PRC finds Delivering for America has significant problems, urges USPS to reconsider its plan

Steve HutkinsBlog, Featured

Yesterday the Postal Regulatory Commission issued its Advisory Opinion on the Postal Service’s Delivering for America plan. The Commission found that the DFA has significant problems, especially in rural areas, and it urges the Postal Service to reconsider the DFA.

Below are the PRC Press Release, its list of recommendations, a FAQ page issued by the Commission, and a list of links to some of the main documents in the N2024-1 docket. There’s more about the docket on our N2024-1 dashboard and DFA dashboard.

Press Release

Washington, DC – The Postal Regulatory Commission (Commission) issued an in-depth analysis of the Postal Service’s Delivering for America (DFA) initiatives proposing nationwide changes to mail service. While the Commission acknowledges the challenges the Postal Service faces are significant, and change is essential, the Commission finds the Postal Service is irreversibly changing its network without laying a foundation for success.

  • First, the Postal Service’s plan depends on defective modeling and does not appear to be ready for implementation.
  • Second, the Postal Service relies on overly optimistic and unsubstantiated financial projections for cost savings that are not likely to improve the financial health of the Postal Service.
  • Third, the Postal Service’s proposal has significant negative impacts on rural communities throughout the United States.

The Commission urges the Postal Service to reconsider whether the speculative, meager gains from this proposal outweigh the certain downgrade in service for a significant portion of the nation.

Since the start of the DFA initiatives in 2021, the Postal Service and Commission have received service complaints from around the country. Many of those service complaints continue today. The Commission strongly encourages the Postal Service to consider the concerns and recommendations outlined in the Advisory Opinion as it continues to develop and implement the proposed changes. Further, the Commission advises the Postal Service to closely monitor the impact of its changes on mail products and rural communities.

The Commission’s findings are summarized below, and in the Advisory Opinion’s executive summary. The Commission also compiled a list of all its recommendations in an appendix to the report.

Significant Negative Impact on Service

The proposal is likely to have significant negative impacts on certain mail products and rural communities. The Postal Service’s plan focuses on the potential service enhancements under the proposed service standards and downplays the significant adverse effects that its proposal will have on certain mail categories, mail classes, and rural communities.

  • Rural communities will experience disproportionate downgrading of service standards when analyzed by ZIP Code pairs (mail sent from one ZIP Code to another).
  • For Single-Piece First-Class Mail (such as individual letters and postcards, the type of mail most likely to be used by a household), 49.5 percent of ZIP Code pairs will experience downgraded service.
  • Periodicals and Package Services will experience significant downgrades.
  • Considerable decline in service performance has already been demonstrated in areas such as Richmond, Virginia, and Atlanta, Georgia, where the proposed network changes have already been implemented.
  • The Postal Service currently lacks a system to accurately, reliably, and representatively measure service performance at the 5-digit level.

Cost-Savings Are Speculative and Likely Overstated

The proposal is unlikely to significantly improve the financial health of the Postal Service for multiple reasons.

  • Concerns with the Postal Service’s methodology for estimating cost savings due to a lack of historical or empirical foundation.
  • An unclear timeline for savings to be realized, and a lack of clarity regarding the overall effect on the Postal Service’s financial health.
  • Total projected cost savings, even if fully realized, represent approximately 4 percent of the Postal Service’s FY 2024 operating expenses of $81.8 billion.

Defective Modeling and Is Ill-Prepared for Implementation

  • The Postal Service used a defective modeling methodology which did not address variations in the postal network, for example the daily changes in the volume and type of mail that enters the network.
  • The Postal Service worsened the impact of its defective modeling methodology by failing to integrate transportation and processing. This prevented the Postal Service from optimizing the efficiency and performance of the full network.
  • Given the lack of convincing evidence, the Commission finds it is unlikely that the Postal Service will create a more efficient network compared to the legacy network.

