GAO: Ending Saturday Delivery Would Reduce Costs, but Comprehensive Restructuring Is Also Needed
The United States Government Accountability Office issued the following report today:
USPS’s proposal to move to 5-day delivery by ending Saturday delivery would likely result in substantial savings; however, the extent to which it would achieve these savings depends on how effectively this proposal is implemented. USPS’s $3.1 billion net cost-savings estimate is primarily based on eliminating city- and rural-carrier work hours and costs through attrition, involuntary separations, or other strategies. USPS also estimated that 5-day delivery would result in minimal mail volume decline. However, stakeholders have raised a variety of concerns about USPS’s estimates, including,
First, USPS’s cost-savings estimate assumed that most of the Saturday workload transferred to weekdays would be absorbed through more efficient delivery operations. If certain city-carrier workload would not be absorbed, USPS estimated that up to $500 million in annual savings would not be realized.
Second, USPS may have understated the size of the potential mail volume loss due to questions about the methodology USPS used to develop its estimates of how 5-day delivery may affect mail volumes.
The extent to which USPS can achieve cost savings and mitigate volume and revenue loss depends on how well and how quickly it can realign its operations, workforce, and networks; maintain service quality; and communicate with stakeholders. USPS has spent considerable time and resources developing plans to facilitate this transition. Nevertheless, risks and uncertainties remain, such as how quickly it can realign its workforce through attrition; how effectively it can modify certain finance systems that cannot be changed until congressional approval for 5-day delivery is granted; and how mailers will respond to this change in service. Further, uncertainties remain as factors other than delivery frequency—e.g., price increases—can also affect mail volumes and revenues.
USPS’s proposal involves several factors that need to be considered. It would improve USPS’s financial condition by reducing costs, increasing efficiency, and better aligning its delivery operations with reduced mail volumes. However, it would also reduce service; put mail volumes and revenues at risk; eliminate jobs; and, by itself, be insufficient to solve USPS’s financial challenges. USPS’s role in providing universal postal services can affect all American households and businesses, so fundamental changes involve key public policy decisions for Congress. If Congress decides 5-day delivery is necessary, then Congress and USPS could factor the savings into deliberations about what package of actions should be taken to restore USPS’s financial viability. Conversely, if Congress maintains the mandate for 6-day delivery, Congress and USPS would need to find other ways to achieve equivalent financial savings, so that the package is sufficient to restore USPS’s financial viability. This would likely entail difficult decisions with broad implications for USPS’s infrastructure, workforce, and service. As GAO has reported, a package of actions by Congress and USPS is urgently needed to modernize USPS’s operations, networks, and workforce.
GAO: Ending Saturday Delivery Would Reduce Costs
GAO: Foreign Posts’ Strategies Could Inform USPS’s Efforts to Modernize
The Government Accountability Office (GAO) released the following report:
Why GAO Did This Study:
The foreign postal operators (foreign posts) in industrialized countries in GAO’s review have been experiencing declining letter mail volumes and have modernized their delivery and retail networks to address this challenge. As requested, GAO reviewed the innovations and initiatives that foreign posts are using and the lessons the U.S. Postal Service (USPS) might learn to help it address plummeting mail volumes and record financial losses.
This report examines initiatives foreign posts have implemented to improve mail delivery and retail networks and related results, and modernization strategies used by foreign posts that can inform consideration of proposals to improve USPS’s financial condition and customer service.
GAO selected foreign posts in Australia, Canada, Finland, Germany, Sweden, and Switzerland as case studies based on characteristics, such as delivery and retail changes and country size and location. GAO reviewed foreign posts’ documents, including annual reports and strategic plans related to delivery and retail network changes and innovations. GAO met with foreign post officials, toured their retail facilities, received briefings on their delivery and retail networks and other areas, and met with regulators, labor unions, and mailers to obtain their views on the effects of their posts’ modernization efforts. USPS generally agreed with GAO’s findings and mentioned both its own modernization efforts and the barriers it faces.
