USPS OIG finds problems in S&DC rollout

Steve HutkinsBlog, Featured

The Postal Service has put a hold on consolidating processing facilities, but it has not paused the creation of Sorting & Delivery Centers and the relocation of letter carriers. A few days ago, the Postal Service held open houses for nine new S&DCs that will take 600 carrier routes from 26 “spoke” post offices. In September, 15 more S&DCs are set to launch, and 38 more post offices will lose their carriers.

By the end of September, the Postal Service will have relocated about 3,300 routes from 200 spoke offices to 60 S&DCs — 730 routes during FY 2023 and 2,570 during FY 2024. Another 15 S&DCs will also have launched, but without any associated spoke offices identified yet.

Our unofficial list of S&DCs and spokes with other data, based on lists shared with unions, management associations, and the Postal Regulatory Commission, is on Google Docs. Here’s a map showing these S&DCs and spokes.

One of the goals of the Delivering for America plan is to relocate 100,000 carrier routes to S&DCs, but progress has been slow. At the rate set in FY 2024, full implementation would take almost 40 years. The Postal Service obviously plans to pick up the pace significantly over the next few years.

In the meantime, the USPS Office of Inspector General has issued three reports about S&DCs, two of them over the past few weeks. The reports identify numerous problems with the rollout of the S&DC system so far. One such problem has already led the Postal Service to make a significant change in retail services.

Two of the IG studies found that PO box mail is consistently arriving late at the spoke post offices, delaying the time that mail and packages are available for customer pickup. The IG recommended that the Postal Service adjust the posted time Box up-time, and a couple of weeks ago S&DCs and spoke offices were informed that the up-time would be pushed from 10 a.m. to 12 p.m.

That will make less of the Box mail “late,” but mail and packages will be available a couple of hours later than under the current system. It’s yet another example of how the mail is slowing down under the Delivering for America plan.

Three reports

The first OIG report on S&DCs (No. 23-062-R23, Sept. 12, 2023) focused on the first six S&DCs, which opened in November 2022 (Athens, GA) and February 2023 (Bryan, TX; Gainesville, FL; Panama City, FL; Utica, NY, and Woburn, MA). The report identified several problems with the rollout of these S&DCs:

  • The Postal Service did a poor job communicating elements of the plan to stakeholders, including high-volume customers;
  • S&DC facilities were often under construction when they opened, leading to mobile restroom trailers, temporary breakrooms, and safety hazards like blocked exits;
  • The package sorting machines are fast but have problems rejecting packages, and
  • P.O. Box up-times suffered delays.

The second OIG report (No. 24-025-R24, May 22, 2024) examined the changing role of postmasters at S&DCs and spoke offices. It encompassed five S&DCs (Athens, Bryan, Gainesville, Woburn, and Hanover Park) and their 13 spoke post offices. Again, the IG found several problems:

  • Postmasters at the spoke post offices are concerned that their reduced workload is unsustainable;
  • Removing the carriers has produced excess space in the post offices, and there doesn’t seem to be a plan for utilizing it;
  • A “flawed strategy” for managing the changing roles of spoke postmasters hinders office efficiency.

The third report (No. 23-171-R24, May 28, 2024) focused on the Gainesville and Panama City S&DCs and their seven spoke post offices (Micanopy, Newberry, Youngstown, Lynn Haven, Downtown Panama City, and Panama City Northside). The IG report identified various problems:

  • Cost savings from eliminating highway contract route trips and consolidating carrier routes did not achieve projections;
  • Late PO Box up-time at post offices led to complaints from box holders and cancellations of paid boxes;
  • Priority Mail Express did not meet its service standard, requiring refunds;
  • Attempted delivery mail was difficult to track, causing customer dissatisfaction;
  • A lack of appropriate scans at S&DCs impeded progress toward optimizing truck routes, eliminating unnecessary trips, and ensuring optimal truck utilization.

There’s more about the first OIG report in this previous post. The remainder of this post discusses the second and third reports, but first, a word about a topic that’s not addressed in any of the OIG reports thus far — the longer transit distance between delivery units and routes.

The cost of longer routes

Consolidating 100,000 carrier routes to fewer delivery units was actually the OIG’s idea, as described in a 2011 study and 2012 follow-up report. As explained in these reports, the average transit distance between the post office and first stop for all 230,000 routes is about 2.8 miles. After relocating 100,000 routes to a nearby post office (not a centralized S&DC), the average would increase by 2.2 miles for the relocated routes and 0.9 miles for all 230,000 routes.

