The Case of the Missing Market Research Study

March 13, 2012

The Postal Service’s Big Hurry to consolidate 223 mail processing plants may be running into serious speed bumps.  The AMP studies don’t add up to anything like what the Postal Service says it will save nor do they reveal where most of the 35,000 eliminated positions will come from. 

Now there’s news of a market research study on potential revenue losses the downsizing initiatives may cause that the Postal Service chose not to tell anyone about — and that it still wants to keep under wraps.

News of this other research was first revealed back in February, in testimony by one of the Postal Service witnesses for the Advisory Opinion on the Network Rationalization plan being conducted by the Postal Regulatory Commission.  Last week the Postal Service gave the PRC the data from this market research, along with a request to keep the materials “non-public.”  The Postal Service is also saying that because the research was “abandoned” before completion, there are no calculations on lost volume and revenues to look at. 

That's not sitting well with the participants in the Advisory Opinion process, and we're going to be hearing a lot more about this missing market research study.  Next week, witnesses for the Postal Service will be cross-examined before the Commissioners, and the market survey is sure to come up.

In the meantime, today Congressman Gerald E. Connolly of Virginia filed a Motion for Termination of Non-Public Status with the PRC.  The Congressman argues that "customers and policy makers should have the opportunity to review information on the likely revenue impact from these proposed reductions in service and facilities," and if the market research contains information that would help Members of Congress "to better understand the ramifications of these proposals," the material should not be classified as "non-public."  As Congressman Connolly writes in his motion, "the public has a right to know about possible revenue impacts from these proposals."

 

The two phases of market research

In preparing its case to the PRC on the Network Rationalization plan, the Postal Service commissioned market research to determine how much the revised service standards and slower First-Class mail would affect mail volumes and revenues.  The qualitative research was conducted in August 2011, using focus groups and in-depth interviews with mailers large and small.  The quantitative research was done later, in October.  The results were incorporated into testimony presented to the PRC in December, when the Request for an Advisory Opinion was submitted. 

While the qualitative research took a broad look at various factors — closing post offices, eliminating Saturday delivery, legislative proposals to change the pre-funding of retiree health care, as well as the plant consolidations and changes in service standards — the quantitative research presented in the testimony focused solely on the change in service standards. 

The research showed that mail volume would decline by 1.7% — nearly 2.9 billion pieces a year.  Just to put that in perspective, the Boston Consulting Group (BCG) has projected that diversion to the Internet would cause mail volumes to decline 1.5% a year through 2020.  In other words, the plant consolidation plan would impact mail volumes even more than the Internet.

This 1.7% decline in volumes translates to a revenue loss of $1.3 billion (2% of annual revenues).  That loss is adjusted to reflect the lower costs of processing lower volumes, resulting in a net “contribution” loss of $500 million.  That amount is then subtracted from the total cost savings of $2.6 billion that the Postal Service hopes to realize from the plant consolidations, leaving us with a net savings of $2.1 billion.  [USPS-T-12, p. 22]

The accumulating evidence in the PRC’s docket on Network Rationalization suggests that the market research presented in December was actually the second round of quantitative research.   The first phase was done months earlier, back in August or September, and rather than focusing solely on service standards, it encompassed the broader range of issues that the qualitative research examined, like the plan to close post offices and eliminate Saturday delivery.

The story on the market research and how the Postal Service prepared and shared the plan to optimize the processing network is worth examining in detail, so here are a couple of timelines to help put the pieces of the puzzle together.

Great minds think alike, and so do USPS District Managers

March 12, 2012

Over the past few days, Postal Service District Managers across the country have submitted “opinion” pieces to their local news media, and somehow they all stumbled upon the same words.  At least thirteen DMs have written one of these “opinions,” and they’re all the same, almost word for word.

The Postal Service pulled the same PR stunt a few months ago at Christmas time, when almost 30 DMs each “authored” the same opinion piece and letter to the editor for their regional news publications.  We’ll keep track to see how many weren’t embarrassed enough the first time around and were willing to do it again.

“America needs a financially stable postal service to best adapt to a changing marketplace and evolving mail needs,” begin the District Managers.  That’s why the Postal Service is proposing a “significant consolidation of its national network of mail processing facilities” — reducing the total number of facilities from 461 to a little more than 200 by the end of 2013.