What GAO Found:
The foreign posts GAO reviewed have developed alternative delivery choices for customers that, according to the posts, have reduced costs and improved customer satisfaction and service. All of these posts now offer digital (purely electronic) or hybrid mail (a blend of physical and digital) options. Some posts offer parcel pick up at retail facilities like grocery stores, which are open longer than post offices, and are often owned and operated by businesses that partner with the posts, thus reducing costs. One post allows customers to pick up parcels from a publicly-located machine, or parcel locker, that is available 24 hours a day.
The selected foreign posts have modernized their legacy brick and mortar retail networks in response to customers’ changing use of the mail. For example, they have expanded retail access through alternatives such as Internet sales and partnerships with retail businesses such as grocery stores or pharmacies, while reducing the number of post-owned and -operated facilities (see figure). According to all of the posts, retail modernization has either (1) improved customer service, in some cases because the partner stays open longer, or (2) reduced operating and labor costs, by closing post-owned and -operated facilities, or both.
It must be pointed out:
USPS is facing similar challenges as other industrialized nations’ posts. For example, USPS has a brick and mortar retail infrastructure it cannot afford to maintain. However, USPS currently manages more retail outlets–approximately 32,500–than all of the foreign posts we reviewed combined. In addition, USPS has twice as many delivery points as any foreign post we studied–USPS delivers to 151 million homes, businesses, and post office boxes.
USPS Still On GAO’s High Risk List
Filed under: GAO, outsourcing, postal, postal news, postal reform, usps
The Government Accountability Office’s (GAO) today released its biennial “High Risk Series” report. The report identifies those agencies most at risk of waste, fraud, abuse, mismanagement, or in need of reform. The U.S. Postal Service’s long-term outlook remains on the GAO’s high-risk list.
The GAO first placed USPS on the high-risk list in April 2001 because of the growing risk that it would be unable to continue providing universal postal service at reasonable rates while staying self-supporting through postal revenue. In 2007, GAO removed USPS from the High-Risk List in part due to its implementation of Strategic Transformation strategies and passage of the Postal Accountability and Enhancement Act of 2006. However, two years later “In July 2009, GAO added the U.S. Postal Service’s (USPS) financial condition to the list of high-risk areas needing attention by Congress and the executive branch to achieve broad-based restructuring. Amid challenging economic conditions, a changing business environment, and declining mail volumes, USPS is facing a deteriorating financial situation which it does not have sufficient revenues to cover its expenses and financial obligations.”
The report included the usual in its “Strategies and (USPS) Options to Facilitate Progress Toward Financial Viability” by: Reduce wage costs by creating a two-tiered pay system; use more part-time staff; reduce benefit costs by reducing USPS health and life insurance contribution rates for active employees to levels comparable to those paid by other federal agencies. The GAO report also listed “outsourcing” as an option for reducing USPS workforce size. But in July 2008, GAO released a report titled “Data Needed to Assess the Effectiveness of Outsourcing,” GAO noted:
“Without cost-savings data, postal managers, stakeholders and Congress cannot assess the risk and value of outsourcing.. To determine the effectiveness of postal outsourcing, improve management accountability and support congressional oversight in this area, we are recommending that the Postmaster General should establish a mechanism to measure the results, including any savings, of outsourcing initiatives that are subject to its collective bargaining agreements and better inform Congress by including these results in its annual operations report to Congress. The Service generally agreed with our findings and our first recommendation. However, it did not commit to implementing our second recommendation to provide Congress with information about the results of its outsourcing initiatives, which we continue to believe is necessary to support congressional oversight.”
So, GAO was unable to justify the cost-savings of outsourcing but yet its an “option” to “Faciliate Progress Toward (USPS) Financial Viability?”
