They  provide most of the same products and services as post offices (see fig. 3.) USPS Uses CPUs to Provide Retail Services at Additional Locations and Hours

Although total number of CPUs has decreased in recent years, USPS  continues to use CPUs to provide customers with access to postal  services at additional locations and for more hours of service. CPUs are  located in a variety of locations, both urban and rural, and range from  very close to far from post offices, demonstrating how USPS uses CPUs  to provide customers with alternatives located near crowded post  offices—which are often found in urban areas— and to provide service  where post offices are not conveniently located or may not be cost  effective for USPS, often in rural areas. Decrease in Number of CPUs

According to USPS data, the number of CPUs fell from 5,290 in 2002 to  3,619 in 2011. Consistent with USPS’s goal to use CPUs to absorb excess demand at  post offices, our analysis of the distance between CPUs and post offices  shows that more than 56 percent of CPUs are less than 2 miles from the  nearest post office and 26 percent are less than 1 mile. Trends in CPU Contract Types, Revenues, and Compensation

		Use of the Performance- Based Contract Type Increased

In recent years, USPS has intentionally shifted its means of  compensating CPUs from fixed-price contracts—in which compensation  to CPUs is a fixed amount regardless of sales—to performance-based  contracts—under which compensation to CPUs is a percentage of the  CPU’s postal sales—resulting in potentially greater revenue and less  financial exposure to USPS. The total revenues USPS received from sales of postal products and  services at CPUsyear 2007 to $611 million in fiscal year 2011, as shown in figure 8. On average,  USPS’s revenue from individual CPUs averaged about $160,000 in  revenue in fiscal year 2011, but a substantial number (41 percent)  generated less than $50,000. USPS compensation to CPUs increased about 6 percent from $75.4  million in fiscal year 2007 to $79.9 million in fiscal year 2011. However,  USPS compensation to CPUs has decreased every fiscal year from 2008  to 2011. According to USPS officials, the increase in  compensation from fiscal years 2007 and 2008 was because of larger  numbers of performance-based contracts, fewer public service contracts,  which are generally less expensive, individual CPUs’ petitions for  increased compensation because of increased cost of doing business,  and economic conditions. Measured in another way, after  compensating CPUs, USPS retained $0.87 of every dollar of CPU  revenues. USPS’s target for individual  CPUs is to retain, after compensation, $0.80 for every dollar in  revenues. Most of these CPUs were in rural areas. Forty-nine percent of small-town  rural CPUs with fixed-price contracts generated less revenue for USPS  than the compensation USPS provided in fiscal year 2011. USPS’s Future Use of CPUs May Pose Challenges

USPS is embarking on a substantial makeover of its retail network,  including reducing hours of service at thousands of underutilized post  offices and expanding the use of retail alternatives through partnerships  with national and regional retailers. At the same time, pending  legislation in the Senate would require USPS to consider opening CPUs  as replacements for post offices that it closes.pared down its plans to close post offices by instead reducing their hours,  to the extent that USPS closes post offices in the future, this requirement  may put more pressure on USPS to open more CPUs. Furthermore,  some district retail managers we spoke with said that they see a  potentially larger role for CPUs in the future as USPS transforms its  traditional retail network. USPS may face limited  private interest in opening CPUs in certain areas. As a result, district staff are not always able to open as  many new CPUs as they would like. Limited Staff Resources in USPS Districts. Some USPS district retail  managers we spoke with told us that although there are unmet needs  for CPUs in their districts, compared to prior years, they now have  fewer staff and less time to seek out opportunities for new CPUs. We continue to believe, as we stated in  November 2011, that it is important that such a strategy discuss how  USPS plans to increase its use of retail alternatives—including CPUs— while considering significant changes to its network of post offices and the  means through which it provides access to USPS’s customers. For example, by  considering factors, such as the distance of CPUs to existing post offices,  CPU hours and days of service, and USPS’s costs of compensating  CPUs, USPS could better inform its retail strategy in order to make better  strategic use of CPUs in its future retail network, which will likely include  reduced hours at thousands of post offices. To determine USPS revenue from CPUs and USPS’s compensation to  them from fiscal years 2007 to 2011, we analyzed data from CPUT. To determine challenges USPS might face if it increases its use of CPUs,  we reviewed relevant legislation, USPS documents related to managing  CPUs, prior GAO reports, and USPS Office of Inspector General reports. Appendix II: Number of Contract Postal Units and Post Offices by State

