to default on payments to the government, including a $5.5 billion payment for its retiree health benefits. GAO has reported that Congress and USPS need to reach agreement on a package of actions to move USPS toward financial viability. USPS's delivery fleet is largely composed of custom-built, right-hand-drive vehicles designed to last for 24 years, including about 141,000 gasolinepowered vehicles (16 to 23 years old) and 21,000 flex-fuel vehicles capable of running on gasoline or 85-percent ethanol (E85) (about 10 years old). Its flexfuel vehicles and many of its 22,000 left-hand-drive minivans, which are also capable of running on E85, were purchased to comply with the 75 percent acquisition requirement for alternative fuel vehicles. Delivery vehicles travel about 17 miles and use the equivalent of about 2 gallons of gasoline on average per day. USPS has a variety of limited experiences with other alternative fuel vehicles, such as compressed natural gas and plug-in electric vehicles, most of which have higher life-cycle costs than gasoline vehicles. USPS's approach for addressing its delivery fleet needs is to maintain its current fleet until it determines how to address its longer term needs. USPS has incurred small increases in direct maintenance costs over the last 4 years, which were about $2,600 per vehicle in fiscal year 2010. However, it is increasingly incurring costs for unscheduled maintenance because of breakdowns, which can disrupt operations and increase costs. In fiscal year 2010, at least 31 percent of USPS's vehicle maintenance costs were for unscheduled maintenance, 11 percentage points over USPS's 20 percent goal. USPS's financial challenges limit options to fund a major delivery vehicle replacement or refurbishment, estimated to cost $5.8 billion and (in 2005) $3.5 billion, respectively. USPS and other federal and nonfederal officials see little potential to finance a fleet replacement through grants or partnerships. If Congress and USPS reach agreement on a package of actions to move USPS toward financial viability, such an agreement could potentially enhance USPS's ability to invest in new delivery vehicles.