The OIG figured that the additional miles and drive times would increase costs for labor and vehicles by $374 million. These costs would be more than offset by cutting carrier support clerk jobs and closing post offices.

The spoke post offices, however, are much farther from S&DCs than from the gaining post offices in the OIG study. For the 200 spokes launching by the end of FY2024, the average distance between the S&DC and spoke offices is about 9.6 miles. The first spokes are relatively close to the S&DCs, so as more spokes are added, the average distance to the route will increase to 12 or 13 miles — about 10 miles more than under the current system — and the average for all 230,000 routes would increase by 4.5 miles. That’s five times more than the increase in the OIG study. It’s not surprising, then, that the additional costs could top $1.8 billion.

Figured another way, the longer distances to the S&DC would add over 620,000 miles to the 100,000 routes annually. At $1.68/mile (the OIG’s estimate), that’s about $1 billion. The extra drive time adds up to 15 million work hours; at $40/hour, that’s $600 million. For transportation and labor, that’s over $1.6 billion in additional costs. (There’s more on these calculations in this post and this one.)

The Postal Service has yet to share any data about these additional costs or how they will be offset by cuts elsewhere.

While many of these routes will be serviced by the new electric vehicles, the longer transit distances will erase much of the environment benefit of electrifying part of the fleet (more on that here). Speaking of EVs, the lawsuit over the fleet purchase plan continues. In late April, fifteen state attorneys general and environmental groups filed a motion for summary judgment, arguing that the Postal Service did not comply with NEPA before contracting to buy EVs from Oshkosh Defense (more on that here).

Continued use of HCR transportation

The Postal Service has said that one way the additional costs of longer routes would be offset is by eliminating the trips made by Highway Contract Route drivers who deliver mail to post offices in the morning and collect it in the evening.

The idea was that the spoke post offices don’t require HCR transportation. In the morning, carriers go directly from the S&DC to their routes, and carriers can transport the PO Box mail to post offices. In the evening, on the way back to the S&DC, carriers can also collect the mail and packages sent at the post office.

As it turns out, however, it’s sometimes been necessary to continue having HCRs transport collection mail from the post office to the S&DCs. That’s because the additional drive time for longer routes would have extended rural carrier hours beyond their contractual agreement.

Transportation Savings for Florida S&DCs (Source: OIG report)

As a result, the IG found that overall HCR trip mileage declined only slightly following S&DC implementation.

Cost savings were also impacted by the fact that it was necessary to add an additional weekly HCR trip between the Panama City S&DC and Pensacola P&DC to accommodate growth in weekend mail volume.

Overall, the OIG found that that “actual cost savings from eliminating HCR trips and consolidating carrier routes did not meet the Postal Service estimates for FY 2023.”

Later Box Up-time

The IG found that during the several weeks under study, the PO Box up-time was late 80 percent of the time, compared to 17 percent of the time for the Florida 1 District overall and 10 percent nationally.

Source: USPS OIG report

The Postal Operations Manual says PO Box up-time should be scheduled at hours that meet the needs of a majority of customers in the local area.” The POM goes on to say, “Postmasters should strive to have all mail in PO Boxes as early as operationally possible to attract and retain customers to this premium mail service.”

The posted PO Box up time is generally 10 a.m., but postmasters at the spoke offices told the OIG that PO Box mail often does not arrive before noon and can arrive as late at 3 pm.

If the mail arrives late during peak window hours, it can have a “cascading effect.” During the busy times, window clerks have less opportunity to work the mail, further delaying its availability to the customer.

Part of the problem, as management at the S&DCs told the IG, is that there aren’t enough clerks at the S&DCs to prepare mail and sort packages, so carriers are leaving late to start mail deliveries, including the delivery of Box mail to post offices.

Another cause for delay is that under the S&DC system, the Box mail goes from the processing center to the S&DC and then to the post office, rather than going directly from the processing center to the post office, along with the carrier mail.

The late box mail has led to complaints from customers, who in some cases have closed their boxes. The IG therefore recommended that the Postal Service change the announced time for box mail, and that’s exactly what’s been done.