Postal Service Proposal

The Postal Service’s proposal calls for operational changes to create a nationwide network of regional processing distribution centers (RPDCs), and local processing centers (LPCs) that consolidate and reduce transportation lanes among facilities. It further plans to implement its regional transportation optimization (RTO) initiative nationally, resulting in a delay in processing some outgoing mail volume. The Postal Service estimates that these two initiatives will allow it to improve productivity and efficiency and achieve an annual cost savings of between $3.6 and $3.7 billion once the initiatives are fully implemented. The Postal Service also seeks to revise its service standards to align with these operational initiatives.

Commission Advisory Opinions

When the Postal Service determines there should be a change in the nature of postal services, which will generally affect service on a nationwide or substantially nationwide basis, it must submit a request to the Postal Regulatory Commission for an Advisory Opinion.

The Commission’s Advisory Opinion, executive summary, recommendations, and FAQs are available here and at www.prc.gov.

Recommendations

RTO Recommendations

The Commission recommends that the Postal Service better prepare for its announced changes, including creating RTO-specific plans and models, before rolling out the RTO initiative on a nationwide basis.

The Commission urges the Postal Service to begin tracking metrics, such as the average number and length of nationwide layovers, before implementing RTO so that it has a baseline to which it can compare the success of the initiative.

The Commission recommends that, at relevant RTO Post Offices, the Postal Service extend the time customers have to deposit mail by collecting from blue collection boxes, lobby drops, and Self-Service Kiosk parcel receptacles closer to the morning dispatch time.

The Commission notes that to maximize cost savings, instead of static thresholds, the Postal Service could leverage its extensive facility-level data to develop and rely on thresholds for specific Regional Processing and Distribution Centers (RPDCs) or even develop non-threshold methods for determining RTO designations.

While the rollout of RTO requires successful implementation, the Commission recommends the Postal Service explore ways to categorize RPDC facilities and apply category-based thresholds to potentially increase the benefits of optimization and reduce the scope of downgrades without complicating implementation.

The Commission recommends that the Postal Service supplement its business judgment regarding a 50-mile threshold with more data-based analysis to explore different methods for determining RTO designations, such as one based on travel time, and measure the benefits of RTO against the service impacts.

The Commission recommends that the Postal Service resolve the contradiction of advocating for a regional approach while still allowing certain Local Processing Centers (LPCs) to retain cancellation operations.

The Commission recommends the Postal Service minimize the use of exceptions in implementing its initiatives by developing and implementing a systematic approach to capture the interactions between RTO and the network design.

The Commission agrees with the National Postal Policy Council (NPPC) recommendations to tie RTO implementation to the operational launch of the servicing RPDC into operation in a specific region, and not nationwide all at once.

The Commission recommends that the Postal Service learn from its negative experience implementing Dynamic Routing Optimization (DRO) to inform its preparation for implementing RTO.

The Commission encourages the Postal Service to create a thorough implementation plan to facilitate the strong execution of its RTO initiative and set up relevant timelines.

The Commission recommends a more measured approach to implementation strategy based on the Postal Service’s experience with Local Transportation Optimization (LTO) pilots where “compressed” timelines created issues. This might include a testing period with RTO pilots.

In order to establish an accurate representation for the potential impacts of RTO, the Commission recommends that the Postal Service initiate an RTO pilot before rolling the initiative out nationwide.

The Commission recommends that the Postal Service address concerns regarding outdated and inappropriate source data and assumptions to improve the internal validity of the LTO Model going forward.

The Commission recommends that the Postal Service develop a model that accurately reflects the nature of transportation under RTO as the LTO Model results cannot serve as an adequate proxy. Such a model should ideally include cost and service impact data from RTO pilots in which RPDC activations and other network changes are introduced along with RTO.

The Commission recommends the Postal Service conduct further preparation before beginning the RTO initiative to improve its likelihood of achieving implementation success, including finalizing the list of post offices eligible for RTO, creating a detailed project implementation plan for RTO beginning with a RTO pilot, and creating a model to estimate RTO transportation cost savings specifically

Transportation Recommendations

The Commission strongly recommends that the Postal Service develop a comprehensive and integrated model to capture and analyze the interaction of all elements of the network (e.g. facility location selection, Leg 1 transportation, Leg 2 transportation, and mail processing) to observe and understand the overall impact on performance and cost savings.

