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

Chapter 6

Implications for Postal Rates,
Service Levels, and

Labor

Requirements

Introduction

Postal rates, service levels, and labor re
quirements are integrally related. By law, the
U.S. Postal Service (USPS) is required to
achieve break even operations; that is, reve
nues should equal costs as nearly as possible.
Thus, postal rates are established at the levels
needed to generate revenues sufficient to cover
projected costs over a given period of time (2
to 3 years in a typical ratesetting cycle). The
projected costs are based on assumptions
about USPS mail volumes and service levels.
The major cost component is labor, which in
Postal
While OTA was not able to do a revenue/
cost analysis for all classes of mail, the results
of the analysis for first class mail suggest that
under the baseline high but plausible Genera
tion II electronic mail and message system
(EMS) growth alternative, postal rates would
have to increase in constant dollars (net of in
flation) after 1995, assuming service levels
were not reduced. As shown earlier in figure
4 (based on the market penetration analysis),
the breakdown of mail by class for the high
but plausible Generation II EMS growth alter
native indicates that through the early 1990's
the split between first class mail and other
classes would be roughly the same as in 1980.
Reductions in conventional first class mail
would be largely offset by increases in Genera
tion II EMS hardcopy output delivered by
USPS.
However, by 1995 the net reduction in total
USPS delivered first class mail would, for the

fiscal year 1980 accounted for about 85 per
cent of total USPS costs.' For the current level
of service, about 60 percent of labor costs are
fixed; that is, are required to maintain the
service level regardless of variations in mail
volume. 2
'Annual Report of the Postmaster General fiscal 1980, p. 24.
'USPS fiscal year 1980 Revenue and Cost Analysis; also see
Robert W. Anthony, et al., Strategy for Decisions. American
Postal Workers Union and the Electronic Information Revolu-
ton, The George Washington University Program of Policy Sci-
ence and Technology, Washington, D. C., Mar. 1, 1980, pp. 5556.
Rates
baseline high growth alternative, require a
small rate increase to maintain the first class
mail contribution to USPS fixed costs, based
on the chapter 5 revenue/cost analysis (see
figs. 9 and 10). By 2000, the required rate in
crease could be more substantial, on the order
of 18 percent. If the underlying mainstream
growth turned out to be 1 percent rather than
2 percent, a rate increase of more than 30 per
cent might become necessary. On the other
hand, for a 3 percent underlying mainstream
growth, the required rate increase in 2000
would be about 7 percent. For illustrative pur
poses, an 18 percent increase in first class mail
rates would translate roughly into an increase
of 3.5C/piece in the conventional first class
mail rate and a 1.5C/piece increase in the rate
for delivery of Generation II EMS first class.
These rate increases would recover the pro
jected $1.5 billion shortfall in first class mail
contribution to fixed costs in 2000 for the
baseline high growth alternative.

United States. Congress. Office of Technology Assessment. Implications of Electronic Mail and Message Systems for the U.S. Postal Service. UNT Digital Library. http://digital.library.unt.edu/ark:/67531/metadc39480/. Accessed August 28, 2014.