Other Highlights of the GAO report on USPS:
Mail volume has declined from 213 billion pieces in fiscal year 2006 to 1 billion pieces in fiscal year 2010—a decline of about 20 percent. USPS expects mail volume to decline further to about 150 billion pieces by 2020.This trend exposes weaknesses in USPS’s business model, which has relied on mail volume growth to help cover costs. USPS actions to improve its financial condition have been limited in part by statutory and regulatory requirements, such as those related to closing unneeded facilties.
USPS cannot fund its current level of service and operations from its revenues and urgently needs to restructure to reflect changes in mail volume, revenue, and use of the mail. Although USPS reports $12.5 billion in cost savings since fiscal year 2006, it has not been able to cut costs fast enough to offset the large decline in mail volume and revenue – particularly costs related to its workforce, retail and processing networks, and delivery services the GAO said. Further,its revenue initiatives have had limited results. USPS can borrow up to $3 billion from the Treasury annually but expects to reach its statutory $15 billion borrowing limit in fiscal year 2011. USPS must align its costs with revenues, generate sufficient funding for capital investment, and manage its growing debt.
In March 2010, USPS issued a 10-year Action Plan, as suggested by GAO when it added USPS to its High-Risk List that included actions for Congress and USPS to take to achive financial viability. The plan included:
- restructuring its retiree health benefits payments,
- eliminating Saturday delivery,
- expanding access to retail services,
- establishing a more flexible workforce,
- and expanding products and services.
In April 2010, GAO reported on strategies and options for USPS to generate revenues, reduce costs, and increase efficiency (GAO-10-455). Options included
- reducing compensation and benefit costs—which constitute about 80 percent of expenses—and
- optimizing networks to eliminate excess capacity
Several bills introduced in 2010 included provisions for congressional action to restructure USPS’s benefit payments and address barriers to implementing USPS’s Action Plan. These bills were not enacted.
What Needs to Be Done
Congress needs to approve a comprehensive package of actions that would improve USPS’s financial viability by:
1. modifying its retiree health benefit cost structure in a fiscally responsible manner
2.. facilitating USPS cost reduction, such as by modernizing and optimizing postal networks and its workforce;and
3. requiring any binding arbitration in the negotiation process for USPS labor contracts to take USPS’s financial condition into account.
read the full report Restructuring the U.S. Postal Service To Achieve Sustainable Financial Viability
GAO: Mail Processing Network Initiatives Progressing, and Guidance for Consolidating Area Mail Processing Operations Being Followed
Deteriorating financial conditions and declining mail volume have reinforced the need for the U.S. Postal Service (USPS) to increase operational efficiency and reduce expenses in its mail processing network. This network consists of interdependent functions in nearly 600 facilities. USPS developed several initiatives to reduce costs and increase efficiency; however, moving forward on some initiatives has been challenging because of the complexities involved in consolidating operations. In response to a conference report directive, GAO assessed (1) the overall status and results of USPS’s efforts to realign its mail processing network and (2) the extent to which USPS has consistently followed its guidance and applied these criteria in reviewing Area Mail Processing (AMP) proposals for consolidation since the beginning of fiscal year 2009. To conduct this assessment, GAO reviewed USPS’s Network Plan, area mail processing consolidation guidance and proposals as well as other documents; compared USPS’s actions related to consolidation of area mail processing facilities with its guidance, and interviewed officials from USPS, the USPS Office of Inspector General, and employee organizations. GAO provided USPS with a draft of this report for comment. In response, USPS provided technical comments that were incorporated where appropriate.
USPS has realigned parts of its mail processing network since the beginning of fiscal year 2009 and continues to seek additional opportunities to achieve its goal of creating an efficient and flexible network and realize cost savings. Specifically, USPS:
(1) eliminated all functions of the Airport Mail Centers, closed 9 of these facilities, and now uses the remaining 12 for other purposes, resulting in a realized cost savings of about $12.2 million in fiscal year 2009;
(2) reorganized the functions of the 21 Bulk Mail Centers into newly developed Network Distribution Centers, resulting in a realized cost savings of about $17.7 million in fiscal year 2009; and
(3) implemented 23 proposals to consolidate AMP operations and facilities and approved another 6 AMP consolidation proposals. USPS estimated an annual cost savings of about $98.5 million for the 29 approved and implemented AMP proposals.
