GAO: USPS Mail Processing Network Exceeds What Is Needed for Declining Mail Volume

The Government Accountability Office has updated its report on excess processing capacity in the US Postal Service. Click here to download the full report. Here is the summary:

The U.S. Postal Service’s (USPS) dire financial situation has increased the urgency for agreement on an effective strategy to better align USPS’s postal services with its costs and revenues. USPS has noted that the decline in First-Class Mail volume accelerated more than expected and predicted that volume will continue to fall. By fiscal year 2020, USPS expects to lose over 60 percent of the First-Class Mail volume that it had in fiscal year 2006. Declining First-Class Mail volumes, development of automated mail processing equipment, and “workshare” initiatives (e.g., mailers applying bar codes, presorting the mail, and entering mail into the postal network closer to its final delivery point) have led to a mail processing network—including postal facilities, staff, equipment, and transportation resources—that is larger than needed to process and distribute current and projected levels of mail.

Since 2006, the U.S. Postal Service (USPS) has closed redundant facilities and consolidated mail processing operations and transportation to reduce excess capacity in its network, resulting in reported cost savings of about $2.4 billion. Excess capacity remains, however, because of continuing and accelerating declines in First-Class Mail volume, automation improvements that sort mail faster and more efficiently, and increasing mail preparation and transportation by business mailers, much of whose mail now bypasses most of USPS’s processing network.

In December 2011, USPS issued a proposal for consolidating its mail processing network, which is based on proposed changes to overnight delivery service standards for First-Class Mail and Periodicals. Consolidating its network is one of several initiatives, including moving from a 6-day to a 5-day delivery schedule and reducing compensation and benefits, that USPS has proposed to meet a savings goal of $22.5 billion by 2016. This goal includes saving $4 billion by consolidating its mail processing and transportation network and reducing excess capacity as indicated in the table below. The Postal Regulatory Commission is currently reviewing USPS’s proposal to change delivery service standards.

Stakeholder issues and other challenges could prevent USPS from implementing its plan for consolidating its mail processing network or achieving its cost savings goals. Although some business mailers and Members of Congress have expressed support for consolidating mail processing facilities, other mailers, Members of Congress, affected communities, and employee organizations have raised issues. Key issues raised by business mailers are that closing facilities could increase their transportation costs and decrease service. Employee associations are concerned that reducing service could result in a greater loss of mail volume and revenue that could worsen USPS’s financial condition. USPS has said that given its huge deficits, capturing cost savings wherever possible will be vital. USPS has asked Congress to address its challenges, and Congress is considering legislation that would include different approaches to addressing USPS’s financial problems. A bill originating in the Senate provides for employee buyouts but delays moving to 5-day delivery, while a House bill creates a commission to make operational decisions such as facility closures and permits USPS to reduce delivery days. If Congress prefers to retain the current delivery service standards and associated network, decisions will need to be made about how USPS’s costs for providing these services will be paid, including additional cost reductions or revenue sources.

via U.S. GAO – U.S. Postal Service: Mail Processing Network Exceeds What Is Needed for Declining Mail Volume.