USPS must learn from mail plant consolidation woes, says OIG

With the US Postal Service now in the process of consolidating its mail processing network, its Inspector General has called for lessons to be learned from a particularly problematic consolidation carried out last year. The Office of the Inspector General (OIG) found that the consolidation of a single mail plant in Maryland, close to the US capital, led to “significant” delays in mail services and a $558,000 increase in transport costs.

The investigation into the transfer of mail processing from the Frederick, Maryland, plant to the Baltimore processing plant from October 2011 to January 2012 found that delayed mail volumes increased by nearly 200% during the consolidation, to 4.6% of total mail volumes.

Customer service scores also declined during consolidation, falling by 17.2% compared to the same period the previous year in the Frederick area, and 12.2% in the Baltimore area, the report said.

The Postal Service is set to close 48 of its 461 area mail processing plants across the United States in the next two months, with plans to close a further 92 in January and February 2013.

The consolidation effort is seeking to right-size the network, which was designed to process as much as 300bn items a year, while volumes have fallen 25% in the last five years to around 168bn a year. USPS has been losing more than $25m a day because of its dwindling mail volumes and punishing pension and healthcare payment schedules set by Congress.

Frederick audit

The OIG audited the Frederick plant consolidation after Congresswoman Shelley Moore Capito requested an investigation into concerns about mail delays and safety violations.

The OIG said the situation at the plant has improved since February, and management has now addressed many of the problems seen.

But the report criticised the consolidation process, and particularly the decision by the Postal Service to consolidate the facility during peak mail season in the run-up to Christmas.

Prior to consolidation, the Frederick plant was handling an average of 860,841 mailpieces per day. The OIG said that after the mail processing activities were transferred to Baltimore it then took 20 days to transfer 80% of the staff to the Baltimore facility because of union restrictions on relocating workers.

To comply with the union agreement, USPS had to bus workers from the Frederick site to Baltimore every day during the interim.

The OIG also found that during the consolidation, the change in transportation needs was poorly planned, with transport capacity failing to respond to the changing mail volume levels as the mail flow was redirected to Baltimore.

Trailers were only 30-50% full during consolidation, the auditors said, while unnecessary trips and late payments saw costs increase by $558,000 during the period.

USPS

Commenting on the OIG’s findings, the Postal Service agreed in principle with the report.

However, while USPS said it agreed it was “advantageous” to avoid the Christmas season in consolidating plants, it said there “may be situations evaluated as low risk where savings potential and current financial situations may dictate moving forward” during the peak season.

This year, the Postal Service has decided on a self-imposed moratorium on plant closures from September to December, partly to ensure there are no impacts on voting by mail during this year’s US elections.

USPS also conceded in response to the OIG that the Capital Metro Area operations “slipped slightly” during the consolidation process, but said the Baltimore District has now improved and proved to be 11th best in the nation for overnight First Class Mail during the three months to June 2012.

“Operations have stabilised and are achieving service levels above national target,” said the vice president area operations David C Fields.

The USPS VP added that the Postal Service was now in the process of recovering a $485,000 overpayment made to transport contractors during the consolidation period.

Consolidation

The Postal Service is expecting to reduce operating costs by $1.2bn a year by closing the 140 mail plants over the next eight months. A further 89 mail plants could be closed in 2014 in a second phase of consolidation if USPS finances are not significantly improved, saving a further $2.1bn a year.

The consolidation is being accompanied by a change in First Class Mail delivery standards to allow the downsizing of the network. Overnight delivery of First Class Mail will now only take place locally to individual mail processing plants.

The first phase of consolidation is expected to see about 13,000 jobs lost, while the second would reduce the workforce by 28,000. USPS is hoping to downsize the workforce mostly by attrition.

USPS spokesman Mark Saunders confirmed to Post&Parcel today that between 2,800 and 3,200 mail handlers have accepted $15,000 early retirement incentives (to be paid over two years).

Separately, under the Postal Service’s plan to reduce workhours in the retail network, between 3,800 and 4,200 postmasters have also accepted incentives to retire early, Saunders said.

The Postal Service spokesman was unable to give details on the timing of the mail plant closures expected in the next two months.

A regulatory challenge against the mail plant closures is currently underway, on the grounds that USPS should or should not receive a regulatory clearance before changing its mail service standards. However, an attempt by the union at securing an injunction halting the consolidation process until the regulatory challenge is decided was rejected last Friday.