PRC report on the feasibility of restoring service standards of 2012 and 2021

Steve HutkinsBlog, Featured, News

As part of the 2022 Appropriations Act, Congress directed the Postal Regulatory Commission “to analyze the feasibility of restoring service standards for market-dominant products that were in effect on July 1, 2012, including an examination of the resources and structural and operational changes needed, and the impacts on market growth and revenue.” Congress also directed the Commission to “conduct a similar analysis of the costs and benefits of restoring USPS service and performance levels to their January 1, 2021, levels.”

The Commission’s report is based primarily on a study done by consultant J.P. Klingenberg. It’s posted on the PRC’s website here.

Despite a very thorough analysis, the Commission found that there wasn’t enough data to make policy recommendations about restoring service standards. The report nonetheless contains a wealth of information about the operational changes that have gone into effect over the past decade in connection with the relaxation of service standards in 2012, 2015, and 2021.

One of the report’s main findings is that the Postal Service’s initial estimate back in 2012 that it would save over $1.6 billion by consolidating facilities and changing the operating windows has turned out to be very wrong. In fact, says the report, “it is clear that the consolidated and redesigned network is more expensive to operate than the network design that preceded it” (emphasis added).

According to the report, the network the Postal Service operated under the 2012 service standards “was more efficient, as measured by productivity, than any year of the ensuing decade. It is possible that returning to that network design and operational approach would lead to an increase, rather than a decrease, in productivity.”

“From this perspective,” the report observes, “the restoration of the service standards could lead to lower operating costs in the longer-term, which could outweigh the considerable one-time implementation costs” for purchasing or moving mail processing equipment to the 249 facilities that saw some of their operations consolidated to other plants.

With respect to restoring the service standards in effect on January 1, 2021 (i.e., before the changes that went into effect on October 1, 2021), the report says that this requires “a more direct analysis” than trying to figure out what would be involved in restoring the standards from 2012. That’s because the Postal Service’s network has not yet been transformed by these more recent service standard changes. Essentially all that changed was that some First Class mail shifted from air to ground transportation, and that change could be undone without making major structural changes to the network.

As for how much volumes and revenue might increase if the previous service standards were restored, the report says there’s simply not enough information on which to base such an estimate and “there is no method currently available for accurately estimating the volume impact of service quality changes.” (The difficulty of making estimates about the relationship between changing service standards and mail volumes has not, of course, prevented the Postal Service from making very specific estimates when it has chosen to downgrade standards in the past.)

Another noteworthy part of the report is not about restoring service standards at all. It’s about the large-scale operational changes currently being implemented to transform the processing and delivery networks, which will supersede all the changes that have taken place since 2012.

This plan will create about 60 mega-facilities called Regional Processing and Distribution Centers, repurpose some P&DCs into Local Processing Centers, and consolidate carrier operations into Sorting and Delivery Centers — which, the Commission notes, will extend delivery route distances.

The Postal Service has not requested an advisory opinion from the Commission about the impacts of these changes, perhaps because it believes the changes are strictly operational and will not affect customer service. For the past several months, it has therefore seemed that the Commission would not do any analysis of the plan at all. The report says otherwise:

“Going forward,” Commission Chairman Michael Kubayanda writes in his cover letter to Congress, “the Commission will prioritize evaluating the impact of these ongoing operational changes. The Commission is working to obtain and organize the resources and data necessary to support this important analysis.”

This is the first time that the Commission has indicated in a public way that it is in fact analyzing the network transformation, even in the absence of a request for an advisory opinion. The Commission has not opened a docket on this subject, but perhaps it will do so in the near future so that stakeholders and the public can participate in this analysis.

In addition to the report prepared by J.P. Klingenberg, the Commission’s report to Congress contains the comments it received from the Postal Service, the APWU, Congressman Gerald Connolly, the Lexington Institute, the National Association of Presort Mailers, and PostCom.

There’s a lot more to unpack in the report, but that’s it for now. You can read the report here.

— Steve Hutkins