The Commission recommends the Postal Service develop a stochastic network model, which will allow for more variability in the modeled network and provide more detailed outputs which can better inform the placement and designation of RPDCs.

Processing Efficiencies Recommendations

The Commission strongly recommends that the Postal Service use more rigorous methods or models to prove its estimates instead of just relying on its business judgment when adjusting how RPDCs and LPCs function.

The Commission encourages the Postal Service to review and analyze its facility-level data to ensure that the productivity improvements are achievable and that the proposed operational changes will have their intended effect.

The Commission recommends the Postal Service evaluate its implementation procedures to minimize issues that arise during the process.

The Commission urges the Postal Service to model the arrival profiles under RTO in order to better plan for the subsequent changes to operations.

The Commission urges the Postal Service to adopt more rigorous methodologies to ensure that the proposed changes will provide all the benefits described, including to study and incorporate data and lessons from past RPDC implementations.

The Commission encourages the Postal Service to provide specific metrics, related to each change, for assessing the success of its initiatives.

Effects on Service Recommendations

In light of the Commission’s analysis concerning the disparate negative impacts on Market Dominant mail, the Commission strongly advises the Postal Service to closely monitor the impact of its proposed changes to the service standards on Market Dominant mailers and customers and to modify its plans and take immediate mitigation measures if service impacts are greater than expected.

In order to minimize negative service performance impacts, the Commission concludes that the Postal Service must identify and learn from its mistakes as quickly as possible and not overlook or ignore systemic challenges in its determination to implement the proposed network and operational changes.

Recommendations on Service Performance Measurement

Should the Postal Service determine to move forward with implementing the change, the Commission strongly encourages the Postal Service to seek out ways to clearly communicate with customers this change and how it affects postmarking and delivery expectations for mailpieces.

The Commission urges the Postal Service to clearly and transparently communicate the impacts of proposed service standard and service performance measurement changes when those changes impact the underlying service received by customers.

Given the change has not been transparently presented, the Commission strongly encourages the Postal Service to seek out ways to clearly communicate this change with customers, including how it affects the expected cancellation date and delivery expectation for mailpieces and in its presentation of expected service in its proposed 5-Digit to 5- Digit ZIP Code lookup tool.

The Commission recommends that the Postal Service develop, test, and present to the Commission and the public a measurement system capable of accurate, reliable, and representative service performance measurement at the 5-Digit ZIP Code level before moving forward with its proposed service standard changes.

Local Changes, Customer Communications, and Election Mail Recommendations

The Commission finds that the Postal Service should make more of an effort to educate mailers on the significant changes being made and suggests that the Postal Service mail flyers to affected residences or place notices in PO Boxes.

With the determination that the Postal Service’s current handling of election mail is reasonable, the Commission recommends that the Postal Service generate a plan to address election mail in future elections for the final state of the RTO and LTO initiatives with consideration given to the unique rules of each state’s election board.

Financial/Cost Savings Recommendations

The Commission suggests that the Postal Service apply a more robust approach, grounded in quantitative evidence and real-world testing, when determining capture rates to meet the standards of reliability necessary for sound capture rate and financial projections.

Should the Postal Service proceed with implementing these initiatives, the Commission recommends that it closely monitor their progress to ensure that cost savings are realized and balanced with the maintenance of high-quality service standards.

The Commission encourages the Postal Service to validate its capture rates with empirical data, conduct scenario-based modeling to assess outcomes under varying conditions, and establish clear timelines and milestones to improve accountability and transparency in achieving its cost savings goals.

Service Standards Objectives and Factors Recommendations

The Commission strongly advises the Postal Service to consider its obligations under 39 U.S.C. § 101(a) and (e), and reconsider the impact of its proposed changes to the service standards, particularly on rural areas and the rural citizens and businesses who rely most heavily on the Postal Service.

