Over the coming months, the Postal Service will complete implementation of its Regional Transportation Optimization (RTO) initiative. The cost savings remain unclear, but the impacts on the country are coming into focus. It’s not a pretty picture.
Under the RTO, mail and packages are no longer collected at post offices at the end of the business day for dispatch to a processing center. Instead, everything is held overnight in the back of the post office and picked up the following morning when the day’s mail is dropped off.
According to USPS filings before the Postal Regulatory Commission, the Postal Service estimates that eliminating the evening collection and combining two trips into one will reduce highway transportation mileage, burn less fuel, and curb underutilized truck capacity. The Postal Service says the annual cost savings for RTO will eventually be approximately $650 million.
It’s not clear, however, how much the RTO is actually saving. In its annual compliance determination report, the PRC expressed concern over the lack of cost-savings tracking for the RTO initiative (as also noted in an OIG Report).
The PRC found that the Postal Service’s estimates for all the network changes under review (not just RTO) “were untethered to historical performance, scenario testing, or sensitivity analysis.” The Commission could not confirm the Postal Service’s projected cost savings.
The RTO began with a pilot in late 2023. It’s now been implemented at about 15,000 post offices — about two-thirds of the overall plan — and the Postal Service has yet to offer a full accounting of the savings.
Whatever the cost savings may be, they do not exist in a vacuum. Individual mailers, businesses, and government agencies incur many additional costs due to the slower RTO mail. And however they’re calculated, these costs far exceed what the Postal Service may save.
The scope of the impacts
The RTO applies to post offices more than 50 miles from one of the network’s 56 Regional Processing & Distribution Centers (RPDCs). Those within this radius continue to get the end-of-day collection. They too are impacted, however, because anything they’re receiving from an RTO post office will arrive a day or more later. This means that the entire country is suffering the slowdown of RTO, not just those served by RTO post offices.
When RTO is fully implemented across the nation, approximately 23,000 post offices — three-fourths of the 31,000 USPS-operated post offices in the country — will no longer receive an end-of-day collection.
About 157 million people — nearly half of the country — live in areas served by RTO post offices. About 77 million residential delivery points out of 153 million, and 6 million business delivery points out of 12.3 million, are located in RTO areas.
It’s worth noting, by the way, that while the RTO obviously slows down the mail, it’s not considered “delayed.” That’s because the Postal Service revised its service standards in 2022 to reflect the extra day in transit. The mail may be slower, but it’s officially “on time.”
Impacts on transportation providers
The most immediate impacts of RTO have fallen on the private companies and their drivers who transport mail between processing centers and post offices.
The postal system’s use of contract transportation goes back to the Star Routes of the stage-coach era. In 2021, about 1,500 suppliers of Local Distribution Transportation (LTD) covered routes less than 300 miles, which includes virtually all of the routes between post offices and processing centers.
Eliminating the evening collection at post offices eliminates millions of work hours for these contract providers, the equivalent of several thousand jobs.
Companies that have provided transportation to the Postal Service for decades have seen their routes disappear. Many have had to downsize and lay off employees. Some have gone out of business.
Job losses like these are a visible impact of the RTO, but there are many invisible impacts on the rest of the economy. Let us count the ways.
1. Mail Float
When an individual or a business mails a check to pay a bill, that capital enters a state of financial limbo known as “mail float.”
Every day that these checks are in the mail system costs the recipient money in terms of lost interest and related expenses. The phenomenon operates as an invisible “float tax” levied on American enterprises.
Quantifying the scale of the float tax is difficult, but one can make a back-of-the-envelope estimate.
According to the most recent USPS Household Mail Survey, American households paid 14 percent of their bills by mail. The 2023 study (the Postal Service stopped sharing annual data the following year) reported that households sent 1.75 bill payments and 236 million donations through the mail. That’s roughly 2 billion payments sent by households. They also received 778 million payments from businesses. (The volume of business-to-business payments sent in the mail is not reported in the Household Diary Study.)
According to a Deluxe report on “The Check’s Enduring Role in the Payments Ecosystem,” based on the Federal Reserve’s Triennial Payments Study for 2018-2021, the total number of checks written in 2021 was 12 billion, with an average value of $2,400. This chart shows the breakdown.
Consumer checks include consumer-to-consumer (C2C), sometimes referred to as person-to-person (P2P), and consumer-to-business (C2B). The vast majority of consumer checks are for relatively small amounts (under $300), but large C2B payments for rent, mortgages, tuition, down payments, etc., drive up the average. Overall, consumer checks averaged about $1,000.