From there on, the piece is all spin designed to exaggerate the Postal Service’s financial problems in order to justify the downsizing.  The piece points, for example, to declining mail volumes — 212 billion in 2006, 168 billion in 2011, and a projected 130 billion by 2020.  There’s no mention of the recession as the cause for most of the lost volume, and no explanation why the Postal Service has decided things will get even worse than the 150 billion that its consulting firm, Boston Consulting Group, projected for 2020.

“In just the past financial quarter,” the DMs go on to say, “the Postal Service lost $3.3 billion and is projecting steep losses for the remainder of the year.”  The DMs don’t mention that during the first quarter, the Postal Service actually showed a $200 million profit.  They don’t explain that the loss of $3.3 billion was due almost entirely to unnecessary payments to the retiree health care fund — a double payment, in fact, since the Postal Service skipped the payments last year.

The piece then says, “No one is to blame.  Times have just changed.”  As usual, it’s all about the Internet: Don’t blame us, say the District Managers, blame Facebook and Twitter.  Postal management would thus have us believe they didn’t see e-diversion coming and just got caught off guard.  We’ll see how that kind of excuse goes over with shareholders when the Postal Service is privatized.

“In spite of all this,” write the District Managers, “the demise of the Postal Service is greatly exaggerated.”  That’s strange to hear, since it’s the Postal Service that is doing most of the talking about its imminent demise if Congress doesn’t give it permission to dismantle itself.  The opponents of the downsizing are the ones trying to calm down the rhetoric and advise caution.  But it’s hard to get that message out there when the Postmaster General and his team are going around telling everyone how bad things are and feeding the media frenzy with shocking headlines about multi-billion dollars losses.

There’s one interesting note at the end of the “opinion” piece.  The District Managers say that there’s a moratorium on closings until May 15, “to give Congress and the Administration the opportunity to enact an alternative plan.”  Does that mean the Postal Service might not proceed with the post office closings and consolidations if Congress and the White House come up with something better?  Is the threat of post office closings and plant consolidations just a way of blackmailing our elected leaders? 

One wonders how the editors at all of these news outlets would feel if they knew that the “opinion” piece they published was not written by someone in their area, but by an anonymous person in postal headquarters in Washington, DC. 

Perhaps we should let them know.  If your local news source has published one of these pieces, why not write a letter to the editor responding to the argument in the piece and noting that it wasn’t even written by the person whose name appears on it?  Or just give the editors a phone call and let them know what’s up.

Here’s a list of the “opinion” pieces we’ve discovered so far, with the name of the District Manager whose name appears as the author of the piece.  If you come upon another, hit the contact link at the top and we’ll add it to the honor roll.  

More AMP Studies Released: Network Rationalization not looking very rational

March 9, 2012

Yesterday the Postal Service released more AMP studies, and we’re getting a clearer picture how much the Network Rationalization plan to consolidate about 230 mail processing plants will save and where the eliminated positions will come from.  Not surprisingly, the savings look to be a lot less than the Postal Service has been saying, and it’s still a mystery where 34,000 positions will be eliminated.

The impressive mountain of data the Postal Service submitted to the Postal Regulatory Commission (PRC) in December described an abstract plan of how the new processing network would operate.  (The Postal Service has even applied for a patent on the "facility optimization" system it apparently employed in developing the Rationalization plan.)  Based on this abstraction, the Postal Service calculated how much money the new network would cost to operate compared to the current network.  The Postal Service estimated $2.6 billion in total savings, minus $500 million in lost revenue due to the reduced service standards caused by the new network alignment, for a net savings of $2.1 billion a year.

The PRC asked the Postal Service to provide a copy of the AMP study for each of the 264 mail processing facilities studied for possible consolidation, and yesterday the Postal Service submitted a file with 184 of the studies.  It’s not clear why the file is missing 80 studies, but presumably the complete file will be made available to the PRC soon.  You can find links to the 184 studies on PostalMag.com, and you can download the .zip file with all the studies, here.

[CORRECTION: The Postal Service was not required to do AMP studies on all 264 facilities — 52 facilities were annexes and mail processing operations within customer service facilitis, and these may be closed without an AMP process.  The Postal Service conducted 212 AMP studies, so 28 were missing from the file given to the PRC, not 80.] 

