The Request focused on four questions: which facilities will be impacted, how will the plan cut costs, what are the plans for closing post offices, and why hasn’t the Postal Service requested an advisory opinion.
The Response adds almost nothing to what has been previously reported, and much of it was anticipated in this post from three weeks ago. (Actually, the Postal Service shares much less information than that post had provided.)
What new information the Postal Service does include in the Response has been shared with the Commission as “nonpublic” documents, so only those granted permission will be able to see them. So much for a “public inquiry.”
A looming calamity and bold strategy
The Response begins by blaming the Postal Service’s current problems on Congress, mailers, the PRC, and previous postal leadership.
The problems, says the Postal Service, have been allowed to “fester” for years “due to Congressional interference, inaction and unwillingness or inability to address the looming calamity, opposition by the mailing industry to rational change due to short-term self-interest, myopic Commission decisions that ignored the larger impending emergency and reinforced the flaws of the PAEA pricing model and then delayed its replacement, and the failure of Postal Service management to confront the situation and adopt the bold organizational, operational and market strategies.”
The Response then provides a 16-page overview of the DFA plan. The Postal Service usually just addresses the questions in an information request, and the Commission had not asked for such an overview, but apparently the Postal Service thought it appropriate to kick off the Public Inquiry with an introduction to DFA.
It describes the Postal Service’s poor financial condition and the urgent need for action, the goals of the plan, all the “modernizing” that’s being done, and the changes to the processing and delivery network that are now underway.
As the Response explains, a few P&DCs will be converted to Regional Processing & Delivery Centers (RPDCs), which “will handle originating operations (for letters, flats, and packages) for a designated region, as well as destinating package operations for the region.”
Most P&DCs will be repurposed as Local Processing Centers (LPCs), which will handle destinating letter and flat sortation operations for designated 3-Digit ZIP Codes within the RPDC region.
While most RPDCs and LPCs will be located in repurposed P&DCs and Network Distribution Centers (NDCs), the Postal Service will also lease or buy new buildings when necessary for RPDCs in regions in which the existing facilities lack the necessary space and parking. The three new ones announced so far are in leased spaces in Charlotte, Atlanta, and Indianapolis. There may eventually be as many as 15 new mega facilities, in addition to the 45 in current facilities.
Moving operations out of the P&DCs to RPDCs will make room for Sorting and Delivery Centers (S&DCs), which will consolidate carriers from “spoke” post offices. In many cases, LPCs and S&DCs will share the space.
S&DCs will also serve as Transfer Hubs for smaller Delivery Units that are outside the 30-minute reach of the S&DC and that will retain their carrier operations.
The Postal Service says that numerous ancillary facilities will be closed — primarily annexes and contracted facilities — and their operations moved to RPDCs and LPCs. For example, three contracted Surface Transfer Centers (STCs) in Salt Lake City, Memphis, and Indianapolis, will soon be closed. The management associations have already been notified of these RIF closures. There are ten other STCs that may close as well when their contracts run out. (A list of the 13 STCs is here.)
For more on the new network configuration, see this previous post.
A very partial list of impacted facilities
Once the Response finally gets around to addressing the Commission’s request for a list of impacted facilities, it turns out that the list shared with the public includes only currently operating S&DCs and the spoke post offices that have sent their carriers to these S&DCs.
Here’s the spreadsheet provided in the Response. It shows the 14 S&DCs that launched in November 2022, February 2023, and June 2023, along with their 44 spoke offices. (View on Google Docs here.)
The Response states that additional information about the S&DCs planned for launch in September 2023 and February 2024 is provided in the attached spreadsheet, but the public version does not have this information. The public spreadsheet also does not contain anything about the RPDC and LPC consolidations, even though this information was specifically referenced in the information request and has already been shared with the unions and management associations. The list containing all this information has been provided to the Commission in a nonpublic filing.
An unofficial list of the first 150 facilities to be impacted by DFA can be found in this post. This list was generated by combining several lists from USPS presentations and official stakeholder notifications, and it’s in roughly the same format that the Commission asked for in its information request. It contains 11 P&DCs that will become RPDCs and 33 that will become LPCs; 25 facilities that have or will become S&DCs; and 82 post offices that have or will become spoke offices. There’s also a spreadsheet with 60 potential RPDCs, 140 potential LPCs, and 400 potential S&DCs in this post.
