USPS “could save $1bn” with 40% fewer delivery units

The US Postal Service could close more than 40% of its delivery units and still meet the needs of its customers, according to analysis from its Inspector General. A study issued by the USPS Office of the Inspector General this week suggested that the struggling Postal Service could cut just over $1bn a year in operating costs with a smaller delivery network.

In the light of reductions in its mail volumes since 2006, the OIG said it believed a much smaller delivery network was now sufficient to meet existing delivery needs.

It said there was a “significant opportunity” to consolidate the existing US mail delivery units so that more delivery routes operate out of each unit. Retail services within the offices to be closed would be moved to other postal retail locations, OIG said.

It suggested that USPS could cut 9,835 of its existing 23,752 delivery units to save money.

“This solution estimates a savings in 13.6 million delivery support hours and the need for an additional 3.0 million carrier travel hours,” said the OIG research, noting that its findings did not comment on how USPS should capture savings from reduced labour requirements.

In 2011, USPS had 252,006 carrier routes, with its 23,752 delivery units taking $1.91bn to run including rent, maintenance and utility costs. The OIG said it costs $1.26bn a year for US mail carriers to travel to and from their delivery routes.

At present, 80% of delivery unit facilities serve only a single ZIP code area, with 60% of delivery units comprising only five carrier routes or fewer. Only 5% of carriers work in “very large facilities” comprising more than 80 carrier routes.

The OIG model suggested that the average space needed to operate each USPS carrier route could be reduced by 34% through consolidation, with the greatest opportunities in high-density ZIP codes, though there was still “significant” opportunity for consolidation in lower density ZIP code areas, it said, with the model suggesting a 20% reduction in space per route for delivery units in the lowest density ZIP code areas.

The model would bring about a $817m annual saving in facility space costs and a $566m saving in labour costs, the OIG report stated, although with fewer delivery units hosting a larger number of carrier routes each, the model predicted a $374m increase in travel costs for carriers getting to and from their routes. The net saving would therefore be around $1bn.

OIG said its analysis would help inform management regarding efforts to improve efficiency of operations, ensuring objectivity and transparency in the process of network modernisation.

NALC

Separately, a report issued by international advisory firm Lazard on behalf of the National Association of Letter Carriers yesterday called for USPS to better leverage its existing last-mile delivery network rather than downsize it.

The report for the union representing about 200,000 active city delivery letter carriers employed by USPS pointed to the growing opportunity for the Postal Service in shipping ecommerce packages.

It said the new track and trace capabilities currently being developed by USPS under its Intelligent Mail barcode (IMb) system would support the Postal Service setting up new competitive ground and expedited delivery products comparable to those currently being offered by private sector rivals.

“The opportunity here could be significant,” said the Lazard report. “If mailing services decline at the rate projected by the USPS, and shipping and package services achieve only half of current growth rates, total USPS revenue will stabilize (and even grow slightly) over the next several years.”

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