The Commission strongly advises the Postal Service to take into consideration the concerns expressed in this docket as it continues to develop and implement the proposed changes.

The Commission advises the Postal Service to closely monitor and measure the implementation of its planned changes to determine whether they actually achieve the objectives outlined above or whether some of the negative the impacts projected by the Commission and concerned parties actually come to fruition.

FREQUENTLY ASKED QUESTIONS

Operational and Service Standard Changes Related to the Delivering for America Plan, 2024 – Docket No. N2024-1

Q. Why did the Commission issue this advisory opinion?

This advisory opinion results from a request by the Postal Service. Whenever the Postal Service determines that it should change the “nature of postal services,” which will “affect service on a nationwide or substantially nationwide basis,” it is required by law to submit a proposal to the Commission before implementing those changes. After conducting a formal, on- the-record hearing and allowing interested parties to provide argument or additional evidence, the Commission issues an advisory opinion on the request. Here, the Postal Service filed its request for an advisory opinion in October 2024. After conducting an on-the-record hearing in December 2024, the Commission has issued its advisory opinion on the proposed changes contained in the Postal Service’s request.

Q. What did the Commission take into consideration when developing this advisory opinion?

Along with the request, the Commission considered (1) the witness testimony submitted by the Postal Service; (2) library references submitted by the Postal Service in support of the request; (3) answers the Postal Service submitted to Presiding Officer information requests and discovery requests submitted by interested parties and the Public Representative; (4) rebuttal cases submitted by multiple parties; (5) the answers given by Postal Service witnesses at the on- the-record hearing; (6) briefs and reply briefs submitted by interested parties, the Public Representative, and the Postal Service; and (7) Commission staff analysis.

Q. What are the major takeaways from the advisory opinion?

The advisory opinion concludes that the Postal Service’s plan is based on defective modeling and is not ready for implementation. It also concludes that the Postal Service relied on overly optimistic and unsubstantiated financial projections for cost savings that are also not likely to improve the overall financial health of the Postal Service. It further concludes that the Postal Service’s proposed changes will negatively and disproportionately impact rural communities throughout the United States. Moreover, the appendix to the advisory opinion contains several recommendations from the Commission.

Q. Does the Commission find that these changes would violate postal law?

The Commission’s advisory opinion concludes that the record, in this case, lacks the foundation for it to conclude whether the Postal Service balanced the legal factors and objectives it is required by law to consider because there is too little known about the timeline of the changes, and the Postal Service asserts that the changes are subject to continual adjustments, changes, and variations. The Commission concludes that, as presented, the proposed two provisions of postal law — 39 U.S.C. §§ 101(a) and (e), which require the Postal Service to “provide prompt, reliable, and efficient services to patrons in all areas and render postal services to all communities” and “give the highest consideration to the requirement for the most expeditious collection, transportation, and delivery of important letter mail” — have not been satisfied by the Postal Service. Finally, the Commission concluded that it is concerned about the impacts of the proposed changes on rural communities, but without additional specifics, the Commission could not conclude whether the proposed changes violate the prohibition against “undue or unreasonable discrimination” contained in 39 U.S.C. § 403(c).

Q. Does the Commission expect the Postal Service to modify its direction in the Delivering for America plan because of this advisory opinion?

The Commission expects the Postal Service to seriously consider the recommendations made throughout the advisory opinion and that, based on these findings, the Postal Service will reconsider the proposed changes.

Q. How will this advisory opinion affect service standards?

This advisory opinion does not approve, modify, or reject the service standard changes proposed by the Postal Service. The law requires the Postal Service to “consult” with the Commission when it proposes changes to service standards. But the law is also clear that the Commission’s advisory opinion is just that – advisory. The law does not permit the Commission to approve, modify, or prohibit the changes the Postal Service proposes to the service standards. Therefore, while the advisory opinion expresses an unfavorable view of the proposed changes to the service standards and makes several recommendations, the Commission cannot legally reject the proposed changes.