Now that we can see the actual AMP studies for over 80% of the 223 facilities approved for consolidation, there’s not much need to speculate and extrapolate to envision how much the total savings will be.  These AMP studies describe the reality on the ground and not an abstract computer simulation conceived in postal headquarters.  After reviewing these studies, the Network Rationalization Plan is looking more like a rationalization than a plan.

These 184 studies provide the clearest picture yet of how much money will be saved by Network Rationalization and where the eliminated positions will come from.  As with our two previous exercises along these lines (the first using the PowerPoint presentations at 70 public meetings and the second using 134 AMP studies), the numbers just don’t add up to anything like what the Postal Service has been saying. 

[UPDATE: On March 30, the Postal Service released a table summarizing the results of 203 AMP studies.  The table is here, and the spreadsheet is here.)

Here’s a table summarizing the latest data (you can download the Excel spreadsheet with all the data here):

Savings Category
Savings for 184 AMP studies
Extrapolated to 223 facilities approved
Mail Processing Craft Workhour Savings
$452,729,346
$568,052,053
Non-MP Craft/EAS + Shared LDCs Workhour Savings (less Maint/Trans)
$34,423,258
$43,795,369
PCES/EAS Supervisory Workhour Savings
$121,068,008
$152,007,734
Transportation Savings
$54,992,609
$89,779,925
Maintenance Savings
$291,084,546
$360,833,851
Space Savings
-$1,551,318
-$1,880,130
Total Annual Savings
$961,749,357
$1,223,499,936
Net Contribution Loss   $500,000,000
Total Savings   $723,499,936

The Postal Service says the plan will save $2.6 billion, minus $500 million in net lost revenues, for a net savings of $2.1 billion.  The AMP studies indicate the plan will save $1.2 billion, minus $500 million in lost revenue, for a total of $720 million in savings — one-third of what the Postal Service has said.

The Postal Service says the plan will eliminate 34,000 positions.  The AMP studies give us an idea of where 15,000 positions will come from, but the other 19,000 remain a mystery. 

Type of Position
Actual for 184 AMPs
Estimated for 223 approved
Craft Position Loss
11,938
14,468
PCES/EAS Position Loss
436
528
Total Position Loss
12,374
14,997

Then there’s the issue of how these positions are going to be eliminated.  The no-layoff clause in union contracts means that the positions will need to be eliminated through attrition, and that’s exactly what the Postal Service says will happen.  But how quickly can 34,000 positions be eliminated through attrition?  The recent history of attrition suggests that it may take quite a while. 

From 2000 to 2010, the total workforce complement (including career and non-career) went from 901,238 to 671,687, a drop of 25%, or 2.5% a year.  For the past five years, the rate has been 3.3%, and FY 2010 reflected a drop of 6%.

There are 150,000 workers in the mail-processing network.  If 6% of them left the service each year, it would take nearly five years to eliminate 34,000 positions and reach the goal of $2.1 billion in savings.  Basically half of the excessed workers would have to quit or retire over the next few years. 

Now, it may be that the Postal Service will be able to accelerate the rate of attrition with its Network Rationalization plan.  Excessing workers to a facility a hundred miles away will surely make life difficult and push workers to quit or retire.  There may be financial incentives coming soon as well. 

But with an unemployment rate over 8% and good-paying jobs hard to come by, how many postal workers are really ready to leave their jobs?  Indeed, the Five-Year Business Plan released by the Postal Service a couple of weeks ago identified several “significant risks” in the plan, and one of them was simply, “Employee attrition may be too slow, which will drive up costs.”

As noted in the previous posts on this subject, it may be that the AMP studies do not capture much of the cost savings that may be realized with the new network configuration, and there may be other places where a significant number of positions can be eliminated.  Perhaps this method of calculation is simply flawed.  But at this point, it is really up to the Postal Service to offer an explanation about why the AMP studies don’t add up to what it’s been saying.

If an explanation doesn’t come soon, the Postal Service is going to lose a lot of credibility, and so will anyone in Congress who supports the consolidation plan.  If the Postal Service proceeds with the consolidations in June, before the PRC finishes its Advisory Opinion, that credibility will decline even further — a lot faster than falling mail volumes.

(Photo credits: Processing plants approved for consolidation in Fayetteville NC;  Kalazamoo MILafayette IN; and Binghamton NY.)