New signage at S&DCs and spoke offices

According to a notification dated May 20 (a few days after the Postal Service received a draft of the OIG report), PO Box up-times will be changed at all S&DC and spoke offices to noon, effective June 24. The notice says that 162 current S&DC and spoke sites will be affected, and all future S&DCs and spoke offices will also have a 12 p.m. up-time

The Postal Service has about 21.2 million PO boxes at 33,000 retail units — an average of 677 per post office. Over 94 percentage of these boxes require a fee; the rest are no-fee for those who don’t get home delivery. For the 200 spoke offices that will be in operation by the end of September, the average office has about 750 PO boxes (not all are being used).

If 5,000 post offices become spokes of S&DCs, more than 3 million box holders could end up with up-times later than they currently enjoy. That will cause a lot of frustration and lead many to cancel their boxes, which will impact retail revenues.

No SV scans cause tracking issues

The IG found that the Panama City S&DC doesn’t use Surface Visibility scans, which led to inaccurate truck utilization data. “Without those scans,” said the IG, “the Postal Service cannot accurately measure its progress toward optimizing truck routes, eliminating unnecessary trips, and ensuring optimal truck utilization while meeting service standards.”

The absence of SV scans “also creates uncertainty about the whereabouts and security of mail and impacts the customer experience. For example, the postmaster at the Panama City Beach delivery unit noted that the lack of SV scanning at the Panama City S&DC makes it difficult to know if mailpieces are at the S&DC or in transit.

Tracking items that could not be delivered and that require redelivery or customer pickup has also been an issue. Postmasters and clerks say they’ve had difficulty tracking packages, and it’s not always clear if the package is at the S&DC or the post office, and customers get frustrated with the extra time involved in getting the mailpiece to the right facility.

The attempted delivery mail is transported goes back to the S&DC in the afternoon, and then it goes to the post office the next day, along with PO Box mail. Customers who go to the post office before the PO Box mail has arrived won’t get the item until the next day. Early closing hours on Saturdays add to further delays.

Priority Mail Express Missing Deadlines

The IG found that Priority Mail Express is not meeting its service standard due to the new transportation schedules and routes. When Priority Mail Express is not delivered timely, the customer is entitled to a full postage refund.

Source: OIG report

This section of the IG’s report is heavily redacted, so we’re not told what percent of Priority Express did not meet its service standard or how much money was refunded to customers. Apparently the revenue losses could have been even greater (based on the number of late Express deliveries), but not all customers requested a refund.

Unsustainably low workload for postmasters

Postmasters who relocate to an S&DC have more carriers to supervise, so they’re positions are upgraded, but those in the spoke offices have fewer responsibilities since their carriers are gone. For every postmaster promoted to a S&DC, there will eventually be ten postmasters remaining at a spoke office, so the situation of spoke postmasters is a matter of real concern.

As the IG points out, delivery operations can encompass as much as 85 percent of the post office’s total workhours, so removing carriers from the office can significantly reduce the postmaster’s workload.

Even so, the Postal Service has promised to keep spoke postmasters in their positions and not to reduce their base salary levels. But as the IG points out, reducing their responsibilities “could negatively impact their annual performance evaluation calculation and the ability to achieve related pay incentives.”

The IG suggests that the Postal Service should have developed a detailed plan to deal with this issue by finding ways to expand postmaster responsibilities. But management said it was difficult to do so on a nationwide basis because of “the unique geographical nuances and operational needs of each spoke office…. For example, it may be more beneficial for a spoke postmaster in a suburban/urban office to allocate additional workhours for connecting with local businesses, while it may be more beneficial for a rural office to spend more time on retail transactions.”

The spoke postmasters expressed concerned about the long- term sustainability and productivity of the interim assignments they’ve been given to make up for the workhour loss.

It’s also important to note that the Postal Service has told employee associations that while the levels of the incumbent postmasters will not be reduced due to S&DCs, “If that office becomes vacant or is currently vacant, then the level of the office may change.” In other words, the next postmaster in that position will come in at a lower salary level.

An excessive amount of excess space

One of the issues faced by the spoke postmasters is what to do with all the excess space created by the departure of carriers and the clerks who support carrier operations. Delivery units can occupy more than half the building, so this is a significant problem, especially for larger post offices where there may be thousands of square feet of vacant space.

The IG report doesn’t get into any details about how much excess space is being created by the S&DC plan, but it contains images of the back of two post offices that gave their carriers to the Athens S&DC.

