Implications of Electronic Mail and Message Systems for the U.S. Postal Service

6 .Implications of Electronic Mail and Message Systems for the us Postal Service

contribution to fixed costs of any class of mail.
In fiscal year 1980, first class mail made up
about 57 percent of the total mainstream. Its
contribution to USPS fixed costs was about
$4.2 billion, based on an actual volume of 60
billion pieces (and assuming 20C/piece revenue
and 13C/piece variable cost). This was about
55 percent of total fixed costs ($7.6 billion) in
that year.
The example of first class mail just cited is
particularly relevant to this study because it
is likely that most of the conventional mail di
verted to EMS or EFT over the next 20 years
will be first class mail. Not only does it repre
sent the largest volume of mail, but it is gen
erally more amenable to electronic transmis
sion than are other classes. Three quarters of
first class mail is made up of correspondence,
negotiable instruments (e.g., checks), and bills
and financial statements.
If the first class mainstream declined 10 bil
lion pieces by the year 2000, and the 1980 cost
and markup is assumed, first class mail would
contribute $700 million less to USPS fixed
costs than it does today. Making up that loss
by raising first class rates alone would require
a 7 percent increase. To the extent that USPS
was delivering Generation II EMS hardcopy
and making a profit on it, some or all of this
rate increase could be avoided. This latter pos
sibility is highly dependent on the cost of Gen
eration II EMS (not well known) and the mar
ket price (also not well known).
Cost cutting would ease the necessity of in
creasing rates. This strategy would be par
ticularly prudent if first-class rate increases
would lead to a further volume reduction,
which could set off a spiral of rate increases
and volume reductions. Whether or not cut
ting costs would result in service cuts would
depend in part on the USPS cost structure.
Under the current cost structure (36 percent
fixed costs, 64 percent variable), some service
cuts would appear to be necessary. For exam
ple, USPS officials have estimated that deliv
ery 5 days a week (instead of 6) would save

about $650 million (1980 dollars). A 1976
USPS staff study projected a $1.1 billion (1977
dollars) savings for delivery 3 days a week.
In the longer term, USPS fixed costs may
be reduced below the current 36 percent; other
ways to improve productivity might be iden
tified such that service levels could be main
tained even at lower volumes and revenues.
However, some significant portion of USPS
costs clearly is required to pay for maintain
ing the basic nationwide delivery system and
infrastructure, largely irrespective of the
volume. For example, a substantial number of
carriers are required to cover the approximate
ly 69 million city USPS delivery points and
15 million rural delivery points (as of 1980)
each day, 6 days a week, and to maintain win
dow service at over 30,000 post offices, 9 hours
or more a day, 5 or 5V2 days a week. Likewise,
some minimum level of truck transportation
between post offices must be maintained to
meet delivery performance standards, regard
less of whether the trucks are carrying several
dozen or several thousand letters. Labor cur
rently accounts for about 85 percent of USPS
costs and transportation about 7 percent
(largely for trucks and other postal vehicles,
plane and rail transportation). Thus, from this
perspective, it is not clear that fixed costs
could be reduced substantially without cutting
service levels.
In sum, any projections of USPS revenues,
costs, and rates are difficult at best, given:
1. the complexity of USPS revenue and cost
2. the fact that costs obviously vary by type
of mail route (e.g., urban, suburban, rural),
although USPS does not collect such cost
3. the problem of how to assign common
costs properly to different mail services;
4. the uncertainty in determining what costs
are variable with volume changes over
various time periods; and
5. the uncertainty over future costs, rates,
and volumes of Generation II EMS.

United States. Congress. Office of Technology Assessment. Implications of Electronic Mail and Message Systems for the U.S. Postal Service. UNT Digital Library. Accessed November 28, 2015.