Plant consolidations

OIG recommends halt to Phase II Network Rationalization until USPS service performance improves

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)

The true cost for restoring service standards and why the Postal Service can afford it

July 26, 2015

A couple of weeks ago, the Congressional Budget Office (CBO) announced that it would cost the Postal Service $1 billion to comply with an amendment requiring the Postal Service to revert to the service standards for First Class mail and periodicals that were in effect on July 1, 2012.  The amendment was proposed by Representative Chaka Fattah and approved by the House Committee on Appropriations as part of the financial services appropriations bill. 

The CBO's report generated headlines like "CBO: USPS can't afford House committee provision to reopen mail facilities" (Fierce Government) and "USPS Can’t Afford to Reopen Facilities and Add Employees Like Congress Wants" (Government Executive).

The Coalition for a 21st Century Postal Service (C21), which represents many of the stakeholders in the mailing industry, quickly weighed in to oppose the amendment.  In a letter to Senators Cochran and Mikulski, the chair and vice chair of the Senate's Committee on Appropriations, C21 wrote this:

“In order to restore July 1, 2012 service, the Postal Service would have no choice but to reopen a large number of facilities it has closed and/or sold in the past three years, reverse reconfigured transportation routes, and rehire, or extend the hours of existing, employees. The Congressional Budget Office concluded in a letter to Senator Tom Carper dated July 13 that the amendment would cost the Postal Service in excess of one billion dollars in the first year. (Postal Service estimates are closer to $2 billion in the first year, and $1.5 billion in each of the succeeding four.)”

Unfortunately, the CBO, C21, and the media reports all seem to have misunderstood the amendment, and they are obfuscating the main issue — how much would it actually cost the Postal Service to comply with the Fattah amendment?  

As discussed in this previous post, the amendment would restore the interim service standards that went into effect on July 1, 2012 and that remained in effect until January 5, 2015, when the final service standards began.  Going back to the interim standards would not necessitate reopening any of the 150 facilities closed in 2012 and 2013 or rehiring any of the thousands of employees who left the Postal Service during this time (mostly as a result of the 2012 buyout offers).   That would only be necessary if the amendment were about restoring the original service standards in effect before July 1, 2012. 

The amendment would simply require undoing what has happened since the beginning of the year, when the interim standards ended, and the cost would not be anything like $1 or $2 billion.  As the following discussion explains, the amendment would probably cost something like $50 million, and the Postal Service could easily afford it.


Costs, not savings

The CBO said it would cost $1 billion to comply with the amendment, but it’s not clear where the number came from.  Perhaps it includes the $865 million the Postal Service says it is saving from the phase-1 consolidations — which would be lost if phase 1 were undone — or perhaps it includes the $750 million the Postal Service anticipates saving if and when the phase-2 consolidations are completed. 

C21 is apparently referring to an older Postal Service estimate of $2.1 billion for how much both phases of the consolidation plan would save altogether.  The Postal Service subsequently downgraded the estimate for savings to $1.6 billion — $865 for phase 1 and $750 for phase 2.

None of these estimates about savings is relevant to the question of the Postal Service's ability to comply with the amendment.  

The phase-1 savings would not be impacted because the amendment doesn’t have any bearing on the phase-1 consolidations.  Whatever the Postal Service is saving from phase 1 will continue to be saved.

As for the phase-2 savings that would go unrealized if the consolidations don’t go forward, that’s a legitimate concern, but anticipated savings are a separate issue.  They are projections about what might happen, not the actual costs for restoring the interim standards.

The CBO told Senator Carper that the Postal Service would be unable to fully comply with the amendment because it doesn’t have $1 billion, and it could only come up with $300 million to improve service standards.

But $300 million is much more than would be necessary to comply with the amendment.  Since January 5, 2015, there have been operational changes within all processing plants and there has been some progress on the phase-2 consolidations themselves, but all of these changes could be reversed for very little cost.  Here's why.


Progress of the consolidations

Since the beginning of the year, not much progress has been made on phase 2 of the consolidation plan, as one can see by looking at the status updates the Postal Service posts on its website.   

To make this progress easier to visualize, we’ve combined the status report from December 19, 2014 (the last month when the interim standards were in effect) with the most recent report (July 17, 2015).  You can see this merged report here

In comparing the two status reports, here’s what one finds:

APWU takes PRC to court over service standards

June 23, 2015

The American Postal Workers Union has taken the Postal Regulatory Commission to court over its decision to dismiss the union’s complaint that the Postal Service is failing to meet its service standards.

As explained on the USPS website, these service standards, as set forth under 39 C.F.R. § 121.1, state how long it will take the mail to be delivered, e.g., two days, three to five days, and so on.   Since 2012, the Postal Service has relaxed these standards two times as part of its Network Rationalization plan to consolidate processing plants — once in July 2012 (when some overnight mail was eliminated), and again in January 2015 (when the rest of overnight mail ended).  

There is mounting evidence that the Postal Service is not meeting even these more relaxed standards, and the APWU has been trying to get the PRC to do something about it.  But each time the APWU has filed a complaint, the Commission has dismissed it.  Now the APWU is looking to the DC Circuit Court of Appeals for relief.


Complaints and dismissals 

The APWU has been filing complaints about the Postal Service's failure to meet its service standards for almost two years.  (The materials can be found in PRC Docket No. C2013-10.)

In September 2013, the APWU filed a complaint with the Commission saying that the Postal Service was not meeting the new standards established in July 2012.  In November 2013, the Commission dismissed the complaint (in part). 

In December 2013, the APWU filed an amended complaint, and in February 2014, the Commission dismissed it as well. 

In March 2014, the APWU filed a motion for reconsideration.  It took months for the Commission to act on the motion, but on May 27, 2015, it dismissed the complaint for a third time. 

Two days later, the APWU filed a petition challenging the PRC's order with the U.S. Court of Appeals, District of Columbia Circuit.  Last week, the APWU followed up with a short “Statement of Issues to Be Raised” that previews the arguments it will make in the case.

These arguments echo points made by Commissioner Ruth Goldway, the former chair of the PRC, in her dissenting opinion on the Commission's order dismissing the complaint.  Goldway believed that the Commission should have heard the complaint, and the union will probably be quoting her opinion as it proceeds with its appeal.


The PRC's Advisory Opinion on Network Rationalization: Death Knell for the Postal Service?

October 1, 2012

When the Postal Regulatory Commission issued its advisory opinion on the Retail Access Optimization Initiative (RAOI) last year, it said the plan to close 3,700 post offices wouldn’t optimize anything.  On Friday of last week, the PRC issued its advisory opinion on Mail Processing Network Rationalization (MPNR), and while it doesn’t come right out and say so, the Commission suggests that the Rationalization plan won’t really rationalize the network. 

The mountain of testimony and legal arguments submitted by the Postal Service just rationalize a decision made long ago, and postal management doesn't seem to care if the PRC thinks the decision was rational or not.  The Postal Service didn't even wait for the opinion to come out.  The changes in service standards were implemented in July, the consolidations began in August, and while the plan now calls for a phased implementation, there are few signs that the Postal Service is interested in changing course.

The advisory opinion nonetheless aims to shift the direction in which the Postal Service is headed.  The opinion is long (240 pages), thorough, and extremely technical, but as the Commission states in the Introduction, its advice can be “succinctly summarized” as follows: 

“The Commission views positively the network rationalization actions planned by the Postal Service through January 31, 2014, and recommends that the Postal Service take into account the considerations outlined in this Advisory Opinion before proceeding further.  Specifically, the Commission encourages the Postal Service to make every attempt to retain overnight delivery in keeping with the analysis presented in the subsequent chapters.”

That summary of the Commission’s findings contains several important points.  First, the Commission is basically approving the first phase of the Postal Service’s two-phase implementation plan, which was announced back in May.  According to this revised plan, some 140 plants will be consolidated as part of phase one, starting this past August and running through January 2014.  Phase two will begin after that, and include about a 90 more plants.  (A list of the plants is here.)

The Commission expresses approval for phase one because it preserves overnight delivery for most of the mail that currently enjoys it.  The Commission is much more skeptical about phase two because it requires ending overnight delivery for almost all First-Class mail, and it would cause most of the damage in terms of revenue losses.  The Commission advises the Postal Service to consider the opinion’s recommendations carefully and to review what happens in phase one before proceeding with the second phase — if it moves on to phase two at all.

A large part of the advisory opinion reviews the detailed cost-savings analysis provided by the Postal Service.  It concludes that “the Commission’s range of potential net savings estimates is lower than that projected by the Postal Service.”  The Postal Service says that the gross savings from the plan (before deducting lost revenue) will be $2.1 billion.  The Commission, on the other hand, says the gross savings could be as low at $54 million.

As for how much business the relaxed service standards may drive away, the Postal Service claims that its market research projects a net loss of $500 million (later corrected to about $430 million), bringing the total savings to $1.6 billion.  The Commission, however, found the market research to be so problematic that it could put no credence in the bottom-line estimates.  The Commission would not offer an estimate of its own, but the advisory opinion leaves one with the distinct impression that the lost revenue will be greater, perhaps much greater, than the Postal Service is anticipating. 

All in all, then, the Postal Service’s estimate of $1.6 billion in net savings comes under serious scrutiny in the advisory opinion. The Network Rationalization plan will probably save much less than the Postal Service says, and there is the very real possibility that rather than saving anything, it will actually lose money, drive the Postal Service deeper into its downward spiral, and, as one of the expert witnesses put it, "herald a death knell” for the country’s postal system.


The great unspoken

For the most part, the advisory opinion presents a technical analysis of the Postal Service’s plan and the alternative models that were developed by outside experts.  It was written by a staff well versed in the technicalities of postal operations, postal law, and the principles of statistics. 

The advisory opinion mentions the word “jobs” only once, in a sentence about how the Postal Service is “a vital component of a mailing industry that supports millions of American jobs.”  There’s not one reference in the advisory opinion to the jobs of postal workers, even though nearly all of the savings the plan purports to achieve will come by eliminating their jobs, and lots of them — 28,000, according to the USPS press release

The advisory opinion doesn’t discuss how closing 229 large processing plants will affect postal employees or their families and communities.  There’s no discussion of the economic impacts of shutting down a large plant, nothing about how some workers will have to commute two hours to their new jobs, nothing about how families will be split apart when the postal worker in the family gets transferred to a plant in another town, nothing at all about the 28,000 workers who won't even have a job to go to.

The advisory opinion doesn’t discuss the social costs of the Network Rationalization plan.  It examines the Postal Service’s plan in the same terms with which the plan was presented — as a matter of sorting machines and square footage, of maximizing efficiencies and improving productivity.  It’s all about numbers, not people.  If money can be saved by consolidating plants, the issue is how many and which ones, not the value of providing jobs, sustaining families, and maintaining communities. 

Perhaps eliminating 28,000 postal jobs is a necessary evil if we are to save the Postal Service — the lynchpin in a mailing industry that employs millions — but it seems odd to cut jobs in order to save them.  Yet that’s what network “rationalization” is all about.

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