Postal Service could dramatically increase business with federal agencies, report finds

The U.S. Postal Service can generate nearly $35 million in revenues over two years by increasing its viability as a federal contract recipient, according to a new report.

USPS’ inspector general’s office found by adapting to the needs of federal agencies -- by broadening price flexibility, for example, and guaranteeing two and three-day express delivery -- the agency could generate $17.4 million in revenue in both fiscal years 2013 and 2014.

The General Services Administration awarded about $340 million annually in 2011 and 2012, but only $1.2 million and $4.8 million to USPS, respectively. Contracts went overwhelmingly to FedEx and UPS.

The report found the Postal Service faced a handicap in acquiring federal business because GSA began awarding contracts in 2001, but USPS did not begin participating until 2009. While nothing can be done about the timing -- except for “enhancing…visibility and accessibility” -- the OIG said the Postal Service can eliminate other disadvantages its faces against private-sector competition. 

“Unlike competitors,” the inspector general wrote, “the Postal Service cannot sell products below cost and make up the loss with other products or services to penetrate a market, attract new customers, or match competitors’ prices.”

This hindrance has allowed UPS and FedEx to consistently undercut the Postal Service’s prices. However, USPS remains competitive for lightweight packages and the inspector general recommended the Postal Service focus on increasing federal business in that area by mitigating price rigidity.  

The Postal Service does not offer two and three-day guaranteed service, but its Priority Mail option met the requisite performance measure more than 90 percent of the time, according to the OIG. Adapting this service to guarantee the delivery time would significantly boost USPS’ federal business, the report said.

Federal agencies sometimes choose private-sector shipping companies because they allow a more diverse range of payment options. The Postal Service is in the process of expanding acceptable payment methods, the OIG said. The agency also loses out on Defense Department contracts because it does not have its own aircraft -- a requirement to receive a shipping contract with the Pentagon, in case the planes are needed in the event of a national crisis. However, the Postal Service could partner with other air carriers and take only the ground portion of Defense contracts.

The report also recommended the Postal Service develop a better understanding of agencies’ needs, including which most commonly ship lightweight packages.

The Postal Service agreed with the inspector general’s recommendations, but it did not find sufficient information to support the OIG’s new revenue estimate.

“Without more detailed data on the characteristics of federal shipments, it is nearly impossible to predict a value for Postal Service potential,” Cliff Rucker and Gary C. Reblin, USPS’ vice presidents for sales and new products and innovation, respectively, wrote in a letter to the OIG.