After decade of fiscal malpractice, little cost savings at Postal Service

The dismal quarterly financial statements of the United States Postal Service have become so routine that they barely qualify as news anymore. Because of its sustained fiscal morass, the proposed remedies laid out by the agency to tackle its problems are also not getting enough attention.

The latest Postal Service financial statement out this year reported a net loss of $1.5 billion for the last quarter of 2018, a 178 percent higher loss than the $540 million quarterly shortfall for the last quarter of 2017. Four years ago, the Postal Service downgraded its first class mail delivery standards by eliminating single piece overnight deliveries and moving other mail from two day delivery to three day delivery. The agency claimed this operational window change would allow it to use fewer machines and less facility square footage, while making transportation costs more efficient, adding up to a savings of $805 million annually.

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Another inspector general report last year found that the agency did not achieve its projected $1.6 billion operational window change savings for fiscal 2016 and 2017 with a paltry 5.6 percent of the projected savings for both years. The report concluded that it was not only “unlikely” that the Postal Service will ever achieve the projected yearly $805 million in savings, but also that management never developed any way to track the savings. Transportation costs exceeded projected costs by more than $200 million in the first year after the operational window change, and processing productivity fell by 4.5 percent. The inspector general urged the Postal Service to reevaluate, but its recommendations remain open.

The inspector general reports related to Postal Service transportation costs also paint a disquieting picture of the ability of the agency to identify and realize cost savings. An inspector general report last month documented that the overall Postal Service transportation costs have risen by 18 percent in the past decade, even though mail volume has dropped by 26 percent and service standards were lowered. Some cost increases could be attributable to a higher volume of parcels, higher fuel costs, and higher driver wages, but nearly 40 percent of Postal Service transportation cost increases cannot be unaccounted for by the agency.

In what at first appeared to be good news, the inspector general reported that Postal Service analysts were working to optimize costs in highway contracting, which represent more than 55 percent of its $7.3 billion in domestic ground transportation costs. However, the inspector general stated that it remained unclear whether the Postal Service cost saving initiatives were or will be successful. For example, the Highway Contract Route Optimization system, which was supposed to identify unnecessary surface transportation costs and eliminate those routes, had already been the subject of an audit earlier this year, because the calculations and methodologies the Postal Service used in that effort were deemed as “inadequate,” “undocumented,” “inconsistently followed.” As a result, the Postal Service had overstated its savings in that program by $119 million.

The inspector general reports unveil an operation that seems to lack a sense of urgency, struggles to identify savings opportunities, or takes no prompt action to realize those savings. Postal ratepayers and taxpayers ought to take note, since many of the cost saving recommendations made, including those made by the White House Task Force on United States Postal System late last year, could be achieved immediately by current postal management without the need for action by Congress. But to ensure these savings are achieved, they must be properly analyzed.

The Government Accountability Office, which has listed the Postal Service on its “high risk list” of programs ever since 2009, has determined Postal Service management plans “fall short of maximizing” what the agency can do within its existing authority to “operate more efficiently and reduce its costs.” The Postal Service has not taken full advantage of partnerships with the private sector that sort and distribute mail much more efficiently and with significant savings. The Postal Service has also identified more than 1.2 million square feet of excess space. Shedding that property and realizing the cost savings associated with that will also require robust analytical tools. Even determining the profitability of its latest effort to monetize its intellectual property, which is a clothing licensing deal with the fast fashion retailer Forever 21 aimed at increasing brand awareness among teens, turns on its ability to accurately audit its undertakings.

Any private sector company facing 10 straight years of losses, low levels of efficiency in its core operations, and cost and savings projections wildly off the mark would carry out exacting internal audits of all operations and systems to pivot to more successful business models. Postmaster General Megan Brennan claims that post management continues to engage in “aggressive management of the business.” If that were true then cost cutting and increased efficiency should be working rather than failing.

Leslie Paige is the vice president of policy at Citizens Against Government Waste, which works to reduce waste and mismanagement in government.