The goal of these agreements is generally to  encourage additional mail volume and revenue. The Postal Accountability and Enhancement Act (PAEA) authorized  USPS to create NSAs for two discrete categories of mail products, market  dominant and competitive, as outlined in table 1. To increase or sustain mail volume and revenue, USPS has also provided  short-term discounts, called sales or promotions, on specific mail  products for groups of mailers, in contrast to NSAs, which are  agreements with individual mailers for longer periods. Since 2007, USPS Has Developed Numerous NSAs, Sales, and Promotions That Have Generated a Small but Growing Portion of USPS’s Total Revenue

		Number and Revenue Have Increased since 2007

The number of NSAs, sales, and promotions has increased in most years  since the enactment of PAEA. USPS data show that revenue generated from NSAs, sales, and  promotions has generally increased each year since the enactment of  PAEA, with most of the revenue generated by competitive product NSAs. Four  international competitive NSAs in fiscal year 2012, however, did not cover  their costs. Since Enactment of PAEA, USPS Has Developed Few Market Dominant NSAs and Generated Limited, if Any, Net Revenue from Them

USPS has implemented few market dominant NSAs. Although USPS has  estimated the financial result of promotions for the program period, it has  not provided any estimates of the long-term financial results to PRC, as  discussed in more detail later in this report. Opportunities for Increasing Revenue from NSAs, Sales, and Promotions Are Primarily from Competitive NSAs, though Challenges May Limit Revenue

		Opportunities Exist to Generate Additional Revenue from Competitive NSAs but Will Likely Not Offset Declines from Other Products

			Opportunities Exist Because of Continued Growth in E- Commerce

Opportunities exist to generate additional revenue through competitive  product NSAs primarily because of merchandise shipments associated  with the continued growth in e-commerce. USPS has taken actions to streamline the process for developing  competitive NSAs. Opportunities to Generate Net Revenue from Market Dominant NSAs Are Limited by Low Demand and Other Challenges

			Price Increases for Market Dominant Products May Generate More Revenue than Discounts in NSAs

Opportunities to generate net revenue through market dominant product  NSAs are limited. As a result, PRC has not assessed USPS methodologies for  evaluating the long-term financial results of promotions. Conclusions

To achieve financial sustainability, USPS has been working to generate  additional revenue to cover its costs. Additionally, the benefits, including long-term financial results, of  promotions are not well understood by PRC and other postal  stakeholders because USPS does not provide detailed information on its  data collection and analysis plans to PRC before implementation. As a  result, PRC has not had an opportunity to evaluate USPS’s long-term  goals and analysis plans for promotions. Though it can be difficult to  collect and analyze data on the impact of promotions, given USPS’s dire  financial situation, demonstrating how promotions may achieve positive  long-term financial results can help USPS maximize the revenue  generated by those postage rate discounts. Recommendations

Because USPS faces a deteriorating financial situation, we recommend  that the following two actions be taken to help ensure that future  promotions generate net revenue for USPS:  The Postmaster General should direct staff to provide specific data- collection methods and analytical processes for estimating the net  financial results of promotions to PRC as part of USPS’s request for PRC  approval of all promotions. In USPS’s written response, USPS disagreed with  the first recommendation and noted concerns regarding the  characterizations of promotions, sales, and NSAs in the report. USPS stated that it  does not believe the recommendation will significantly affect the PRC’s  review process, improve the quality of USPS’s business decisions, or  assure that promotions yield positive financial results. In particular, USPS noted that promotions are designed to help  sustain mail volume and revenue over the long-term. To summarize the number of, and results from, USPS  sales and promotions to date, we reviewed USPS documents filed with  PRC requesting approval for sales and promotions as well as PRC’s  Annual Compliance Determination Reports. To identify and assess any opportunities to generate additional revenue  from NSAs, sales, and promotions, as well as challenges, if any, that  could the hinder their development and implementation, we conducted  interviews with a variety of stakeholders. The views of  mailers and industry associations cannot be generalized to all mailers and  industry associations because they were selected as part of a  nonprobability sample. Factors