Q. Can this advisory opinion hold the Postal Service accountable for the service issues the public has been experiencing across the country?

Yes, but not directly by Commission action. The Commission can highlight the likely negative impact on service, particularly in rural areas. The Commission can also make recommendations for the Postal Service to consider when determining whether to implement the proposed changes. These findings will be shared with the Postal Service and its management, interested parties, and Congress.

Q. What needs to happen to enforce the suggestions outlined by the Commission in this advisory opinion?

The United States Postal Service Governors and United States Congress are the two entities that could directly hold the Postal Service accountable for the suggestions identified in the proposal if they determine it is necessary to do so and whether changes in the law are required. Additionally, should the Postal Service implement the proposed changes, and should those changes have the predicted negative effects on rural customers, the Commission has the legal authority to hear complaints asserting, among other things, any “undue or unreasonable discrimination” that results from the changes.

Q. Who has the authority to hold the Postal Service accountable for the network changes that interfere with reliable mail delivery?

The Commission has the authority to hear complaints that assert, among other things, that the Postal Service is engaged in “undue or unreasonable discrimination” if any changes it implements interfere with reliable mail delivery. Additionally, the United States Postal Service Governors and/or Congress can consider these issues and have direct authority to modify postal policy or, in the case of Congress, the law as it determines necessary. Additionally, Postal Service management may choose to make changes to its proposal based on the findings in the advisory opinion. Finally, through the Annual Compliance Determination, the Commission monitors the Postal Service’s service performance for 27 Market Dominant products/categories. The Commission can order corrective action if the Postal Service fails to meet these service performance targets.

Q. Will some geographic areas be impacted more significantly than others because of these changes?

Yes, the Commission’s advisory opinion concludes that the Postal Service’s proposed changes will disproportionately affect rural areas.

Q. How will the Commission present the advisory opinion to the Postal Service and will there be any in-person briefings with PMG DeJoy and his staff and/or the Board of Governors?

The advisory opinion will be filed in the Commission’s edockets system. The Commission will also release public communications regarding the issuance of the advisory opinion through our website, social media, and press materials.

Q. Is the advisory opinion also sent to Congress, and if it is, to whom is it sent?

It is the practice of the Commission’s Public Affairs and Government Relations department to provide the advisory opinion and any accompanying materials to the Chair and Ranking Member of the House Committee on Oversight and Government Reform and the Senate Homeland Security and Governmental Affairs Committee.

Q. Does the Postal Service provide any feedback to the Commission for any further revisions to the advisory opinion?

Though it’s not a required practice, the Commission welcomes engagement with the Postal Service on its findings. However, the Commission does not revise its original findings based on interactions with the Postal Service.

Q. If the Postal Service implements its plan, how will some of these proposed changes affect service?

In the advisory opinion, the Commission concluded that the proposed service standard changes will lengthen the time some mail will take to get to its final destination while speeding up some as well. The Regional Transportation Optimization (RTO) initiative will add an extra day of service for outgoing mail sent by postal customers living more than 50 miles from one of the Postal Service’s 60 processing facilities, known as Regional Processing and Distribution Centers (RPDC). Meanwhile, those living within 50 miles of an RPDC may see more rapid delivery times. The Commission’s analysis found that around 75 percent of ZIP Codes fall outside of the 50-mile radius, and therefore, could face an added day. There are some additional ways that postal customers may experience longer wait times for their mail to arrive, particularly the Postal Service’s proposal to no longer count Sundays or Federal Holidays as transit days, which the Commission concludes is plainly a service degradation. For example, currently, a Single Piece First-Class Mail letter with a 5-day service standard sent on Saturday is expected to be delivered on the following Thursday. After these changes, that same piece of mail would be expected to be delivered on a Friday, or if sent on a Saturday before a Monday Federal holiday, it would be expected to be delivered on the following Saturday, a full 7 days later. So, while the Postal Service indicates it is not changing the 2–5-day standard, the Commission concludes in the advisory opinion that this contention hides a degradation in service.

Documents

Testimonies

Briefs and Statements of Position