More numbers on the AMP studies, and they still don’t add up, not even close

March 7, 2012

When the Postal Service announced the Network Rationalization plan to consolidate 250 area mail processing plants (AMPs) back in September, they said it would save $3 billion a year.  When the Postal Service presented its case to the Postal Regulatory Commission in December, they said it would save $2.1 billion.  Now that we can see the final AMP studies for more than half the facilities, it looks like the Postal Service may not save anything at all.

A few days ago the National Postal Mail Handlers Union (NPMHU) published the AMP studies for 134 facilities approved for consolidation.  Though heavily redacted, these reports contain a lot of numbers on cost savings and eliminated positions, along with a narrative explaining the savings and staffing changes. 

If you add up the numbers for these 134 facilities and then estimate what the total cost savings for all 223 facilities slated for consolidation would be, you end up with a total savings of $874 million.  If you subtract the $500 million in lost revenue the Postal Service anticipates the reduced service standards will cause, you're left with $374 million in savings for the entire Network Rationalization plan.

Imagine that.  Over 200 communities suffering a big economic hurt when the plants close, tens of thousands of workers excessed and displaced, some 34,000 positions eliminated, First-class mail moving much more slowly, and the Postal Service inflicting immeasurable harm to its brand and reputation.  And for what?  A paltry $374 million a year? 

 

The numbers on cost savings

A few days ago we looked at a sampling of the AMP presentation materials the Postal Service used at 70 public meetings.  These materials contain rough estimates about how much would be saved in consolidating each facility and how many positions would eventually be eliminated through attrition. 

Adding up the savings for the 70 consolidations and extrapolating for the 252 plants in the original Network Rationalization plan produced a sum of about $1.3 billion — about half of what the total savings the Postal Service says the Network Rationalization would achieve (before deducting the $500 million revenue loss).  The numbers just didn’t add up.

Now that the NPMHU has published the final AMP studies for 134 facilities, we can get a much better idea of how the cost savings would shake out.  These reports don’t just provide rough estimates.   Postal management looked very closely at the operations in each case, the reports are lengthy, and the numbers should be reliable — they are being used, after all, to justify closing or consolidating each facility.    

Here’s a summary of the cost savings for the 134 AMP reports, with an extrapolation to 223, the number of facilities thus far approved for consolidation.  (There are a half dozen others still under study, and the rest were disapproved.  The list is here, and the table on which this summary is based is here.)

Category
Total for 134 facilities
Extrapolated to 223 facilities
Mail Processing Craft Workhour Savings
$245,926,218
$409,265,273
Non-MP Craft/EAS + Shared LDCs Workhour Savings (less Maint/Trans)
$17,924,238
$29,829,142
PCES/EAS Supervisory Workhour Savings
$63,804,416
$106,181,976
Transportation Savings
$42,163,316
$70,167,309
Maintenance Savings
$156,709,110
$260,792,026
Space Savings
$361,380
$601,401
 
Total Annual Savings
 
$525,673,138
$874,814,252

As the table indicates, the annual cost savings for the 134 plants comes to just over $525 million.  Extrapolated to the 223 plants approved for consolidation, we come up with a total annual cost savings of about $874 million.

That's about a third of the $2.6 billion the Postal Service says the consolidation plan would save.  Where is the other $1.7 billion coming from?

Questions for Mr. Hammond: The Senate considers a nomination to the PRC

March 5, 2012

Tomorrow the Senate’s Committee on Homeland Security and Governmental Affairs will hold a hearing on the nomination of Tony Hammond as a Commissioner on the Postal Regulatory Commission (PRC).  The senators are likely to use the opportunity not only to explore Hammond’s positions on a number of key issues but also to express their own views, as Senators are wont to do.  If they can overcome their penchant for posturing and stay focused on the issues, perhaps the committee will pose some tough questions and have a serious conversation with Hammond about the future of the Postal Service. 

(The hearing is broadcasted here.)

For several months now, the PRC has been functioning with four of the five commissioners it’s supposed to have.  In December, President Obama nominated Hammond to fill the fifth spot.  It’s a short appointment to finish out the term of Commissioner Dan Blair, running just until November 2012.  But the appointment comes at a critical moment in postal history, and if confirmed — as surely he will be — Hammond would be the obvious choice for a regular four-year appointment later in the year.

The law says that no more than three commissioners can belong to the same political party.  There are currently two Democrats (Ruth Goldway and Nanci Langley) and two Republicans (Mark Acton and Robert Taub).  Hammond is a Republican.

It’s not exactly clear why Obama nominated Hammond.  Perhaps he did not want to use the political capital that might have been required to get a more controversial Democratic candidate though a Senate confirmation.  Or there may be some Washington custom at work, in which the political parties take turns choosing commissioners, so Obama chose Taub (but why?) and now the Republicans get to choose Hammond.  Who knows what the President was thinking?

In any case, Mr. Hammond is definitely a partisan.  From 1989 to 1994, he was the director of the Missouri Republican Party, and in 198 he was Director of Campaign Operations for the Republican National Committee.  Hammond was involved with postal matters during the ten years he served on Capitol Hill on the staff of Southwest Missouri Congressman Gene Taylor, a Republican and the Ranking Member of the Post Office and Civil Service Committee.