Additionally, USPS officials stated that they plan to integrate the Surface Transfer Center functions into the Network Distribution Center network to further eliminate redundancy in transporting mail. USPS has developed specific program targets for the ongoing reorganization efforts of the Network Distribution Centers and estimated a cost savings of about $233.8 million for fiscal years 2010 and 2011 from reduction in work hours and transportation costs.
On the basis of GAO’s analysis of 32 AMP proposals that were implemented, approved, or not approved since the beginning of fiscal year 2009, USPS has followed its realignment guidance by completing each step of the process and consistently applying its criteria in its reviews. GAO’s analysis found that it took about 6 months on average–a month more than USPS’s target of 5 months–to complete the review process from initiating an AMP proposal to making a decision. USPS officials noted the importance of the AMP decisions and the need to sometimes take longer than what the guidance suggests to ensure the correct decision. GAO also found that USPS consistently notified stakeholders when key steps of the AMP process were completed, such as when an AMP proposal was initiated, or public meetings were held. For each of the AMP proposals that GAO reviewed, USPS also consistently evaluated its four criteria related to AMP consolidations: (1) impacts on the service standards for all classes of mail, (2) issues important to local customers, (3) impacts to USPS staffing, and (4) savings and costs associated with moving mail processing operations.
NALC: GAO Report Attacks Postal Labor, Stiffs Congress
Statement of NALC President Fred Rolando on the GAO Report
U.S. Postal Service: Strategies and Options
to Facilitate Progress toward Financial Viability
April 13, 2010
The Government Accountability Office was directed by the Congress in 2006 to produce a report by December 2011 “evaluating in-depth various options and strategies for the long-term structural and operational reforms of the United States Postal Service.” GAO was instructed by Congress in the Postal Accountability and Enhancement Act to make recommendations regarding how the “Postal Service’s business model can be maintained or transformed in an orderly manner that will minimize adverse effects on all interested parties and assure continued availability of affordable universal postal service throughout the United States.” The directive in the law also said: “The Government Accountability Office shall not consider any strategy or other course of action that would pose a significant risk to the availability of affordable, universal postal service throughout the United States.”
The Congress outlined, in detail, what it ordered GAO to do, and how to do it.
GAO ignored Congress.
Instead, it delivered an obviously hurried and haphazard audit report. GAO virtually ignored the most critical ingredient in the Postal Service’s current financial squeeze, the $5.5 billion per year payment, imposed by Congress in 2007, to pre-fund retiree health obligations. And its conclusion that the USPS business model was not viable was based on the false premise that the USPS has not been able to cut costs as much as its revenues have declined in recent years. In particular, the report states that “USPS lost $12 billion over this period [2007-2009], despite achieving billions in cost savings, reducing capital investments, and raising rates.” But this assertion is completely misleading. It glosses over the critical fact that if it were not for the excessive pre-funding payments, the USPS would have been profitable over the past three years—USPS prefunding payments totaled $12.4 billion over the past three years, more than accounting for the $11.7 billion in reported losses. In fact, the Postal Service has been able to adjust its costs to a decline in its revenue—a decline resulting from the worst recession in 80 years, which the GAO soft-pedals as a simple “economic downturn.”
Instead of the report requested by Congress, GAO has issued a full-throated attack on collective bargaining, our contractual COLA clause, our contractual limits on contracting out, our contractual protections of full-time career positions.
GAO outlines a series of disastrous future options, including moving part or all of USPS to “a private corporate model;” increasing “the percentage of part-time employees, who could work more flexible schedules” and allow the USPS to flexibly adjust to workload, “which varies greatly depending on the day of the week and the time of the year;” and changing the law’s interest arbitration rules to put a thumb on the scale for the Postal Service.
