	USPS’s Dire Financial Outlook and Changing Mail Use Require Network Restructuring

USPS urgently needs to restructure its networks and operations as its  financial condition and outlook reach a crisis level. USPS has experienced  a cumulative net loss of nearly $20 billion over the last 5 fiscal years and  has already reported a net loss of $2.6 billion through the first 6 months of  fiscal year 2011. By the end of this fiscal year, USPS projects that it will  incur a $8.3 billion loss, experience a substantial cash shortfall, reach its  $15 billion borrowing limit, and be unable to make its scheduled retiree  health benefits payment to the federal government. USPS’s financial  problems have been building, as customers’ mail use has been changing— that is, mail volume is declining as customers shift to electronic  communications and payment alternatives. According to USPS, customer visits have  declined over the last decade by about 21 percent and retail revenue  generated at USPS-operated retail locations has dropped by about 16  percent, yet the number of USPS-operated facilities has remained largely  unchanged since fiscal year 2001. Several factors have constrained USPS’s efforts to make significant  changes to its retail network:     Legal requirements: USPS officials have stated that the legal process  has hindered USPS’s ability to make progress in retail realignment. Mail Processing

USPS has taken actions to reduce excess capacity and improve  operational efficiency throughout its mail processing network for sorting  and transporting mail, but has had difficulty comprehensively adjusting its  network to respond to the unprecedented mail volume decline since fiscal  year 2006. Costly excess mail processing capacity remains for several reasons:    Mail volume has declined, particularly single-piece First-Class Mail,  which has dropped by about 23 billion pieces over the past decade. USPS and Congress Need to Take Urgent Action to Restructure Networks

Congress and USPS urgently need to reach agreement on a package of  actions that will address difficult constraints and legal restrictions and  allow USPS to accelerate progress on restructuring its networks. We also have  recommended in prior reports that USPS realign its postal operations,  networks, and workforce with changes in mail usage and customer  behavior. As part of this work, we proposed options for action by  Congress and USPS to reduce costs and improve efficiency. Realigning Postal Networks Involves Key Public Policy Questions and Consideration of Changes

Restructuring decisions involve key public policy questions as well as  difficult trade-offs—for example, what postal services are needed and  what is affordable? As we have reported, Congress’s decisions about  how to address the following questions will shape USPS’s future role,  operations, networks, and ability to adapt to changes in mail use and mail  volume:    Universal service: What aspects of universal service, including 6-day  delivery, are appropriate in light of fundamental changes in customers’  use of the mail? In order for USPS to be self-sustaining, it needs to significantly reduce its  costs to match its revenues. Change is needed to needed to facilitate  restructuring postal networks and operations. Improve outreach and transparency of information used to make  decisions. Enhance public input by simplifying rules and requirements so that  they are consistent, timely, and easy to understand. This is a work of the U.S. government and is not subject to copyright protection in the  United States.
Why GAO Did This Study

The U.S. Postal Service (USPS) recently reported that its financial results for the first half of this fiscal year--a net loss of $2.6 billion--are worse than projected. USPS expects continued financial challenges as mail volume continues to decline. Most notable is the decline of First-Class Mail (its most profitable mail) by over 25 billion pieces, or about 25 percent, over the past decade. GAO has reported on proposals to revise USPS pension and retiree health obligations, but such actions alone will not be sufficient to address the accelerating volume decline and changing use of the mail. This statement discusses (1) why it is important to restructure USPS's networks and (2) what actions are needed to facilitate additional progress. This statement is based primarily on past and ongoing GAO work.

What GAO Found

USPS urgently needs to restructure its networks and operations as its financial condition and outlook are reaching a crisis. USPS has been experiencing billion-dollar losses and cash shortfalls over the last 5 years, and expects to reach its $15 billion borrowing limit this year. USPS officials have stated that USPS may default on its retiree health payments owed to the federal government in September 2011. These financial problems are due to declining mail volume brought on by customers' shift to electronic alternatives and USPS's difficulty in reducing costs and eliminating excess network capacity. USPS faces restructuring challenges in three areas: (1) Retail--Although USPS has provided alternatives to post offices, it has been slow to modernize its network. As customer visits to, and revenue generated at, post offices have declined, USPS has not made commensurate reductions in its number of retail facilities. (2) Mail processing--USPS has improved operational efficiency and reduced employee work hours, but excess capacity remains as large mail volume declines continue. (3) Delivery--USPS has adjusted routes and deployed new sorting equipment to make delivery more efficient, but additional efforts are needed, since delivery is USPS's most costly activity. Restructuring decisions involve key public policy questions. For example, what postal services are needed and what is affordable? In order for USPS to be self-sustaining, it needs to significantly reduce its costs to match its revenues. Change is needed to facilitate restructuring postal networks and operations. GAO has suggested the following changes: (1) Revise legal requirements to facilitate network-wide restructuring, perhaps similar to the Defense Base Closure and Realignment Commission approach. (2) Improve outreach and the transparency of information used to make decisions. (3) Enhance public input by simplifying rules and requirements so that they are consistent, timely, and easy for the public to understand.

What GAO Recommends

GAO is not making new recommendations in this statement. Recently, GAO has reported that Congress, the administration, and USPS urgently need to reach agreement on a package of actions that will address constraints and legal restrictions to facilitate progress in rightsizing USPS's operations, networks, and workforce. GAO has also recommended that Congress consider providing USPS with financial relief, and in doing so, consider all options available to reduce costs.