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)

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?

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