How Network Rationalization speeds up Standard Mail and hastens the demise of First-Class


April 18, 2012

Sometime over the next few days, the Postal Service is expected to publish the final rule implementing the service standard changes that are the foundation for the Network Rationalization plan to consolidate over 220 mail processing plants.  First-Class Mail that is currently delivered overnight will be delivered in two days, and much of the mail delivered in two days will take three.  Periodical mail will slow down as well.

When it published the proposed changes in service standards in the Federal Register in December, the announcement stated, “The Postal Service is not proposing any revisions to the service standards for Standard Mail and Package Services pieces mailed within the contiguous forty-eight states.”

That’s only partly true.  The service standards for Standard Mail will remain 3 to 10 days for the continguous US, but the plant consolidations will lead to some significant changes in delivery times for most Standard Mail. 

The changes are probably not what you’d expect.  The Postal Service is actually planning to speed up Standard Mail. 

The Postal Service hasn’t said much about this, but the big customers who send a lot of Standard Mail are probably well aware of what’s going on.  The changes, after all, are being made for their benefit.

The reconfiguration of the processing network is not simply about eliminating “excess capacity” — like sorting machines that run eight hours instead of twenty — or about adapting the system to declining volumes of First-Class Mail.  It is also about reconfiguring the network to better serve the big mailers.

The Postal Service’s biggest customers — its National and Premier accounts — have been among the staunchest advocates of downsizing because they see it as key to keeping postal rates low.  At the same time, these customers are concerned about relaxing service standards for First-Class Mail and Periodicals, as we saw in their responses to the marketing survey that showed slowing down the mail would cost the Postal Serive $5 billion worth of business. 

It turns out that the reconfiguration of the processing system may have an effect no one has been talking about: faster delivery for Standard Mail.

 

Changes in Service Standards for Standard Mail

You can see the changes in the service standards for Standard Mail on the USPS website.  There’s a page on the site called the “National Customer Support Center,” which provides information primarily useful for big mailers and members of the MTAC — the Mailers' Technical Advisory Committee, a group of important industry stakeholders.  The Support Center has a page called “Modern Service Standards,” with links to database tables for the current and future service standards.  You can also see a visualization of the data on a map page.

Looking at the maps for a particular three-digit ZIP code, it’s easy to see how First-Class mail will be affected.  The website provides a map of current standards and a second map for the future standards.  in comparing them, you can see the area for one-day delivery disappears, and the area for two-day gets smaller; the area for three-day takes over most of the map.

 

Mid-Island, NY (005)

If you look at a pair of maps for Standard Mail, however, something much different happens.  Here, for example, are the maps for Mid-Island, New York.  The first map shows the service standards for Standard Mail under the current system, and the second map shows how things would change with the Network Rationalization plan.

As the first map shows, in the current processing system, there’s a checkerboard pattern with the area nearest the Mid-Island facility getting the mail in five days (light blue); regions in the northeast get delivery in six days (dark blue) or seven (yellow); the Midwest and most of the West, seven or eight days (brownish-red); and the Northwest, eight or nine (dark green). 

Under the new system, as seen in the second map, the checkerboard disappears, and there are basically three homogenous zones, with delivery ranging from six to eight days (for the continental US).  The three-day area close to the facility gets a little bigger as well.

The numbers in the databases make clearer what’s happening. (The table focuses on the continental US, but the averages include all destinating ZIPs.)

Standard-Mail Service Standards for Mid-Island, NY (ZIP 005)
 
Number of 3-digit ZIPs in destinating zones
 
Delivery time
Under current standards
Under new standards
Change
3 days
4
5
25%
4 days
1
0
 
5 days
17
34
100%
6 days
193
348
80%
7 days
349
430
23%
8 days
309
95
-69%
9 days
44
5
-89%
Average number
of days
7.23
6.75
-0.48

As the table shows, the regions more distant from New York, where the delivery times are now eight and nine days, will become seven-day regions, and a large part of the seven-day region will become six-day.  Overall, the new Service Standards will shave half a day off the average delivery time. 

