Rising fuel prices—particularly for gasoline,  diesel, jet fuel, and natural gas—have been the primary driver of the  Service’s recent transportation and facility fuel costs increases. The  Service remains highly vulnerable to fuel price fluctuations, due in part to  its fuel purchasing process, which involves buying fuel as it is needed,  typically at retail locations. The Service is challenged by the need to meet  its universal service requirements and its inability to use fuel surcharges. Rising transportation costs accounted for roughly 18 percent of the  operating expense increase in 2006—largely due to rising fuel costs— while compensation and benefit growth accounted for 68 percent of this  increase. The Service was able to absorb these cost  pressures through cost containment efforts inside and outside of the fuel  program, as well as from increased revenues from the January 2006 rate  increase, allowing it to achieve a positive net income from operations. The Service’s Actions to Improve Fuel Costs Are Generally Consistent With Leading Practices and Legal Requirements, but Issues Remain

The Service has taken actions in certain areas, such as implementing its  Voyager fuel card program, bulk purchasing, and SES contracts, that have  improved its fuel procurement and consumption, as well as its ability to  manage fuel cost and risks. We also identified areas where more actions could be  taken to identify further cost-saving opportunities and meet updated  federal fuel consumption requirements related to reducing reliance on  petroleum-based fuels. Postal Service officials stated these issues made  operating its fleet on alternative fuels cost prohibitive. For example, the Service converted  some of its vehicles to operate on CNG in the early 1990s. Taking immediate actions to address the lack of  consumption data will be important, even as the Service is developing a  new energy strategy. Appendix I: Objectives, Scope, and Methodology

For this report, our objectives were to review (1) how the Service’s fuel  costs changed recently and the impact of these cost changes on the  Service’s financial and operating conditions and (2) how the Service’s  actions to control fuel costs and mitigate risk compare to leading practices  and federal requirements. To describe how the U.S. To assess the effectiveness of the Service’s actions to control fuel costs  and mitigate risk, we compared these actions against practices advocated  by leading organizations that could be applied to the Service’s fuel-related  activities.
Why GAO Did This Study

The U.S. Postal Service (the Service) is dependent on fuel to support its mail delivery and transportation networks, as well as to heat and operate the over 34,000 postal facilities it occupies. The Service has been challenged by recent fuel price fluctuations, and the Postmaster General stated that gas prices were a primary reason for the proposed 2007 postal rate adjustment. Based on this challenge, Congress asked GAO to review (1) how the Service's fuel costs changed recently and the impact of these cost changes on the Service's financial and operating conditions, and (2) how the Service's actions to control fuel costs and mitigate risk compare to leading practices and federal requirements. GAO collected fuel cost and price information; interviewed Service fuel officials; and compared the Service's actions against leading practices and federal requirements.

What GAO Found

The Service's transportation and facility fuel costs have grown in recent years as fuel prices, particularly for gasoline, diesel, and jet fuel have increased. For example, fuel cost growth for its vehicle fleet was due to rising prices rather than consumption. While fuel costs have directly pressured its financial condition, increasing compensation and benefits were the primary driver of the $3.4 billion operating expense increase in fiscal year 2006. The Service absorbed fuel cost increases through costcontainment efforts and increased revenues from the January 2006 rate increase, allowing it to achieve net income for the year. Nevertheless, the Service remains vulnerable to fuel price fluctuations, due in part to its purchasing process, which involves buying fuel as needed, often at retail locations. The Service is challenged to control fuel costs due to its expanding delivery network and inability to use surcharges. GAO found some of the Service's actions to control fuel costs to be generally consistent with procurement and consumption practices advocated by leading organizations and federal requirements for purchasing alternative fuel vehicles. However, GAO also identified areas where more actions could be taken. Taking actions to address data inconsistencies will be important, even as the Service develops a new energy strategy. These inconsistencies will limit the Service's ability to understand consumption changes and impacts and where to target potential cost-saving opportunities. Furthermore, additional progress is needed in reducing reliance on petroleum-based fuels because of the more stringent federal fuel consumption requirements that were recently passed.