USPS $2bn cost-saving estimates “optimistic” says major review

A major regulatory review of the US Postal Service’s plan to close hundreds of mail processing plants across the United States has warned that resulting cost savings could be as little as $46m a year. The Postal Regulatory Commission said with current productivity levels, the $2bn annual cost savings predicted by the USPS would be difficult to achieve in the plan to close 229 of the 461 US area mail plants over the next two years.

The 10-month review concluded by the Commission on Friday has suggested the best the Postal Service could achieve would be $1.9bn savings.

But to achieve it, the five-member Presidentially-appointed panel warned that USPS would have to improve productivity at all its plants by 20%, and by 25% at plants that increase in size because of consolidation.

“These productivity improvements are highly optimistic and may not be achievable,” the Commission warned, suggesting that USPS estimates for cost-savings represented “the high end” of expectations, and that other witnesses suggested a 5% improvement the most likely.

So far, USPS estimates for its plans have not proven particularly reliable, with the regulators suggesting the Postal Service had overestimated its cost-savings in areas like transportation, and USPS itself considering there were problems in its $500m estimate for the loss of revenue associated with customers unhappy about changing mail standards.

Following its review, the Commission recommended USPS improve its modeling for calculating productivity measures in its plans, and develop plans to better inform customers about service changes.

Nevertheless, the Commission chairman Ruth Goldway did praise the phased nature of the USPS consolidation plan, as offering scope for the Postal Service to improve its implementation along the way.

Goldway said: “The Commission believes that the phased implementation of the Mail Processing Network Rationalisation initiative provides an excellent opportunity for the Postal Service to study the effects of service standard changes; to inform its decisions on how to preserve as much of the current services as possible; and to make adjustments before full implementation.”


“Rural and remote communities that already receive slower delivery may be impacted even further”

USPS has already completed the first phase of its consolidation plan, shuttering 48 plants this July and August. After the current election season and festive peak, a further 92 plants are to be closed in January and February 2013, with a further phase of consolidation to take place in 2014 dependent on the state of the US mail market at the time.

The US mail processing network was built up while volumes were growing each year during the 1990s, to handle as much as 300bn pieces of mail a year. It is now handling less than 170bn items a year with many Americans now communicating and paying their bills online.

Latest financial results show USPS losing more than $14bn in the first 11 months of its current fiscal year, although the figure includes more than $10bn in mandated payments to the federal government that it is refusing to pay.

USPS plans to close half its mail processing network form part of its overall efforts to cut its annual operating costs by $22bn over the next four years.

To facilitate the shrinking processing network, USPS brought in new mailing standards this July that sees overnight First Class Mail delivery only available locally to processing plants. From the end of January 2014, overnight delivery for single-piece First Class Mail would be eliminated and much of the current First Class Mail delivered in two days will be delivered in three days.

Issuing a personal opinion alongside the Commission’s Advisory Opinion on Friday, Goldway said testimony suggesting that the Postal Service’s reduction in service standards was effectively equivalent to raising the price for customers was “persuasive”, and that there were “fairness implications” about focussing cuts on First Class Mail.

“First-Class Mail contributes three times as much on a per-piece basis to the Postal Service’s bottom line as does Standard Mail, yet in this proposal, First-Class Mail suffers service reductions while Standard Mail is largely unaffected,” Goldway said.

The Commission chairman also expressed concerns about the plan’s impacts on rural communities.

“Rural and remote communities that already receive slower delivery may be impacted even further when weekend and holiday delays are factored in. If the Postal Service eliminates Saturday delivery, actual days to delivery would increase even more,” she said.

Goldway said the Postal Service needed to carefully study the Advisory Opinion to apply a consolidation plan “that saves costs while preserving service”.

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