The U.S. Postal Service Faces Revenue Shortfall Due to Undeliverable Packages
According to a report released by the Postal Service’s inspector general on Thursday, the U.S. Postal Service experienced a staggering loss of $163 million in revenue over the past year.
This financial deficit is largely attributed to the inability to manage an influx of undeliverable packages from e-commerce shippers, who have increasingly utilized the postal system as what can only be described as a gratuitous waste disposal service.
During the 12-month period concluding in February, the volume of packages relegated to the Postal Service’s “lost & found” unit surged by an alarming 45%.
This spike was primarily fueled by fulfillment centers that outright refused to accept the return of these packages, as detailed in the audit by the Postal Service’s oversight agency.
As e-commerce companies deny responsibility for undeliverable return-to-sender items—many of which incur additional postage—the financial burden of disposal has been offloaded to the Postal Service.
However, by implementing a system to collect postage due from direct shippers and introducing a refusal fee, the Postal Service could potentially enhance its revenue by nearly $20 million within the next 13 months.
The Mail Recovery Center (MRC), which processes undeliverable mail, encountered a fourfold increase in “dead mail” over a three-year span but returned less than 1% of missing packages to their rightful owners.
This stands in stark contrast to management’s assertions that a commendable 39% were returned, revealing serious discrepancies and methodological flaws in gauging both the volume and return rates.
In the fiscal year 2025, grievances regarding missing packages surpassed 5 million. Employees at the Mail Recovery Center engage in diligent efforts to reconcile lost items with those reported missing in their databases.
If the value of an item exceeds $25 or meets certain criteria, packages are retained for a minimum of 30 days. Nonetheless, the vast majority of undelivered packages are ultimately disposed of through public auctions, incineration, or distribution to charitable organizations.
The total number of packages forwarded to the MRC by post offices is estimated to be around 19 million for the year ending in February—of which a striking 75% originated from commercial shippers.
Items categorized as return-to-sender, particularly those with invalid return addresses, constituted 62% of this incoming volume, as indicated in the report.
Among these return-to-sender packages, many were under the Parcel Select program, which offers substantial discounts.
This program allows shippers to pre-sort packages for easy proximity to the final delivery point for the Postal Service to transport the remaining distance.
Notably, Parcel Select does not encompass any return services, resulting in return packages being liable for postage fees based on the USPS Ground Advantage pricing structure—these fees must be settled before the addressee, predominantly a fulfillment center, can access their packages.
With return postage costing a minimum of $12.63 per package and processing costs for returns potentially reaching 20% to 65% of an item’s value, fulfillment centers are incentivized to reject returns. This systemic issue, highlighted in the report, underscores the need for corrective action.
Seeking Solutions and Updating Practices
Management is urged to identify alternative methods for enforcing postage due collection on Parcel Select shipments and to establish charges for disposal services.
The encounter of such substantial operational challenges stems from the Postal Service’s failure to accurately track sender-refused packages or assess the extent to which shippers exploit the Mail Recovery Center for disposal services.
Implementing a “sender refused” scanning mechanism for parcels sent to the MRC could help rectify these misunderstandings and mitigate financial losses, the report emphasized.
By automating the collection of return postage through postal consolidators working for fulfillment centers, the Postal Service could ensure that it receives adequate compensation for the return-to-sender segment of package journeys.
Fulfillment centers might be more willing to accept returns if packages were delivered seamlessly along with their routine postal deliveries.
The inspector general’s audit called for the automation of this process in 2025, and the Postal Service is actively pursuing the implementation of this recommendation.
Misunderstandings in Volume Reporting
The Mail Recovery Center’s calculations suffered from significant underreporting of inbound packages, primarily due to collecting bulk weights and estimating total packages based on average package weights.
Instead of accurately sampling package-only containers, the center erroneously included bundles of non-package mail pieces, thereby misrepresenting them as single heavier packages. This oversight led to an estimated shortfall of 27 million packages from operation records.
The center also inflated the reported percentage of packages returned to customers by using a skewed baseline, effectively disregarding 98% of packages from its calculations.
Moreover, a longstanding error in the Excel spreadsheet used for tracking worsened the situation, leading to double-counting certain returned packages, which artificiality inflated the overall return rate. This mistake, originating in 2016, remained undiscovered until the inspector general’s audit surfaced.
While postal officials have expressed intentions to revise their measurement protocols for inbound package volumes by April 30, 2027, they disagreed on the methodology for calculating return rates.
They contended that including all packages in their calculations would compromise the integrity of the results.
A new measurement system for evaluating the Mail Recovery Center’s overall performance is anticipated to be fully operational by November 30, 2028.
Compounding these issues, errors in scanning and labeling packages for MRC routing persist at post offices, with many packages failing to receive necessary “dead mail” stamps, thereby threatening their reintroduction into the regular mail stream.
Finally, the MRC facility’s direct staging and dispatch operations faltered due to a lack of adherence to the first-in-first-out (FIFO) policy, as outlined in protocol.
The supervisor tending to these operations improperly prioritized trailers based on perceived rental costs, rather than established FIFO guidelines.
Auditors found it challenging to determine which of the 22 trailers had been there the longest, with no clear data on the duration of stay for most trailers.
By not adhering to the FIFO policy, packages faced delays, reducing the likelihood of successful returns to their intended customers promptly.
However, management has since implemented corrective FIFO measures, according to the Inspector General’s Office, ensuring the avoidance of similar issues moving forward.
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