August 20, 2015
The Postal Service is working on phase two of POStPlan, its initiative to reduce hours and staffing at half the country's post offices. From September 2012 through February 2015, the Postal Service implemented phase one — 13,000 small post offices had their hours reduced from eight a day to six, four, or even just two, and thousands of career postmasters lost their positions.
Now the Postal Service is reviewing 5,000 more post offices for a downgrade and reduced hours. These are the offices that were upgraded to Level 18 in 2012. A list of the original 4,600 Level 18s, along with a map, is here.
There have been rumors lately that many Level 18 offices could be downgraded and their postmasters might find themselves out of a job. These rumors seem to be confirmed by an August 12th filing with the Postal Regulatory Commission.
In the filing, the Postal Service tells the PRC that it wants to change the accounting methodology used for small post offices when preparing cost and revenue reports. As the Postal Service observes, the changes caused by POStPlan and the ruling on the APWU arbitration last year have complicated the costing analysis, and the proposed changes would simplify things. In the course of presenting the rationale for these accounting changes, the Postal Service says this:
“Over 5,000 other post offices have been designated as Level 18 and are having their work hours reviewed to determine whether they should have their hours reduced as well, just like the 13,000 post offices in the original POStPlan.”
The Postal Service had previously indicated that it would eventually review Level 18 post offices, and many POStPlan postmasters were worried about transferring to a Level 18 for precisely this reason. It now appears that they may have been right to worry.
Valuing the post office
It's too bad that the Postal Service is contemplating further reductions in hours and more cuts to service. As two recent surveys have found, people really do value their post offices.
After doing an in-depth quantitative survey of customers, a recent OIG report concluded this:
Both consumers and businesses place value on human interaction with a Postal Service employee at a post office rather than alternative access options such as postal counters in non-postal retail stores and self-service kiosks.
The OIG used a "willingness to pay" (WTP) factor to measure just how much people valued the post office, and the survey found that customers were very willing to pay for a post office operating a full 8 hours a day as compared to a postal counter in a private retailer (like Staples) or shortened hours at the post office.
The 2014 Household Diary Study, which came earlier this week, surveyed customers and came to a similar conclusion:
In spite of a declining frequency of visits over the past several years, the use of post offices for mailing services continues to dominate the mail service industry…. Even with the continued availability of mail-related products and services through alternative modes (such as Internet orders), in-person visits to postal facilities remain strong.
The Household Diary Study showed that 53 percent of all U.S. households patronize a post office at least once a month, and over 24 percent visit the post office three or more times a month. That's far more than go to a private shipping company. And these numbers only represent people who conducted business at the service counter. It doesn't include the millions of people who go to the post office almost every day to pick up mail from their PO box or to drop something off at the blue box outside the post office.
Reviewing the Level 18s
The reviews of Level 18 post offices is taking place in addition to the annual review of all POStPlan offices, which can lead to an upgrade to more hours or a downgrade to fewer.
Judging by the USPS response to a FOIA request submitted by postal watchdog Steve Bahnsen, it doesn’t seem likely that there will be a lot of changes for the Level 2, 4, and 6 offices as a result of these reviews.
The FOIA request encompassed about 1,500 Level 2, 4, and 6 POStPlan offices in six midwestern districts. As of FY 2013, the Postal Service had upgraded 135 and downgraded only 14. At that rate, only 120 of the 13,000 original POStPlan offices would be downgraded.
The Level 18s could be another story.
Back in December 2013, the Postal Service said that Level 18 downgrades would not occur until September 2016. It’s not clear at this point if the APWU arbitration ruling has pushed things up to an earlier date or if the Postal Service is just getting ready for next year. But whenever the downgrades happen, it's possible that a lot of offices could be impacted.
The arbitration ruling requires the Postal Service to create a minimum of 3,000 new full-time career jobs for clerks in Level 6 and 18 offices. The Postal Service has already begun implementing the ruling, and there are now many Level 18 offices where there’s both a postmaster and a clerk, whereas before there was just a postmaster. In many cases, there may not be enough work to justify two full-time postal employees.
If a Level 18 office is downgraded, it’s not clear what will happen. In some cases, the postmaster’s position might be eliminated, and the clerk would staff the office alone, under the supervision of a postmaster at an Administrative Post Office (APO). That could be another Level 18, or it might be a Level 20. In other cases, perhaps a full-time clerk would be replaced by a part-timer.
No information has been made public about how many Level 18 offices might be downgraded and have their hours reduced or how many employees might be impacted. The Postal Service has not indicated how it is conducting the reviews, and it hasn’t shared any recent lists about which offices are being reviewed.
Back in 2012, however, the Postal Service did give the PRC a list of the offices being upgraded to Level 18. It had about 4,600 offices. (If over 5,000 Level 18 offices are currently under review, another 500 or so Level 18s must have been added since then.)