Rather than conducting the five-year “in depth” detailed review and analysis of this key national institution that Congress directed, GAO “conducted this performance audit from August 2009 to April 2010 in accordance with generally accepted government audit standards.” (p. 3). An “audit,” not an “in-depth” evaluation. But even with that crabbed green eyeshade view of its mission, GAO cut corners: “[W]e did not assess the reasonableness of these projections [retiree health valuations] or OPM’s actuarial assumptions and methodology. We utilized OPM’s valuation results to analyze the financial impacts of selected options for funding USPS’s retiree health benefit obligations. We did not assess the validity of USPS’s financial and mail volume projections due to time and resource constraints.” (p. 2).
The problem with this quick once-over approach is that it is precisely OPM’s “actuarial assumptions and methodology” that are at the heart of a dispute between the USPS Office of Inspector General and OPM over whether the USPS has been over-charged by $75 billion in pension costs—funds that could be returned and transferred to the Postal Service Retiree Health Benefits Fund to relieve the USPS of the need to make crushing pre-funding payments. If the OIG is right (and NALC believes OIG is right), that $75 billion cures USPS’ principal financial problem … and then some.
And it is precisely the validity of USPS’s “financial and mail volume projections” that define the extent of the long-term challenge facing the USPS and establish what the future needs may be. To simply accept USPS projections—notoriously and regularly off-target—due to “time and resource constraints” is simply irresponsible—not what Congress ordered, and not what the public interest requires.
The media’s appetite for news of any threatened disaster being what it is, the GAO report will make an initial big splash.
But it is Congress, not the news media or the GAO, that will decide whether the Postal Service is worth saving, and how.
And it is the NALC that will spare no effort in bringing the truth—and the real data—to the Congress for its deliberation. And it is NALC’s membership that will rise to the challenge to make sure that the real public, their patrons, and the mailers, know the facts and act on them. The country deserves nothing less.
source: National Association of Letter Carriers
Sen. Carper: GAO Report Confirms Major Changes Needed To Save Postal Service
WASHINGTON (April 12, 2010) – Sen. Tom Carper (D-Del.), chairman of the Senate subcommittee with oversight authority over the U.S. Postal Service, issued the following statement in response to the Government Accountability Office’s report on the Postal Service’s proposals to reduce costs and streamline operations while protecting universal service:
“I applaud GAO for expediting the release of this critical report on the future viability of the U.S. Postal Service.
“The report confirms what many of us who closely follow postal issues have learned in recent months – that major changes are needed if we expect the Postal Service to continue providing the products and services that so many Americans depend on.
“At one point in the report, GAO suggests that the current recession may have been a ‘tipping point’ of sorts that encouraged many of the Postal Service’s most valuable customers to more aggressively seek out alternatives to hard-copy mail. If that is true – and the volume projections that the Postal Service released at the beginning of March tell me that it just might be – it is imperative that Congress, postal management, postal employees, customers and other stakeholders give up on old fights and biases and work together to cut the Postal Service’s costs and adjust its operations to meet a changing environment. Everyone knows the steps that need to be taken. The options have been laid out again by GAO. We just need to take them.
“Last month, the Postal Service stated that it would suffer cumulative losses of more than $230 billion by 2020. But the truth is that the Postal Service’s finances are in such poor shape that there is a risk that it could run out of cash and borrowing room by mid-2011 – even if Congress provides last-minute financial relief this year like it did at the end of FY09. This could result in a shutdown in mail services, something that I find completely unacceptable.
“It is my hope, then, that the Postal Service come forward soon with a detailed plan of the steps it plans to take in response to the GAO findings and the information it released last month. Congress and the Postal Regulatory Commission must move swiftly to deal with their part of this – starting with the Commission’s consideration of the proposal the Postal Service has already made to save more than $3 billion per year by eliminating Saturday delivery.”