"We must not be rushed into false choices": Two Congressmen call for sanity

March 8, 2012

The leaders of the Postal Service are in a big hurry to dismantle the postal system, and there are plenty of people in Congress ready to help.  Fortunately, there are a few lawmakers who recognize the value of a robust Postal Service, and they don’t want to be rushed into making false choices.

Earlier this week, two of the saner people in Washington, Congressmen Gerald E. Connolly (D-VA) and Don Young (R-AK), wrote a letter to Congressional leaders urging legislation that would maintain rural post offices, preserve six-day and next-day delivery, and address the Postal Service’s deficit in a sensible way — by addressing overpayments to the pension and retiree health benefit funds and by giving the Postal Service more freedom to innovate.

The letter comes at a crucial moment because the Postal Service is getting ready to implement post office closings and plant consolidations when the moratorium ends on May 15.  Apparently postal executives are envisioning a kind of Postal D-Day, an all-out assault with “mass closures” of post offices and one to two hundred plant consolidations happening all at once. 

The latest evidence of the Big Hurry came on Tuesday at the hearing for the nomination of Tony Hammond as a commissioner on the Postal Regulatory Commission.  Senator Tom Carper spent most of the time — and it was an embarrassingly short hearing for such an important appointment — not asking Hammond questions but complaining that the PRC was moving too slowly on its Advisory Opinion about the plant consolidations.  (You gotta love it when a senator complains that another part of the government is not acting with sufficient "urgency" and endangering its "legitimacy.")

The PRC won’t be done with its work until late summer or early fall, and by then the Postal Service hopes to have many if not most of the consolidations completed.  Yesterday, we learned one of the reasons they’re in such a rush. 

The Postal Service doesn’t want the consolidations to mess up voting-by-mail, so it’s going to suspend consolidations from early September until after the elections, and then it's the holiday season, so no time for consolidations then either.  That means if they don’t get started on consolidations until after the Advisory Opinion is completed in September, they won’t be able to begin implementation until January.  That’s why Carper and the Postal Service are amping up the volume on their talk of a “dire” emergency and trying to make the PRC irrelevant.  (The attack on PRC Chairman Ruth Goldway over her travels is part of the same effort.)

The letter from Connolly and Young advises caution and calm, and it calls for an approach to postal reform that's much more sensible than most of what we've been hearing.  “We recognize the need for USPS to restructure its business model but believe that we must not be rushed into false choices which could accelerate the decline of the Postal Service, with negative impacts both for our constituents and the trillion dollar private sector mailing industry which depends on the Postal Service,” write the Congressmen. 

The letter points out that “closing thousands of rural post offices would save less than 1% of the Postal Service’s annual operating budget,” but it “would have a devastating impact on communities where the post office is the center of a community and a primary means of communication.”  It would make much more sense, write the Congressmen, to restructure the $5.5 billion annual Retirement Health Benefit (RHB) prefunding requirement.  That would save much more money than closing post offices, without any negative impact on mail service.

Connolly and Young also note that eliminating Saturday delivery, even using the Postal Service’s cost-saving analysis (which the PRC says was significantly overstated), would save far, far less than what postal employees — and by extension, postal customers — have overpaid into the FERS retiree pension plan.  Simply returning some of the $10 billion in overpayments would help the Postal Service more than going to five-day delivery, which would undermine its competitive advantage and slow down the delivery of important communications and products like medicines.

The Congressman also criticize the plan to consolidate processing plants, which will end next-day mail service.  It would be much better, they say, to give the Postal Service more freedom to innovate new products and services, “in partnership and not competition with other businesses,” the way they do in many foreign countries.

The Congressmen end the letter by urging their fellow legislators to develop a new business model for the Postal Service that closes the budget gap “while continuing robust mail service to all areas of our nation.” “By considering reforms which save money without damaging service cuts, particularly for rural areas,” write Connolly and Young, “we can maintain fidelity to the Postal Service’s Constitutional mandate, create opportunities for business growth, and perhaps obviate the need to lay off hundreds of thousands of our neighbors who work for the Postal Service.”

It’s good to know there are at least a few adults in the room.  Let's hope that a significant number of lawmakers join Connolly and Young and sign on to the letter.  You can see their letter here.  

UPDATE: Connecticut Congressmen Chris Murphy and Rosa DeLauro have also written a letter to House leaders advocating postal reform that focuses on retiree health care and pension overpayments rather than closing plants and post offices.

(Image credits: D-day postal coverChoice sign)

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