We’ve taken the 2012 list of Level 18s and combined it with several other USPS lists so it shows not only the names of the 4,600 post offices but also other data about these facilities: which of them are serving as APOs, which have been subject to Delivery Unit Optimization (DUO), whether the facility is owned or leased, when the lease ends, the CAG designation (Cost Ascertainment Group), as well as some of the workload numbers from 2011. As noted above, the list, along with a map, is here.
Here’s what one can learn from the data.
August 17, 2015
Earlier this month Dakotafire Media published a couple of very good articles about the ownership arrangements for post offices. It’s an important issue, since about three-fourths of the country’s post offices operate in spaces leased by the Postal Service.
As noted in a recent OIG report, the Postal Service leases more than 23,000 buildings — about 79 million square feet of interior space — and pays more than $800 million annually in rent. According to the OIG, there are many cases where the Postal Service is paying more than fair market value.
The second of the Dakotafire articles looks at this same issue and comes to a similar conclusion — post offices often rent for more than comparable commercial property in the community.
The first Dakotafire article examines a related question — the relationship between lease costs and where the owner of the building is located. Focusing on several hundred post offices in North and South Dakota, the Dakotafire analysis revealed a correlation between the rental rate and lessor location. Generally speaking, if the lessor lived near the post office, the Postal Service paid a lower rent. If the lessor lived relatively far away, the Postal Service paid more.
That’s a significant finding, and if it were true on a nationwide basis, it would be a good argument for encouraging the Postal Service to lease locally when possible. As it turns out, however, what’s true for leases in the Dakotas doesn’t seem to be true for the country as a whole.
Nationwide, lease rates with local lessors are not much different than the rates for more distant lessors. In fact, in terms of average cost per square foot, the Postal Service pays in-state lessors more than it pays out-of-state lessors.
Issues with absentee owners
The Dakotafire articles don't just focus on lease costs to the Postal Service. They make a broader case for why communities are often better off when the owner of the building lives near the post office.
Maintenance, for example, is a key factor. Local landlords are usually more familiar with repair contractors and have an easier time keeping the post office in good shape. That’s important because many post offices close every year for emergency suspensions due to issues like mold and other unsafe building conditions.
As Dakotafire suggests, local lessors may also be more invested in keeping the post office open because they know first-hand how important the post office is to the community as a social hub. If there’s a problem with the building, they are often quick to address it.
These are very good points and hard to argue with. But if one is looking strictly at the lease-cost issue, one finds that for the country as a whole, there’s not a consistent correlation between lease rates and the lessor’s location. And on average, the Postal Service pays a higher rate per square foot to lessors located in the same state as the post office than it does to out-of-state lessors.
The following analysis uses the USPS Leased Facilities Reports (just as Dakotafire did). We compared lease rates for in-state lessors with out-of-state lessors. That, it should be noted, is a little different from the more nuanced approach employed by Dakotafire, which used the actual distance between the post office and lessor’s address. But for the picture nationwide, the broader brush strokes paint a pretty clear picture. Here’s what it looks like.
August 14, 2015
The USPS Office of Inspector General has just issued a management alert about the timeliness of mail processing after the changes in service standards went into effect on January 5, 2015.
The OIG says that the changes were expected to affect about 14 billion pieces of total mail volume, and up to 16 percent of First-Class Mail. As discussed in this previous post, the amount of mail that is being impacted by the change in standards may be far greater than that.
The OIG’ shows that since the first of the year, the Postal Service has not been meeting even the more relaxed standards. The problems are so significant that further changes in operations and consolidations should be put on hold until service performance stabilizes at a satisfactory level.
The OIG's recommendation is essentially the same as the view expressed by PRC Commissioner Ruth Goldway back on January 13, 2015 — a week after the service standards were changed — in an op-ed piece for The Hill.
"At a time when the Postal Service is proudly promoting its Sunday delivery and same day package delivery offerings in major cities," wrote Goldway, "it should not be impairing service in other parts of the country. The Nation depends on a Postal Service that provides as consistent a level of service and pricing as possible to all Americans."
"Before proceeding with these changes," continued Goldway, "the Postal Service should – at the very least – offer well-supported projections of the impacts on operational efficiency and solid estimates of financial savings before hastily embarking on this new round of cuts and closures."
The Postal Service proceeded with the changes anyway, and, as anticipated, delays have occurred across the country.
The fact that service performance has been declining has already been well documented, as discussed in this previous post on this website and in other news articles (like this piece by Lisa Rein for the Washington Post).
But the OIG's new report should make the point more forcefully, and the Postal Service may find it difficult to proceed with the consolidations until performance improves.
As the OIG writes about the past few months, “Mail was not being processed timely throughout the country. We found in the first 6 months of 2015 delayed processing increased by about 494 million mailpieces (a 48 percent increase), as compared to the same period last year (SPLY).”
To illustrate the extent of the delays, the OIG provides the following chart. The blue bars show how much mail was delayed this year, while the red bars show the delays during the same period last year (SPLY). (Click on the chart for a larger view.)