That’s an average, it should be emphasized, based on ZIP codes, not mail volumes.  In other words, it averages how many ZIP code areas will receive the mail in a particular number of days.  Since some ZIPs get a lot more mail than others, averages based on actual volumes would be somewhat different.

 

St. Louis, Missouri (630)

Here’s another set of maps, for St. Louis, Missouri (630):

The first map shows the current standards.  The area closest to St. Louis gets delivery within three days (green) or four (pink), and most of the country is a checkerboard of six-day (blue) and seven-day (yellow), with more distant regions getting eight-day (red) and nine-day (green) delivery.  With the new system, the three-day region expands, some four-day regions turn to five, and most of the country becomes six-day, with some seven and eight-day standards on the coasts.

You can see the same thing in this data table:

Standard-Mail Service Standards for St.Louis, MO (ZIP 630)
 
Number of 3-digit ZIPs in destinating zones
 
Delivery time
Under current standards
Under new standards
Change
3 days
5
12
140%
4 day
13
0
-100%
5 days
0
17
 
6 days
252
565
124%
7 days
478
282
-41%
8 days
150
41
-73%
9 days
19
0
-100%
Average number
of days
6.94
6.45
0.49

 

Tacoma, Washington (983)

One more example will help illustrate the overall trend.  Here are the maps for Tacoma, Washington, where a processing plant is slated for consolidation.

Comparing the two maps shows that the northwest regions goes from five-day (dark blue) to four-day (light blue);  most of the west goes from seven and eight-day to all seven; and most of the rest of the country goes from eight and nine to eight-day.  Here's the database on which the maps are based:

Standard-Mail Service Standards for Tacoma, WA (ZIP 983)
 
Number of 3-digit ZIPs in destinating zones
 
Delivery time
Under current standards
Under new standards
Change
 
Current
New
Change
3 days
2
6
200%
5 days
6
20
233%
6 days
33
28
-15%
7 days
112
204
82%
8 days
356
550
54%
9 days
356
108
-70%
10 days
54
1
-98%
Average number
of days
8.31
7.83
-0.49

As this table shows, the three-day and five-day zones will expand; most of the nine- and ten-day delivery zone will become part of the eight-day zone; and some of the eight-day will become seven-day.  As with Mid-Island and St. Louis, the average delivery time will be cut by a half day. 

 

Putting the numbers in context

These three examples show that the new service standards for Standard Mail will get the mail to its destination faster than under current standards, on average, by about a half day. 

That estimate is borne out by looking at the entire database for both the current service standards and the proposed service standards. 

Standard-Mail Service Standards for All ZIP areas
 
ZIPs in destinating area
under current standards
ZIPs in destinating area
under new standards
 
 
Number
Percent
Number
Percent
Change
3 days
3,580
0%
7,770
1%
117%
4 days
2,635
0%
14
0%
-99%
5 days
17,632
2%
36,390
4%
106%
6 days
160,219
19%
318,778
38%
99%
7 days
338,922
40%
349,242
41%
3%
8 days
245,230
29%
104,400
12%
-57%
9 days
55,832
7%
10,564
1%
-81%
10+ days
25,056
3%
21,948
3%
-12%
Average number
of days
7.33
 
6.89
 
0.44

This table shows that with the changes in service standards for Standard Mail, the average delivery window for Standard Mail will go from 7.33 days to 6.89 days.  That means Standard Mail will travel 0.44 days faster — just as we saw in the three examples.  (As noted above, the average is the mean for the number of ZIP codes, not actual volumes.)

One big change occurs in mail that qualifies for the three-day window, where we see the number of ZIPs qualifying for three-day doubling.  That’s because with the plant consolidation plan, there will be many more facilities where the incoming and outgoing mail streams are processed in the same facility.  While the chart suggests that the number of ZIPs in this category is relatively small (just 1%), it could be considerable in terms of mail volume, since a large portion of the mail is sent locally.  Just think about all the ad flyers you get for your local supermarket. 