Hammond also has a perspective on postal matters that was shaped by his experiences as the Vice President of a direct marketing business.  He probably has a particularly sympathetic understanding of issues facing direct marketers and the big stakeholders.

Hammond has served previously on the PRC, from 2002 to 2010, twice as its Vice-Chairman.  He certainly knows the issues and should be well prepared for the questions tomorrow.

What will Hammond be asked?  Here are some suggestions:

The role of the Postal Service: What role you do envision for the Postal Service in the 21ST century?  What should its mission be?  Should the Postal Service act “like a business” or should it act like a “public service”?  If something in-between, where on the spectrum should it be?  Do you think the notion of the Postal Service “binding the country together” still makes sense in the 21ST century, or should we leave that to other modes of communication and let the Postal Service move further down the path to privatization?

The numbers on Network Rationalization just don't add up

March 4, 2012

The Postal Service says closing about 250 processing facilities will eliminate 34,000 positions and save $2.1 billion a year.  But the numbers on cost savings and affected positions that postal managers presented at the public meetings for each facility don't add up to anything like that.  The estimates provided at those meetings appear to have downplayed how many jobs would be lost, and they also raise the question, Will the Network Rationalization initiative really save as much as the Postal Service says?

In presenting its case for the plant consolidation initiative to the PRC, the Postal Service provided a lot of data about its operations and the savings it hopes to achieve by closing over half its processing facilities.  The numbers are apparently derived by modeling what the future network would look like, calculating how much it would cost to operate, and then figuring how much closing the plants would save in labor, fuel, lease costs, and so on. 

How the Postal Service arrived at its cost saving estimate is very difficult for non-experts to understand since it involves very complex calculations and a thorough knowledge of the nuances of the mail stream.  But the basic principle is not hard to grasp.  Eliminating 34,000 positions would save about $2 billion a year (figured at $60,000 per position for salary and benefits).  Another half billion would be saved in non-labor costs, but there would also be a half billion dollar loss in revenues due to the reduction in service standards.  That leaves us with about $2.1 billion in total savings.

The PRC docket on Network Rationalization is filled with page after page of details about how the cost savings would be achieved, but there’s no plant-by-plant breakdown.  The Postal Service has been very reluctant to provide any detailed financial data about individual plants.

There may be a good reason for that.  When you look at the numbers for cost savings on each plant, they just don't seem to add up to the Postal Service's estimate of total cost savings.  And we're not just talking about a minor discrepancy.  We're talking about over a billion dollars a year, nearly half of what the Postal Service says it will save.

At each of the public meetings held in the communities where plants were studied for consolidation, the Postal Service gave a PowerPoint presentation that included some financial estimates, but they were very sketchy.  In some cases, the presentation simply provided the total amount that would be saved and the number of positions that would be eliminated, with no other details.  In other cases, the presentation broke down the cost savings into four main categories —mail processing work-hour savings, mail processing management savings, maintenance savings, and transportation costs — but no additional details were provided.

Getting anything more out of the Postal Service in the way of financial analysis has been virtually impossible.  Even elected officials have run into a wall.  One wonders what the Postal Service doesn’t want us to see.

Last summer, for example, Congressman Steve King (R-Iowa) tried to get the study report on the plant in Sioux City, and got nowhere.  His staff spent weeks exchanging emails and phone calls with the Postal Service, and when he finally got the study, the key information was blacked out.

Then Sioux City officials filed a Freedom of Information Act request to get the information.  The Postal Service said it would provide the report, but it would cost $831,143.16.  Yep, you read that right, over $800K to get a copy of the report — and the Postal Service wanted half the money upfront.  

Congressman Connolly Defends PRC Chairman Goldway as Advocate of Innovation

March 2, 2012

A GUEST POST BY CONGRESSMAN GERALD E. CONNOLLY

The Washington Post recently published an article about the travel expenses of Postal Regulatory Chairman Ruth Goldway.  The author of the article seems to have missed that the reason for Ms. Goldway’s travel is to pursue positive business model reforms for the Postal Service.  These innovative reforms are connected directly to her travel and her exchange of ideas with postal systems in other countries. 

Here in America, the Postal Service earns three times less money from innovative non-postal products and services than its European postal system counterparts.  Partially because Ms. Goldway has learned from best practices overseas, she has been an articulate advocate for innovation that would allow the Postal Service to earn more revenue rather than focus myopically on downsizing. 

For example, Ms. Goldway has explained how far-reaching reforms to the Postal Service vehicle fleet could reduce maintenance and fuel costs while generating revenue through creative vehicle-to-grid contracts with utilities.  This is the kind of fresh thinking we need to reinvigorate a moribund, shrinking Postal Service. 

If Postal Service management shows no interest in innovation while Congressional partisans wish to dismantle the Postal Service for political reasons, it is more necessary than ever that Ms. Goldway and her PRC colleagues learn from international postal best practices.  It is a shame that more postal officials are not interested in such innovations.

[Gerald E. Connolly (VA-11) is a member of the Federal Workforce and Postal Service Subcommittee on the Oversight and Government Reform Committee.]

(Photo credit: Congressman Connolly)

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