The OIG goes on to note the two main explanations for the delays: bad weather and the changes in operations that took place in January when the new service standards were implemented.
The OIG proceeds to break down the situation for two-day mail and for 3-5 day mail. In both cases, performance has declined significantly.
The OIG found the External First-Class Measurement (EXFC) scores declined by as much as 6.71 percent for 2-day service right after the service standard revisions as compared to the SPLY.
Scores were much worse for 3-5 day mail. They declined by as much as 38.60 percent for 3-day service as compared to the SPLY.
These declines are illustrated in the following charts. (Click for larger view.)
It should be noted that service performance has been improving over the past quarter. But as the OIG observes, “service is not where it was during the SPLY, as the network still needs to stabilize.”
As a result of its findings, the OIG has recommended to the Postal Service that it mitigate the delays and assign appropriate staffing to ensure timely delivery of the mail.
Most significantly, the OIG also recommends that the Postal Service “establish criteria for determining if the network has stabilized and ensure the criteria are met prior to resuming the Phase II consolidations or conducting any other optimization efforts.”
The Postal Service responded to a draft of the OIG’s report and said that management did not agree that the consolidation activities should be put on hold.
In response, the OIG said that it nonetheless “continues to believe that no further significant national network or operational changes should take place prior to establishing criteria and stabilizing the network.
The OIG’s report can be found here. The latest service performance reports can be found on the PRC website here. We’ve uploaded them to Google Docs here. Previous performance reports are archived on the PRC website here.
(Photo credit: USPS mail processing plant in Paducah, KY, closed earlier this year)
July 29, 2015
UPDATE: A few hours after this post was published, the Postal Regulatory Commission released its order on the exigent increase. As predicted in the post, the Commission determined that the Postal Service was entitled to another $1.191 billion in additional contribution as an exigent rate adjustment, which translates to $1.396 billion in revenue. That means the surcharge will be extended by about eight months — from early-to-mid August, when it was scheduled to end, to sometime in April 2016. (Read more about today's order at the end of the post.)
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Any day now, the Postal Regulatory Commission is expected to issue an order regarding the exigent rate increase. Judging by the comments that have been filed by the Postal Service and the mailers, the Commission is likely to rule that the 4.3 percent exigent surcharge will be extended by several months, perhaps longer.
The Commission will be responding to a June 5th ruling by the DC District Court of Appeals remanding the Commission’s 2013 order on the increase. According to the court, there was one element in the order that was “arbitrary and capricious” — the way the Commission had counted up the losses due to the recession.
The court ruled that Commission should not have counted each year’s losses only once. Instead, the losses should carry over to the following year, and again to the next year, until the “new normal” of lower volumes is reached. At that point, the Postal Service should have been able to adjust to conditions, and the exigent circumstances could no longer be said to exist.
For the past few weeks, the Commission, along with the Postal Service and the mailers and other stakeholders, has been looking at the same question that has been on the table since the beginning, back in 2010, when the Postal Service first requested an exigent increase: How much volume and revenue did the Postal Service actually lose due to the recession? Only this revenue could be made up through the exigent surcharge.
The Commission’s original order said that the Postal Service had lost about $3.2 billion in revenue, or about $2.8 billion in contribution (profit), due to the recession. It therefore granted a 4.3 percent surcharge until this amount was achieved. The surcharge went into effect in January 2014, and it is set to expire soon, in early to mid August.
The Commission could not officially act on the court’s ruling until it had issued its mandate, which happened on Monday of this week (July 27). With the expiration of the surcharge just days away, the Commission will undoubtedly act quickly.
In response to the court’s ruling, the Postal Service and the big mailers submitted initial comments and reply comments debating how much additional contribution the Postal Service should be allowed to take in and how much longer the surcharge should remain in effect. The estimates were widely divergent.
Initially, the Postal Service described three scenarios, ranging from $1.2 billion to $8.7 billion in additional contribution. The mailers put forward two estimates, one for $600 million and another for just $60 million. In response to comments from the mailers, the Postal Service put forth at least three more scenarios. Other commenters offered additional opinions on how to count the losses, but without presenting calculations for a total.
Given how far apart the mailers and the Postal Service are in their estimates, it’s not surprising that the rhetoric in the comments sometimes gets a little testy. For example, the Postal Service refers to some of the mailers’ arguments and assertions as “baseless,” a “shell game,” “perverse,” and so on.
In response, the Greeting Card Association and National Postal Policy Council made this remark in a footnote to their comments:
“Finally, while it is not part of the issue before the Commission in this remand proceeding, it should be observed that the tone and some of the wording of the Postal Service’s motion does not promote healthy customer relations or further the kind of productive cooperation which helps both it and the mailing public.”
Here’s a quick summary of the methodologies that have been put forward for implementing the court’s ruling. The comments filed on the remand case can be found in PRC docket R2013-11 R, here.