Issue Brief
The U.S. Postal Service had a traumatic beginning to its FY 2002, according to first quarter financial statements released at the Board of Governors’ January meeting. The year began with an expected loss of upwards of $2 billion, and only got worse, with the economy entering recession and the anthrax threat to the mails. Through the first quarter, mail volume is down 5.5 percent and net income is $520 million below plan. However, a more in depth look at the Service’s performance data reveals that management’s inability to adjust to adverse conditions has not improved.
Any business selling its services to the public formulates a business plan for the forthcoming year including its expected sales and expenses plan. As the year unfolds, if sales are below projections, spending must also be lowered if the expected financial results are to be attained. However, the Postal Service is either incapable or unwilling to make these necessary adjustments.
Last year the bad news was that the Postal Service was expecting to lose over a billion dollars due to a slowing economy, higher-than-expected fuel prices and more discounted mail usage than expected. The management’s reaction through the first quarter of last year was to cut the use of supplies and services (which comprises 3 percent of total expenses) by 8.4 percent relative to plan while allowing work hour usage (78 percent of total expenses) to increase 0.9 percent relative to plan.
Through the first quarter of the current fiscal year, while conditions are much worst, management’s reaction has been essentially unchanged. The economic recession and the anthrax threat have resulted in mail volume being down 4.9 percent relative to plan. Management’s reaction, like last year, has been to cut supplies and services usage — this time by 36.2 percent- while allowing work hour usage to increase 1.3 percent relative to plan. The result — net income $520 million below plan — comes as little surprise.
Confronted with worse-than-expected financial conditions, the Postal Service must find ways to reduce the bulk of its cost base — labor hours. Labor usage above plan, as is currently the case, while mail volume and revenue are substantially below plan, is an unacceptable performance. The focus of postal reform should start here. An effective incentive system should be devised to encourage management to achieve superior results.
— Charles Guy, Ph.D., is Adjunct Fellow with the Lexington Institute and former Director, Office of Economics, Strategic Planning, U.S. Postal Service.
Find Archived Articles: