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.
The Hail Mary is an incomplete: The PRC denies the APWU motion to stop the change in service standards
June 29, 2012
The Postal Regulatory Commission has denied the APWU’s motion for an emergency order directing the Postal Service not to implement its proposed changes in service standards on July 2. Next week, then, overnight delivery will end for Inter-SCF mail (that's mail that needs to travel from between processing facilities). The PRC press release is here, and the order is here.
The decision does not come as a surprise. As discussed in this blog post a few days ago, it was unlikely that the PRC would require the Postal Service to wait until the Advisory Opinion is completed, sometime around Labor Day. Today’s order does, however, contain a clear statement that the Commission believes the public interest is not well served by the Postal Service’s decision to proceed with implementation while the Advisory Opinion process is still ongoing.
Today’s order reviews the arguments made by the APWU and the Postal Service, and adds a few paragraphs of Commission Analysis. There were several issues on the table.
1. Likelihood of Success on the Merits: The APWU needed to demonstrate that it would ultimately prevail in its original Complaint about premature implementation of the plan. The Commission decided, however, that “APWU fails to provide any persuasive argument that 39 U.S.C. 3661 precludes the Postal Service from implementing any nationwide change in the nature of postal services until after the Commission issues its advisory opinion.”
That’s a reference to section 3661 of Title 39, the passage in the Postal Reorganization Act that establishes the advisory opinion process. The Act says, ‘When the Postal Service determines that there should be a change in the nature of postal services which will generally affect service on a nationwide or substantially nationwide basis, it shall submit a proposal, within a reasonable time prior to the effective date of such proposal, to the Postal Regulatory Commission requesting an advisory opinion on the change.”
The passage does not clearly state that the Postal Service must wait for the Opinion itself, and the PRC decided that the APWU had failed to demonstrate that its interpretation of the passage was conclusive.
June 25, 2012
Sometime this week, the Postal Regulatory Commission will issue a ruling on the APWU’s Motion for an Emergency Order, which seeks to prevent the Postal Service from implementing a change in service standards for First Class mail on July 1.
If the PRC does not issue an order to stop the Postal Service, overnight delivery will come to an end for Inter-SCF First-Class Mail and periodicals. That’s mail that originates or destinates outside of the geographic area served by a sectional center facility (SCF). It’s basically regional mail, in between local and long distance, and it represents about 20 percent of First Class mail. The other 80% of overnight delivery is Intra-SCF mail — the “turnaround” mail that originates and destinates within the same geographic area served by an SCF — it's basically local mail that "stays in the building" — and it will be preserved until 2014, then that will be the end of overnight delivery for First Class mail.
The APWU says the Postal Service should wait until the PRC issues its Advisory Opinion before implementing the changes, sometime around Labor Day. The Postal Service says it won’t wait, and it’s filed an Opposition brief to the union’s request, arguing that the PRC doesn’t have the authority to issue an injunction, and even if it did, there’s no justification for it.
The APWU argues that the 1970 Postal Reorganization Act (PRA) — the legislation that created the Postal Service, the PRC and Advisory Opinions — says the Postal Service must request an Advisory Opinion when it’s planning a change in service with nationwide impacts. The Postal Service replies that the Act says only that it must request an Opinion; the Act doesn’t say that the Postal Service must wait until the Opinion is issued.
The APWU says that if the Postal Service implements the changes before the Opinion is out, it would render the legal requirement for an Opinion “nugatory” (of no value). The Postal Service responds that if it were expected to wait for an Opinion, the regulations would not specify that the request for an Advisory Opinion must be submitted “not less than 90 days in advance of the date on which the Postal Service proposes to make effective the change” (39 CFR § 3001.72).
The APWU argues that if the service changes have already been implemented when the Opinion comes out and the Commission makes a recommendation against the changes, the Postal Service will say that it would impose too great a cost on itself and its customers to undo the changes. The Postal Service replies that if it proves desirable to reverse the changes, mailers and the Postal Service can adjust. In the meantime, says the Postal Service, a delay would lead to additional expenses and require it to revise its consolidation plans yet again. (All the documents concerning the APWU Complaint and motion for an emergency order are in docket C2012-2.)
No stopping summer consolidations
As good as the arguments may be for an emergency order, it’s not likely the Commission will rule in favor of the AWPU’s request. Such an order would say, in effect, that the Postal Service must wait until the Opinion is issued. As the Postal Service notes in its Opposition brief (p. 14), PRC Chairman Ruth Goldway has already expressed her view that the Postal Service needn’t wait for an Advisory Opinion to be issued before it implements the change in service standards.
The APWU knows this, and it has known for a long time that the change in service standards would most likely be implemented before the Opinion was issued. In March, USPS VP David Williams told the Commission that the Final Rule on the changes would be published in the Federal Register in mid-April and the Postal Service would immediately begin the process of helping customers to adjust to the new system. Everyone knew that the Opinion would not be out until months later.
Busy week at the PRC: The union complains, the Postal Service shares numbers, and the senator sends a letter
June 17, 2012
It was a busy week at the Postal Regulatory Commission. On Wednesday and Thursday, the Commission heard cross-examination from witnesses challenging the Postal Service’s Network Rationalization plan to close over 200 processing plants. The APWU has also filed a complaint about the plan as well as a motion for an emergency order seeking to prevent the Postal Service from implementing the service standard changes at the end of June.
On Friday, several interesting documents concerning POStPlan — the plan to cut hours at 13,000 post offices — showed up in the PRC’s daily listings. There’s a spreadsheet showing the cost savings on the plan, a response to an inquiry about the revenue losses the plan might cause, and a request for non-public status on another library reference containing the revenue numbers for all the POStPlan post offices.
The PRC also received a letter from Senator Carper on Friday, urging the Postal Service to speed up its Advisory Opinions.
We’ll get to the latest developments on Network Rationalization in the next post. For now, here’s the latest on POStPlan, plus a comment on Senator Carper’s letter.
Cost savings on POStPlan: No great expectations
The Postal Service has provided the PRC with a spreadsheet showing how POStPlan could save $500 million. There’s not much to the analysis, and it looks a lot like the guestimates we made a couple of weeks ago.
The Postal Service says that the goal of POStPlan is not to save $500 million or to achieve any particular cost savings. In a reply to an information request from the Commission, the Postal Service simply says, “Postal management's goal in pursuing the POStPlan is to improve efficiency and meet customer needs by matching retail hours and services to community postal needs and use patterns” (POIR 1-10).
According to the Postal Service, then, it will be better able to “meet customer needs” if it closes their post office a few hours a day. That’s pretty much along the same lines as its view that closing 3,700 post offices would be a form of “retail access optimization.” The new plan is not about saving money, says the Postal Service. Its purpose is simply to “match” retail hours to postal needs. “The goal,” says the Postal Service, “is not contingent on a specific cost savings estimate or expectation.”
While a specific cost savings estimate may not be the goal, the Postal Service is justifying the plan by saying it will save $500 million, and the spreadsheet shows how. The total cost for labor for the 17,727 impacted post offices is currently $1.26 billion. Under POStPlan, the labor costs would be $0.75 billion. The total savings is around $517 million.
You can see the original USPS spreadsheet on Google docs, here. For some reason, it includes not only the 17,727 post offices that are part of the plan, but another 4,100 Level 18’s that aren't. Just to make things a little clearer, here’s the spreadsheet with those Level 18s removed, and some numbers on hours of operation and hourly wages added:
As you can see, the cost savings analysis compares the total labor costs for full-time postmasters to the lower costs for using part-time replacements. The difference between them is the savings. There’s nothing in the analysis about other costs that POStPlan might incur, like training thousands of part-time workers or sending someone from an Administrative Post Office to a Remotely Managed Post Office to open or close the lobby, having a carrier go the post office to distribute the mail for PO boxes in the morning (the office may open only in the afternoon), and all the other expenses in managing part-time post offices from afar.
What revenue losses?
As part of its inquiry into cost savings, the PRC also asked the Postal Service to “explain any efforts the Postal Service has made to estimate the expected impact on revenue from reducing window service hours under the POStPlan. Include electronic worksheets showing how this estimate was calculated.”
The Postal Service could provide no such worksheets. It says it wouldn’t know how to do such calculations. In reply to this request, the Postal Service says the following. It’s worth quoting in full.
May 20, 2012
On Monday the Postal Service will make the changes in service standards official by publishing the Final Rule in the Federal Register. As we’ve been told since September, delivery of First-Class mail and periodicals will be slowing down — but not as soon as initially planned. [UPDATE: The Final Rule was not published until later in the week. An Advance Copy is here.]
Rather than implementing the changes all at once, the Postal Service will give customers an opportunity to prepare and adapt by implementing an “interim version” of the plan for the next eighteen months. Here’s a quick look at the two phases of the plan:
Phase 1: Interim version
Phase 2: Final version
Implementation in July/Aug. 2012; resumes Jan. 2013
Implementation in Feb. 2014
Consolidates 140 facilities
Consolidates 89 additional facilities
Saves $1.2 billion
Saves nearly $1 billion more
Reduces workforce by 13,000
Reduces workforce by additional 15,000
Preserves overnight delivery for “turnaround” mail (80% of First-Class)
Discontinues overnight delivery for all First-Class mail, except for some business mail
This modification of the plan is apparently a response to concerns expressed by mailers and some members of Congress, and it may also anticipate what the Postal Regulatory Commission will have to say in its Advisory Opinion. In fact, one of the experts brought in by the Commission provided testimony that described how the Postal Service could realize significant savings by consolidating a large number of plants — though not as many as proposed — while still maintaining overnight delivery for a large portion of the mail. That’s basically what the Postal Service’s new “interim" phase 1 will do.
The evolution of the plan
When it first announced its plan and published an Advance Notice in the Federal Register last September, the Postal Service explained that while 40% of First-Class mail is currently delivered overnight, under the new system, virtually all of that mail would go to two-day delivery. In addition, about half the mail being delivered in two days would shift to three days. The Postal Service said that relaxing the service standards in this way would allow it to reduce its processing network from 500 locations to fewer than 200, and thereby save a considerable amount of money.
After receiving comments on the Advance Notice, the Postal Service made some revisions in the plan, and in December it published a Proposal in the Federal Register. The Proposal stated that the plan would “drastically” reduce the amount of First-Class Mail that qualifies for an overnight service standard. The only mail that would be accorded overnight delivery was “intra-SCF Presort First-Class Mail that is entered at the SCF prior to the CET.”
That refers to mail that is brought to a Sectional Center Facility (SCF) by a pre-sort company and that’s to be delivered within the area served by that facility. Sometimes referred to as “turnaround mail,” this is mail that originates from and destinates to the 3-digit ZIPs served by the plant. It’s essentially local mail that doesn’t need to be transported to another facility before it heads out to your local post office. In addition, to qualify for overnight delivery, the mail would need to arrive at the facility by a particular time, 8 a.m. — further limiting the opportunities for qualifying for overnight delivery.
Obviously, most retail customers would not be able to meet these criteria, so any of their mail previously delivered overnight would be delivered in two days. That’s why the plan is sure to drive away business. How much, though, is an open question.