The other big change is that the portion of the mail that now takes eight days or more will decrease significantly (from 39% to 16%), so that nearly all ZIP code areas will see their Standard Mail (79%) delivered in six or seven days.

Cutting down on delivery times like this may not seem very significant, but accelerating delivery times by an average of a half day is on the same order of magnitude as the proposed changes in service standards for First-Class Mail.  The following table shows how First-Class Mail will be affected by the changes in Service Standards.

First-Class Service Standards for All ZIP areas
 
Under current standards
Under new standards
 
 
No. of ZIPs in destinating area
% of ZIPs in destinating area
No. of ZIPs in destinating area
% of ZIPs in destinating area
% change
1 day
9,430
1%
0
0%
-100%
2 days
183,703
22%
65,576
8%
-64%
3 days
641,312
76%
768,838
91%
20%
4 days
12,824
698%
12,824
2%
0%
5 days
1,837
0%
1,837
0%
0%
 
849,106
100%
849,075
100%
 
Average number of days
2.15
 
2.94
 
0.79

In terms of number of ZIP code areas, the average number of days for delivery of First-Class Mail will thus increase by about 0.79 days, while it will decrease for Standard Mail by 0.44 days.  In terms of actual volumes, the average delivery time for First-Class Mail is currently about 1.9 days, and it will increase to about 2.5 days — a difference of about 0.6 days.

Overall, whether averages are measured in terms of ZIP codes or volume, the new service standards will slow down First-Class Mail by about half a day.  The difference in the two modes of measurement is not very significant, but there is one important difference.  Under current standards, 42% of First-Class mail is delivered next day, but only one percent of the ZIP codes enjoy overnight delivery.  That’s because most mail is destined for points close to where it was mailed from.  Looking at Standard Mail, this means that even though a relatively small number of additional ZIP codes will fall within the three-day zone, a significant amount of Standard Mail would shift into this category.

 

The confluence of the mail streams

With First-Class Mail slowing down and Standard Mail speeding up, the changes in service standards will blur the difference between the two main classes of mail.  In areas closest to the point of origin, First-Class Mail will take two days instead of one, and more Standard Mail will qualify for three-day delivery instead of four-to-six days.  Since so much mail is local, the difference between First-Class and Standard for a large portion of the mail stream will thus be only one day. 

At destinations further from the point of origin, First-Class will generally be a day longer, while Standard will be a day less.  What’s now a difference, for example, of two days for First-Class versus eight days for Standard could become three days versus six.

The blurring of the distinction between the mail classes is already happening behind the scenes in the way the mail is processed.  In years past, the various kinds of mail were kept separate until the end of the process, when letter carriers spent the morning in the post office sorting the mail in the sequence of their delivery routes.  First-Class letters, Standard letters, and Flats (catalogs and magazines) would thus come to the post office separately, and they were only merged together when the carrier cased the mail. 

Now the streams are kept separate only until they arrive at the destination processing plant.  At the plant, sorting machines merge letter-sized First Class and Standard and sort the mail for the carrier’s walk sequence.  Increasingly, Standard Flats are being sorted at the plant as well.

Pre-sorting the mail like this causes all kinds of headaches for carriers.  The sorting machines make a lot of mistakes, which the carriers must take time to correct while they are on the street.  Also, when the mail used to come in separately, managers could exercise some control on how much Standard Mail a carrier would need to deliver on a given day, so they could shift mail from heavy days (like Mondays) to later in the week.  They can’t do that when all the mail arrives at the post office ready to deliver.

The difference between First-Class and Standard mail will also become less significant as more mailers choose to deliver their mail directly to the destination plant.  That’s going to be another effect of the change in service standards, and the Postal Service is encouraging it.  This means that the different types of mail will be merged almost immediately as mail enters the postal system, and it will all be delivered at the same time because it comes to the carriers pre-sorted and ready to go.  When that happens, there’s basically no difference between First-Class and Standard or letters and flats. 