Cost savings breakdown
The second set of questions in the information request asked for details about the projected cost savings of the plan. In response, the Postal Service provided this spreadsheet (available on Google Docs here):
This spreadsheet represents the Postal Service’s thinking “at a specific point in time, when the initial DFA Plan was issued.” In other words, it’s already over two years out-of-date. An update of the Plan’s financial model will be included in next year’s three-year progress report.
In addition to this spreadsheet, the Postal Service has submitted a nonpublic spreadsheet with information that has been deemed too “commercially sensitive” for the public to see. This second spreadsheet contains “detailed, disaggregated data” for the “aggregated, top level financial estimates” provided in the public spreadsheet. It probably breaks down the totals for each work function into occupation, workhour reductions, average hourly wages and benefits, etc., and it may contain projected savings from not renewing leases on facilities that will close, reduced dependence on Highway Contract Routes, and so on.
The public spreadsheet shows a range of potential total cost saving, from $28 billion to $41 billion, with a mid-range of $34 billion. To achieve the low-end estimate, annual savings would need to reach $4 billion by 2029, and close to that amount by 2026. With personnel costs accounting for about 80 percent of total costs, we’re looking at compensation reductions of about $3.2 billion, which comes to about 80 million workhours — about 42,000 jobs. (For more about the job impacts, see this previous post.)
The spreadsheet shows a savings of $7 billion in FY 2022. That looks like an error: the cost improvements for FY 2022 add up to $0.8 billion. It’s possible the $7 billion includes savings on retiree health benefits (the $5 billion contribution is no longer required under the Postal Reform Act), but it doesn’t look like it’s part of any cost improvement categories. If it’s an error, the Commission will probably point it out in a future information request.
In any case, the Postal Service did not meet the breakeven financial goals that were set when it published the DFA plan in 2021. The Postal Service blames this failure on unexpectedly high inflation and “the need to take a conservative approach in order to stabilize operations and maintain service while implementing our changes.”
It’s not clear why the Postal Service didn’t anticipate the need for a “conservative approach” when it made its projections about cost savings two years ago. But rather than look at its own missteps and miscalculations, the Postal Service again takes aim at others:
“It is therefore critical to recognize,” the Response proceeds to state, “that that the Postal Service must move forward with our self-help initiatives, without being hamstrung by the same sort of resistance to change, obstruction, unwillingness to confront the magnitude of the problem, and delay that contributed to our current condition in the first place.”
Post office closures: Never say never
Turning to the information request’s third topic, the potential closing of post offices and reducing hours of operation, the Response says, as the Postal Service has said on numerous occasions, “the S&DC initiative will not impact retail operations or access.”
However, just to clarify things, the Response goes on to say this:
“The Postal Service is not currently pursuing initiatives that would result in changes to retail access by aligning hours of operation to customer demand at certain Post Offices, or rationalizing stations and branches. However, this does not mean that the Postal Service will never pursue these or other initiatives in the future that might impact retail access. A decision in that regard will depend on the Postal Service’s assessment of evolving circumstances, including particularly whether the Postal Service is achieving the financial and operational goals of the DFA Plan through those initiatives that we are currently pursuing.”
In other words, the S&DC plan itself doesn’t involve closing post offices or cutting retail hours, but the DFA plan may eventually do so (as stated in the original DFA document), especially if other initiatives aren’t saving enough money — which seems likely, since the plan is already falling behind in its cost-saving goals. As the Response puts it, if cost-reduction targets aren’t being reached, it may be necessary to implement “initiatives that the Postal Service has deferred or declined to pursue.”
The cost-saving spreadsheet shows annual reductions of about $1.4 billion in delivery operations and $400 million in retail operations. The delivery savings would involve cutting clerk positions at spoke offices — fewer are needed when there are no carriers to support — and the retail savings would involve cutting more clerks, along with postmasters and supervisors, by reducing hours and closing post offices. Perhaps the nonpublic spreadsheet has more details about these cuts, but this information is too sensitive to share with the public.
No advisory opinion necessary
Finally, with regard to why the Postal Service hasn’t requested an advisory opinion, the Response says, “The Postal Service does not expect the initiative will meaningfully alter the manner in which postal services are available to users within the meaning of Section 3661. The initiative only impacts delivery operations, as retail services will continue to be offered at facilities that no longer maintain co-located delivery unit functions due to carrier operations being transferred to the S&DC.”
In other words, nothing at the retail end will change at post offices that give up their carrier operations, so no advisory opinion is warranted. As the Response proceeds to note, retail locations will continue to accept mail and packages, including commercial volume, just as they do now. Customers will still be able to pick up mail and packages at their local post offices (rather than having to go to the S&DC). Business Mail Entry Unit (BMEU) locations will not change either, and in fact, customers will benefit when multiple destination delivery unit (DDU) drop-off points into a single S&DC location are combined into one S&DC.