The 2012 OIG study on consolidating letter carriers estimated that each carrier occupies about 366 square feet in the back of the post office. The Hull, Georgia, post office has 2,320 square feet, and it gave up 5 routes; using the IG’s estimate, that’s about 1,830 square feet — nearly 80 percent of the building. The Watkinsville post office has about 8,256 square feet. It gave up 19 carrier routes, 27 carriers, and 4 clerks — perhaps 7,000 square feet, about 85 percent of the building. Those estimates may be at the high end, but it’s very likely that in both of these offices half the building has become vacant.

So far the Postal Service has identified about 200 post offices that will be spokes by the end of September 2024. About 3,300 carriers will be relocated from these offices. Using the OIG estimate of 366 sf per route, that’s 1.2 million square feet of excess space — about two-thirds of the 1.8 million square feet occupied by these 200 offices. Using a more conservative estimate of 250 square feet per route leads to excess space of over 825,000 square feet — about 45 percent of the total square footage.

If 100,000 carrier routes were eventually relocated to S&DCs, it could leave something on the order of 25 to 35 million square feet of excess space in the thousands of post offices that lose their carriers.

Here’s a table snowing the 200 spoke offices, their interior space, and two estimates for how much excess space may have been created by removing carrier operations. (View on Google docs here.)

No plan for the space

The Postal Regulatory Commission raised the issue of excess space back in August 2023 as part of its public inquiry on Delivering for America. The Commission asked the Postal Service to “describe any plans related to the utilization of excess space created at Post Offices due to the transfer of delivery functions to S&DCs. With your response, please provide any relevant studies or analyses detailing these plans, if applicable.”

In its response, the Postal Service said that it would evaluate facilities “to determine the proper use of any excess space, which could include utilizing that space to provide new services to commercial entities or other government.” But the Postal Service also said it did not currently have plans regarding the utilization of any specific excess space. Needless to say, the Postal Service did not provide any studies or analyses on the matter.

On an S&DC list shared with the PRC in March 2024 (S&DC analysis, tab “Qs 3, 4 Response”), there’s a column showing the current use of the building. In nearly every case, the list says, “Retail and PO Box delivery remain in facilities as applicable. Back-office space is being cleaned up so it can be reviewed for potential future opportunities.” The table doesn’t say what these future opportunities may be.

Three of the facilities on that list — the Northside Carrier Annex and the Martech Station Carrier Annex, both in Atlanta, and the Evergreen Carrier Annex in Colorado — didn’t have a traditional post office, so removing the carriers left the buildings completely vacant. For these annexes, the table says, “The Facilities organization will review to see if the building is eligible for non-renewal or termination of a lease or a potential to be sold if USPS owned.” The Postal Service owns the Atlanta annexes, so they’ll probably be sold, and it’s been leasing the Evergreen facility.

Evergreen Carrier Annex, now for sale (Source: Loopnet)

The Evergreen property is now for sale by its owner. According to the real estate listing, the lease with the Postal Service runs through June 2027, and the Net Operating Income (NOI) is $149,500, which is approximately the annual rent. Unless there’s a way to terminate the lease before 2027, the Postal Service will end up paying $450,000 for an empty building it’s no longer using.

When the IG asked the spoke postmasters about the excess space issue, they stated that “they were unclear about how to utilize the newly created excess space at their offices…. While some of them stated this space could be used for mail carrier training activities or retail lobby enhancements — such as passport services, parcel lockers, and self-service kiosks — they were not aware of related analysis or decisions.” In its report, the IG therefore recommended that the Postal Service develop a plan for the space and consider using the spaces for such purposes.

In reviewing a draft of the IG’s report, the Postal Service said that “while Management agrees to review space utilization at offices impacted by S&DC implementation, there are key factors the OIG overlooked when making this recommendation such as cost-effectiveness, leased vs owned facilities, and demographic/geographical nuances. In addition, the back office space created from excessing carrier routes does not fall within the retail footprint and therefore adding self-service kiosks, passport services or PO Boxes — as the OIG suggested — does not make good business sense and would be cost prohibitive.”

If the Postal Service does not appear to be very interested in putting this space to use, it may be because the excess space will eventually have a purpose. It will serve as justification for relocating or closing the post office. We’ll eventually hear about many post offices being reviewed “to see if the building is eligible for non-renewal or termination of a lease or a potential to be sold if USPS owned.”

— Steve Hutkins

For more about S&DCs, see our Delivering for America Dashboard.

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