(1) the value of the mail service actually provided each class or type of  mail service to both the sender and the recipient, including but not limited  to the collection, mode of transportation, and priority of delivery;  (2) the requirement that each class of mail or type of mail service bear the  direct and indirect postal costs attributable to each class or type of mail  service through reliably identified causal relationships plus that portion of  all other costs of the Postal Service reasonably assignable to such class  or type;  (3) the effect of rate increases upon the general public, business mail  users, and enterprises in the private sector of the economy engaged in  the delivery of mail matter other than letters;  (4) the available alternative means of sending and receiving letters and  other mail matter at reasonable costs;  (5) the degree of preparation of mail for delivery into the postal system  performed by the mailer and its effect upon reducing costs to the Postal  Service;  (6) simplicity of structure for the entire schedule and simple, identifiable  relationships between the rates or fees charged the various classes of  mail for postal services;  (7) the importance of pricing flexibility to encourage increased mail  volume and operational efficiency;  (8) the relative value to the people of the kinds of mail matter entered into  the postal system and the desirability and justification for special  classifications and services of mail;  (9) the importance of providing classifications with extremely high  degrees of reliability and speed of delivery and of providing those that do  not require high degrees of reliability and speed of delivery;  (10) the desirability of special classifications for both postal users and the  Postal Service in accordance with the policies of this title, including  agreements between the Postal Service and postal users, when available  on public and reasonable terms to similarly situated mailers, that—  (i) improve the net financial position of the Postal Service  through reducing Postal Service costs or increasing the  overall contribution to the institutional costs of the Postal  Service; or  (ii) enhance the performance of mail preparation,  processing, transportation, or other functions; and  (B) do not cause unreasonable harm to the marketplace.
Why GAO Did This Study

For several years USPS has not generated sufficient revenues to cover its expenses. Although much focus has been on USPS's costs as a way to close the gap between its revenues and expenses, generating additional revenue is also needed. To increase mail volume and revenue, USPS has implemented NSAs, sales, and promotions with a variety of products.
As requested, GAO reviewed (1) the trends and reported results of USPS's sales, promotions, and NSAs, as well as (2) any opportunities and challenges related to generating additional revenue from them. GAO reviewed USPS documents, PRC decisions, and annual reports, and interviewed officials from USPS and PRC. GAO also interviewed mailers, which were selected in part based on participation in NSAs, sales, and promotions. Their views cannot be generalized to all mailers.

What GAO Found

The U.S. Postal Service (USPS) has developed numerous negotiated service agreements (NSA), sales, and promotions since the enactment of the Postal Accountability and Enhancement Act (PAEA) in 2006, and they generate a small but growing portion of USPS total revenue. PAEA established two categories of products: "market dominant," where USPS has a monopoly, and "competitive," which includes all other products, such as shipping services. NSAs, sales, and promotions are generally designed to encourage additional mail volume and revenue through temporary discounts on specific mail products. For example, USPS has offered promotions to incentivize mailers to invest in technology that may increase the value of mail for those mailers over the long-term. No NSAs, sales, or promotions followed the enactment of PAEA until regulations were issued in late 2007. The number of NSAs, sales, and promotions has increased most years since. The revenue generated from NSAs, sales, and promotions has also increased overall. The most revenue was generated by competitive NSAs. Financial results of competitive NSAs are not reported publicly. According to the Postal Regulatory Commission (PRC), which exercises regulatory oversight over USPS, nearly all competitive NSAs have covered their costs. Market dominant NSAs generated little revenue, in part because few were done. Sales and promotions have also generated little revenue.
Opportunities for increasing revenue from NSAs, sales, and promotions are primarily with competitive NSAs, though challenges may limit revenue, and it will likely not offset declines from other products. Continued growth in e-commerce is creating opportunities to generate additional revenue through competitive NSAs. Opportunities to generate additional revenue through market dominant NSAs are limited by low demand for those products. Also, it is difficult for USPS to determine whether any volume and revenue increases directly result from market dominant NSAs because it is difficult to accurately estimate mailers' future mail volume. In addition, USPS and some mailers we spoke with noted that the process for developing both market-dominant and competitive NSAs can be burdensome, hindering the development of new agreements. USPS has taken actions, though, to streamline the process for developing competitive NSAs. Opportunities for generating revenue from sales and promotions are also limited by low demand as well as limited review of the long-term financial results before implementation. USPS has noted that promotions satisfy rate requirements by, for example, helping to generate revenues for USPS. In particular, promotions are used to encourage mail volume over the long term. However, USPS does not provide data and analysis about the potential long-term financial results when submitting promotions to PRC for its approval. As a result, PRC does not assess the methodologies for evaluating the long-term financial results of promotions before implementation. Given USPS's financial situation, USPS should demonstrate how promotions may achieve positive long-term financial results, in order to help maximize the revenue generated by those postage rate discounts.

What GAO Recommends

GAO recommends that when filing for approval, USPS provide information to PRC about USPS's data collection and analysis plans for estimating the longterm financial results of promotions. GAO also recommends that PRC evaluate USPS's data collection and analysis plans for promotions as part of its review. In commenting on the report, USPS disagreed with the first recommendation, and PRC agreed with both recommendations. USPS stated it does not believe the recommendation will significantly affect the PRC's review process or improve the quality of USPS's business decisions. GAO continues to believe this recommendation has merit, as discussed in this report.