APPENDIX F — Fixed Versus Variable Costs 
The universal service obligation requires a significant infrastructure investment. Almost one-half of total 
postal costs are spent on fixed costs. Examples include most of the cost related to more than 38,000 post 
offices, stations and branches; 240,000 delivery routes to service over 137 million delivery addresses; 
215,000 vehicles and significant annuitant retirement costs. Technology infrastructure and other overhead 
costs are also mostly fixed.  
The “every day” portion of the universal service obligation contributes significantly to these fixed costs. A 
significant portion of postal costs is spent on fixed resources and does not increase or decrease when 
volume changes. Letter carriers travel their complete routes, making over 500 million new delivery stops 
annually; trucks transport mail between facilities each day to meet service commitments, and retail facilities 
are open each business day no matter what level of activity occurs. Nearly one-half of all postal costs are 
fixed and their proportion of total cost will continue to increase. Of these fixed costs, $10 billion is directly 
related to the Postal Service’s delivery obligation.
As indicated in Appendix D, the Postal Service faces significant future costs due to payment of deferred 
retirement costs, CSRS annuitant COLAs and annuitant health benefits. The Civil Service Retirement 
System costs for retired or soon to be retired employees, will have to be paid, regardless of future volume 
growth or volume decline. Because much of this cost is fixed and growing, it will continue to be a 
significant cost. 
The increasing proportion of fixed costs also exposes the Postal Service to the danger of rising unit prices. 
Postal prices must cover both fixed and variable costs. If volume remains constant or declines, a rising pool 
of fixed costs will have to be covered by a constant or lower volume base. In addition, as discussed in 
Appendix E, there is a real danger of possible volume declines. This would lead to more fixed costs per 
piece and higher overall unit prices.

FIXED VS. VARIABLE COSTS
TOTAL FIXED COSTS


United States Postal Service Transformation Plan
April 2002 | Appendix F–1