Table 5 provides the number of Contract Postal Units (CPUs) and post  offices in each state, as well as the number of CPUs per 100 post offices  in each state as a measure of how reliant each state is on CPUs for  providing access to postal services. Appendix III: Comments from the U.S.
Why GAO Did This Study

USPSs declining revenues have become insufficient to cover its costs. Its strategies to address losses include reducing hours of service at many post offices and expanding the use of post office alternatives, including CPUs.CPUs are independent businesses compensated by USPS to sell most of the same products and services as post offices at the same price. Although CPUs can provide important benefits, the number of CPUs has fallen from 5,290 in fiscal year 2002 to 3,619 in fiscal year 2011. As requested, this report discusses: (1) how CPUs supplement USPSs post office network, (2) USPSs revenue from CPUs and compensation to them from fiscal years 2007 to 2011, and (3) challenges USPS might face if it increases its use of CPUs. GAO analyzed USPS data on CPU locations, revenues, compensation, and hours of operation as well as on post office locations and hours of operation. GAO interviewed CPU owners and USPS staff in charge of managing CPUs.

What GAO Found

Although contract postal units (CPUs) have declined in number, their nationwide presence in urban and rural areas supplements the U.S. Postal Service's (USPS) network of post offices by providing additional locations and hours of service. More than 60 percent of CPUs are in urban areas where they can provide customers nearby alternatives for postal services when they face long lines at local post offices. Over one-half of CPUs are located less than 2 miles from the nearest post office. Urban CPUs are, on average, closer to post offices than rural CPUs. CPUs are also sometimes located in remote or fast-growing areas where post offices are not conveniently located or may not be cost effective. CPUs further supplement post offices by providing expanded hours of service. On average, CPUs are open 54 hours per week, compared to 41 hours for post offices. In addition, a greater proportion of CPUs than post offices are open after 6 p.m. and on Sundays. These factors are important as USPS considers expanding the use of post office alternatives to cut costs and maintain access to its products and services.
Total USPS revenues from CPUs fell from fiscal years 2007 to 2011, while USPS's compensation to them increased during this period; nonetheless, CPUs generated high revenues relative to USPS's compensation to CPUs. Declines in mail volumes and the number of CPUs drove revenues down 9 percent, from $672 million to $611 million from fiscal years 2007 to 2011. USPS total compensation to CPUs increased 6 percent during this period, from $76 million to $80 million; however, after increasing from fiscal year 2007 to 2008, compensation decreased every fiscal year from 2008 to 2011. According to USPS officials, the overall increase was because of increased compensation to individual CPUs and decreasing numbers of less expensive CPUs. In fiscal year 2011, after compensating CPUs, USPS retained 87 cents of every dollar of CPU revenue. USPS has a target to retain 80 cents for every dollar in revenue for individual CPUs. USPS did not meet this target at many individual CPUs-- especially ones in rural areas. In fact, 49 percent of CPUs that USPS compensates a fixed amount regardless of their sales in small-town rural areas-- where CPUs may serve as the de facto post office--generated less postal revenue than the CPUs received in compensation from USPS. CPU revenues and compensation are important factors as USPS seeks a more sustainable cost structure.
Limited interest from potential partners, competing demands on USPS staff resources, and changes to USPS's retail network may pose challenges to USPS's use of CPUs. USPS has no current plans to strategically increase the number of CPUs as part of its retail network transformation. However, a number of district USPS staff charged with identifying the need for CPUs told us they see a larger role for CPUs. Nevertheless, USPS may face limited interest from potential partners as many may not want to operate CPUs because of concerns over CPU contract requirements such as space requirements and prohibitions on selling products and services that compete with USPS. Many USPS district retail managers we spoke with in charge of opening CPUs said that finding partners to operate CPUs could be difficult. Furthermore, many of these managers said that they now have fewer staff and less time and, as a result, do not have the resources to manage opening CPUs to meet the need they have identified.

What GAO Recommends

GAO previously recommended that USPS develop and implement a plan to modernize its retail network. GAO is not making any new recommendations at this time, but believes that it is important for USPS to consider the role of CPUs as USPS works to develop and implement its retail network plan and control costs. In commenting on a draft of this report, USPS provided information on its efforts to provide convenient access to its products and services.