The Commission will need to evaluate whether the network transformation constitutes “a change in the nature of postal services” on a nationwide basis that should trigger a request for an advisory opinion under Section 3661. There are many reasons to believe that an opinion is warranted.
As the Postal Service has previously told the Commission (for the study on flats), when carriers are transferred from a post office to an S&DC, the office will no longer serve as a DDU, and customers for products like USPS Connect will need to drop their shipments at the S&DC. Even if S&DCs prove to be more convenient for some customers, transforming thousands of delivery units into retail-only offices would certainly seem to represent a change in postal services on a nationwide basis.
Then there’s the issue of PO Box mail. A recent OIG report on peak season performance looked at the ten post offices that sent their carriers to the S&DC in Athens, Georgia (the facility list included with the Response shows six).
The IG found that PO Box mail was “not delivered timely, resulting in PO Box customers who failed to receive their mail on the expected delivery day. This PO Box mail left from the S&DC after the post offices and RMPOs closed for the day…. Further, management stated that due to staffing issues, they could not address PO Box delivery timeliness issues or ensure the adherence to PO Box management procedures for on-time service to customers.”
In addition to the issues delivering Box mail from the S&DC to post offices, there may be more delays in casing the Box mail and providing window service because there will be fewer clerks at post offices. The Postal Service has already begun notifying the unions about “excessing” clerks at the spoke post offices, and the reason provided in the impact statements is “due to the establishment of the Sorting and Distribution Center” (as discussed in this post). Customers at spoke offices are already complaining.
The consolidation of mail processing facilities may also lengthen delivery times. Postal workers in Medford, Oregon, are warning that if operations at its P&DC are moved to Portland, it could add a day to some deliveries. If a couple of hundred P&DCs send operations to 60 RPDCs, it would clearly have nationwide impacts.
Finally, there may be an issue involving discrimination against some users of the mail. The S&DC system is designed to expedite delivery by providing shippers direct access to same-day and next-day delivery, but most post offices are located in rural areas outside of the 30-minute reach of an S&DC, which are usually in urban areas. Will the customers of these post offices and the residents who live in their zip code areas not benefit from the S&DC system? If so, the plan may discriminate against rural populations — just the kind of issue that would be examined in an advisory opinion process.
The Postal Service has submitted an application for nonpublic treatment of the spreadsheets containing more details on the cost savings and the list of future S&DC conversions and the P&DCs being repurposed as RPDCs and LPCs.
Nonpublic treatment means that, aside from the Commission and its staff, the only people who will be able to see the material will need to file a motion for access explaining why they should see it and committing not to share it with anyone else.
The application says that these financial and operational plans are “commercially sensitive,” and “the Postal Service does not believe that any commercial enterprise would voluntarily publish detailed, forward-looking, and preliminary operational plans and initiatives that are subject to change or detailed, disaggregated cost savings estimates of future planning efforts.”
Revealing such information, says the Response, would “have a chilling effect on the Postal Service’s ability to engage in internal deliberations, and to roll out our communications in an appropriate manner and effectively develop and revise, as necessary, network and delivery initiatives based on feedback from each stakeholder group.”
That’s essentially the argument the Postal Service made back in May in its motion asking the Commission to shut down the public inquiry into DFA even before it began. The Commission rejected the motion and proceeded with the inquiry, but it’s not likely that the Commission will deny the request for nonpublic treatment. Such requests are routinely granted (they usually involve Negotiated Service Agreements with individual mailers), with the understanding that stakeholders like UPS and the mailers associations will be able to gain access if they like. So while the Commission and some stakeholders will be able to see this information, the public will not.
In the past, the Postal Service has provided public lists of processing facilities being studied for consolidation, post offices being reviewed for closure, post offices having their hours reduced, and so on. The Postal Service has also provided detailed financial analyses of large initiatives like Network Rationalization and the Retail Access Optimization Initiative.
Under DeJoy’s leadership, the Postal Service has resisted sharing such information with the public, and the required notifications to the unions and management associations are tightly guarded.
If the Postal Service’s responses to the first information request are any indication, this public inquiry is not going to provide the kind of scrutiny this massive transformation of the postal network deserves. And if important details are submitted in nonpublic filings, the public will learn almost nothing.
— Steve Hutkins
(For more about the DFA and S&DCs, check out our dashboard.)