 

What the changes do

By reducing service standards for First-Class Mail and periodicals and improving service standards for Standard Mail, the Postal Service is doing a number of things.

First, it’s essentially making a rate change without going through the rate-change process.  Slowing down First-Class Mail and speeding up Standard Mail means customers will get less for their money with First-Class and more for their money with Standard.  The rates may look like they’re staying the same, but that’s an illusion — like when they make the candy bar smaller but keep the price the same.  The main difference in the two classes is speed of delivery.  If that’s not real, there’s no justification for the price difference.

Second, the Postal Service is handing a gift to its large customers who send a lot of Standard Mail.  Without having to pay more, they’ll get improved delivery times.  Many of the Postal Service’s biggest customers will also save themselves some money in another way.  In order to get the maximum discount, the big mailers deliver their mail directly to destination entry points.  Fewer processing plants mean fewer entry points to worry about, and that can lead to lower transportation costs for the mailers.

Third, the Postal Service will hand more business over to FedEx and UPS.  With First-Class Mail looking more like Standard, the only premium mode of mailing will be Priority or Express, and the Postal Service’s competitors are well positioned to absorb a lot of that business. 

Perhaps most important of all, the changes in service standards will hasten the transformation of the country’s postal system into an adjunct of the advertising business.  Many people already feel that they don’t care what happens to the Postal Service because it seems like most of what shows up in their mail box is junk mail.  Many of those who favor privatization ask, Why should the government be in the junk mail business?  It’s a good question.

 

The demise of First-Class Mail

There’s no question that First-Class Mail has been hardest hit by electronic diversion.  While Standard Mail volumes will increase as the economy improves, it’s possible that First-Class will continue to fall — although it’s debatable whether the declines will be as bad as the Postal Service is projecting.

Like a lover who, fearing rejection, decides to initiate the breakup, the Postal Service has decided it doesn't want to wait and see what happens to mail volumes as the economy improves.  Instead, the Postal Service is rushing the decline of First-Class and thereby contributing to its demise.  As we learned from the secret market research survey that the Postal Service didn’t want anyone to see, the new service standards will drive away 10% of First-Class Mail and cause $5 billion a year in lost revenues.  That's seems to be just fine with postal headquarters.

The Postal Service could be taking the opposite approach.  It could recognize that First-Class mail is a product no other business can compete with, and it could be looking for ways to capitalize on its First-Class niche — perhaps by expanding the regions that enjoy overnight delivery, perhaps by developing innovative hybrid mail forms that integrate First-Class and digital communications, perhaps simply by developing a marketing campaign boasting the benefits of First-Class as the inexpensive alternative to Priority, Express, FedEx and UPS. 

Instead, the Postal Service has chosen to abandon First-Class and to bet the farm on Standard Mail.  Its big innovation of late is “Every Door Direct Mail” — a push to get more advertising mail.

In some respects, what’s happening to First-Class Mail is reminiscent of the fate of Air Mail.  First introduced in 1918, at the dawn of the age of aviation, Air Mail ended as a distinct service in 1975, when most domestic intercity First Class mail began to be transported by air at the normal First-Class rate.  Two years later, Air Mail was officially eliminated because there wasn't any difference between Air and First-Class.  At that point, if you wanted something delivered more quickly, your only choice was Priority or Express, which cost many times more than Air Mail.  

As First-Class deteriorates and priority forms of mail become the primary alternative, the calls for eliminating the mailbox monopoly will grow louder.  With the mailbox little more than a receptacle for advertising mail, it will be easier to argue that the the private express statutes have become meaningless and the mailbox monopoly no longer necessary.

Transforming itself into a servant of the advertising industry will have dangerous consequences for the Postal Service.  The plant consolidations and changes in service standards for Standard and First-Class Mail will not simply make First-Class Mail irrelevant: They will make the Postal Service irrelevant. 

[Thanks to Don Cheney and Mark Jamison for their help on this one.]

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