Essay Example on USPS: Factors Contributing to Financial Difficulty

Introduction

According to the information on page 4 of the United States Postal Service (USPS) plan to profitability, some of the basic factors that lead to financial problems include volume factors. In this case, volume decreases as a result of a decline in the number of transactions brought about by e-diversions which is a substitute for advertising mails. Additionally, price elasticity contributes to United States Postal Service's financial difficulties since they cannot be inflated very high. Fixed costs also contribute to its financial problem because of the need for fast delivery. Moreover, an increase in the cost of labor which is 805 of the total cost is very expensive. The increase in labor costs is a result of an increase in employee benefits like health insurance and pensions.

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Percentage of USPS Volume and Profit

According to the information on page 8, the percentage of the USPS mail volume that was as a result of first-class mail delivery was 43.80% of the entire volume. Page 9 of the report 'USPS plan to Profitability' indicates that 66.80% of the USPS profit was derived from the first-class email.

Compensation Costs

In 2011, about 40% of the (USPS) is as a result of compensation. According to the perspective of the USPS, these costs are more fixed in nature compared to the volume of mail delivered, since they are out of their control.

Sensitivity Analysis

According to the data presented on page 26 of the USPS report, in case the volume of activity was to be raised by 1 %, revenue would increase by $ 0.6. As a result, the total profit would increase by$ 0.2. On the other hand, if the price in (USPS) would increase by 1%, revenue would increase by $ 0.3. As a result, the total profit would increase by $0.4. Based on the increase in the price level, the USPS can anticipate that the dollar amount of increase in revenue would be lower than the increase in profit. The difference is as a result of a reduction in workload emanating from the decrease in volume caused by elasticity.

The USPS Proposals to Return to Profitability

To address the financial challenges that (USPS) is facing, it is important to identify and execute some initiatives. For instance, the report on page 13 states that the United States Postal Service has already identified more than $ 20 billion of the yearly savings for the next five years, whereby about$10 billion calls for legislative action. These proposals are crucial for restoring (USPS) to a sound financial position and profitability. Firstly the postal service intends to increase the targeted price. Besides, the (USPS) proposes to enhance their networking by re-assessing their facilities and lowering the total costs incurred in the local post offices. The other initiative proposed by the postal service company is to increase its flexibility and reduce its total cost. This step is important as it will help reduce the huge cost of networking. More importantly, the (USPS) intends to lower the total time required to deliver its services by 1 day. In addition to this, the postal service plans to enhance the standard of service for first-class mail.