Business-to-consumer (B2C) checks — mostly paychecks — averaged about $1,900. Business-to-business (B2B) payments averaged about $4,700.
Here’s a table showing a hypothetical scenario of checks in the mail based on the Federal Reserve numbers, the Household Diary Study, and a little guesswork.
This scenario indicates that something on the order of $9 trillion may be passing through the Postal Service each year.
That estimate may seem too astronomical to be believed, but a USPS report in 2009 stated that “the total value of transactions moving through the mail each year is $30 trillion.” This may include bills and charitable requests as well as payments, rebates, and donations, and of course, many of those transactions have shifted to electronic payments since 2009 — First Class mail volume has fallen by half since then.
But the estimate may not be too far off the mark. The Federal Reserve report shows 12 billion checks totaling $27 trillion in value in 2021. If a third of these checks were sent through the mail, as suggested by the scenario, it’s possible they valued $9 trillion. As for 2025, it’s possible that the trend of 2018 to 2021 — a decline in the number of checks but an increase in their average value — has continued over the past four years.
About half the country’s population and half its business addresses are served by RTO post offices, so let’s assume that half of the $9 trillion and half of the 3.7 billion checks originate in RTO post offices.
To calculate the lost interest due to the mail float, the equation is as follows:
Float Value = Mail Volume × Average Payment × Delay Time × Interest Rate.
For our scenario, for a volume of 1.83 billion checks, an average amount of $2,400, a delay time of 1 day (out of 365), and a conservative interest rate of 5 percent, the lost interest comes to about $620 million annually (one day’s interest on $4.5 trillion). That’s just about what the Postal Service says it will save from the RTO.
When it presented the RTO to the PRC for an Advisory Opinion, the Postal Service said it had not done a study of potential impacts on remittance mail, and it provided no estimate for the amount of money that might be delayed. The Postal Service estimated that overall about 40 percent of single-piece First Class mail would slow down.
That’s somewhat less than the 50 percent used in our calculation, but the Postal Service’s estimate does not include another RTO-related change. The Postal Service also decided to exclude Sundays and holidays as transit days for volume entered into the network on Saturdays or the day before a holiday. The PRC determined that this change can add a day or more to delivery times and expands a portion of single-piece mail from 5 to 6 days or more. Every additional day increases the float tax on individuals and businesses waiting for a check in the mail.
2. Opportunity costs
Beyond the direct float tax lies a deeper economic drag caused by the RTO: opportunity costs. Cash sitting overnight in the post office is dead capital; it cannot be reinvested to drive growth, fund research, or maintain day-to-day operations. RTO taps the brakes on the economy.
The opportunity-cost analysis considers what else could the delayed money have been doing, like R&D, expanding a business, etc., and what extra costs are incurred due to the delay, like additional borrowing, deferred purchases, reduced payroll flexibility, and so on.
Opportunity costs are even more difficult to estimate than the float tax, but they are often several times greater. Let’s be conservative and say the impacts of RTO are twice the lost interest. That would come to $1.25 billion a year.
There are other hidden costs associated with the RTO. They are almost impossible to calculate, but they are very real.
3. Impacts on E-commerce
E-commerce giants like Amazon provide speedy delivery by entering their shipments into the postal system at processing centers or post offices, so they are not directly affected by the RTO.
Independent online retailers and small businesses, on the other hand, typically ship from the post office, and if it’s an RTO office, the shipment starts off a day late.
The Postal Service treats data on Competitive products like parcels as confidential, so its filings to the PRC on RTO are non-public. But companies like eBay, Etsy, and Poshmark are among the Postal Service’s biggest customers for shipping, and together they may account for as much as 500 million shipments a year, perhaps more. Half of them may originate at an RTO post office.
The financial fallout for online retailers is multi-faceted: If consumers notice that a product shipped via USPS will take longer to arrive, they may migrate to larger platforms like Amazon. Slower transit times also lead to an increase in customer complaints and low feedback scores, which hurt a seller’s future revenues.
By degrading the delivery times for parcel shipping at three-quarters of the nation’s post offices, the Postal Service penalizes the small businesses that rely on it the most.
4. Impacts on Marketing Mail
Marketing mail represents more than half of USPS volumes. These mailings are sent pre-sorted, and they are therefore excluded from the RTO, which applies only to single-piece mail. It might seem, then, that marketing mailers do not suffer the impacts of RTO. But that’s not the case.
The economic viability of direct mail campaigns depends on rapid responses to marketing campaigns via business reply mail or prepaid envelopes. In 2022, the Postal Service processed over 310 million pieces of business reply mail. Half of such replies may come from RTO offices.
Slower responses can damage a campaign’s return on investment in various ways. For example, delays stretch the sales cycle, slowing the cash flow and postponing revenue generation. Slower processing of response cards also allows time for buyer’s remorse or for competition to steal the sale, which depresses conversion momentum.
Ultimately, when marketing campaigns falter due to slower mail, businesses may shift budgets to costlier digital platforms.
5. Shifting to expedited services
The slower delivery times caused by RTO may incentivizes some individuals and businesses to upgrade a mailing from First Class to expedited services like USPS Priority and Express (both of which may also leave the post office a day later under RTO) or to services provided by private carriers like FedEx, UPS, and local couriers.
These alternatives are always more expensive than First Class Mail. For businesses, that means more operational costs, which are ultimately passed down to consumers.
6. Public sector costs
State and local governments rely heavily on the Postal Service for sending property tax assessments, vehicle registration renewals, jury duty summonses, and election ballots. When RTO slows down this civic mail stream, it disrupts government administration and leads to more public expenditures.
The RTO is already having an impact on postal voting. Election officials now need to spend time and money alerting voters to the fact that their mail ballots may not be postmarked on the day sent — the deadline in fourteen states — and may take longer to arrive at election centers. Some states are investing in tracking software to ensure statutory deadlines are met, driving up municipal expenditures.
To ensure their ballot arrives on time, voters may need to spend more time at the post office waiting for a hand-stamp cancellation, or they may pay more for certified mail and expedited shipping.
As discussed in this previous post on how RTO is affecting elections in Washington state, the fact that postmarks may be applied the day after a ballot is sent means that more ballots are being rejected as invalid.
When a ballot is rejected, all the expense of printing, sending and receiving the ballot is wasted, to say nothing of the harm done by disenfranchising a voter.
7. Regulatory and legal penalties
Many financial and legal documents carry strict statutory deadlines. For instance, mortgage payments, utility bills, credit card balances, and tax filings must be received by specific dates to avoid penalties.
When RTO slows down the mail stream and causes postmarks to be applied the day after mailing, consumers often face undeserved late fees, interest penalties, and damage to their personal credit scores. These costs act as a tax on household budgets and reduce consumer spending.
In the legal sphere, delivery adjustments of certified mail, court summonses, and legal notices can cause missed court dates, delayed settlements, and increased billable hours for corporate legal teams scrambling to remedy procedural issues caused by missing mail.
8. Healthcare expenses
When it presented the RTO for review by the PRC, a witness for the Postal Service testified that “the vast majority of pharmaceuticals volume will remain unaffected by the proposed changes.” That’s because medications sent by mail-order pharmacies and other large companies are entered pre-sorted at processing centers, so they’re not subject to the RTO.
Data about the RTO impacts on pharmaceuticals were submitted to the PRC as part of its review for an advisory opinion. But the data were deemed confidential and submitted in a non-public filing, so we don’t know how many medications are sent from RTO post offices.
Many retail outlets, including those in large chains like CVS, sometimes send medications directly to customers by giving them to letter carriers on their daily routes. Some retail pharmacies prefer local mailing because it keeps customers loyal, saves them a trip to the pharmacy, and reduces the need for more staffing. This localized delivery option became especially popular during the pandemic.
But once the carrier returns to an RTO post office with the prescriptions, they don’t go out to the processing center a few hours later. Instead, they sit in the back of the post office, waiting for collection the next morning.
A Brookings report on the impacts of RTO on mail-order pharmaceuticals found that changes in speed or reliability of the postal network are “a serious health care issue, not just an inconvenience to post office customers.”
When RTO slows down delivery of medications, it can lead to a variety of adverse outcomes, like missed doses, heightened hospitalization rates, and more healthcare costs.
Adding up the costs
Viewed strictly as a business, it makes sense for the Postal Service to cut costs with initiatives like RTO, but the Postal Service is not just a business. It’s a public infrastructure, and it doesn’t make any sense for a government entity to externalize its costs to the rest of the economy the way RTO does. Cost saving should not be cost shifting.
It’s hard to say how much all of these impacts are costing the country, but the total is probably several times what the Postal Service may be saving.
Looking at the big picture, the country would be better off if Congress said no to RTO and simply wrote a check to the Postal Service for $650 million. It would save us a lot of money.
— Steve Hutkins
(Featured image: Deluxe report on “The Check’s Enduring Role in the Payments Ecosystem)
