on Jun 27th, 2011 in Mail Processing & Transportation | 5 comments
 
The U.S. Postal Service has experienced a significant decline in mail volume in recent years, yet its contracted surface transportation remains largely unchanged. While mail volume dropped almost 16 percent from fiscal year 2008 to 2010, the Postal Service contracted out around 1 percent more miles of highway transportation over the same period. During the same time, the Postal Service has had considerable success minimizing the number of labor hours employees spend on mail processing. The following factors may have mitigated the effects on transportation from a volume drop: • Network Distribution Center restructuring. • Postal Service efforts to move more mail from air to surface transportation. • Postal Service efforts to sell the newly empty space to other shippers through a collaborative logistics program. Transportation represents the second largest cost component for mail delivery after labor, but the Postal Service has substantially more authority to cut contracted miles. The Postal Service could use its greater flexibility to end unnecessary contracts, alter necessary contracts, or redesign the system altogether. Highway transportation provides a strong opportunity for cost savings. What do you think of the current contracted surface transportation infrastructure? How would you adjust to new mail volumes? This blog is hosted by the OIG’s Risk Analysis Research Center (RARC).

5 Comments


The best way to reduce miles (and, more importantly, transportation costs) would be to allow Postal management some latitude in changing service standards. There are a few that are costly to maintain. Those should be downgraded, while others can be upgraded with minimal impact on costs. Current Postal service standards are based on outdated, decades-old, transportation options.

Yes, reviewing service standards is a must, but smart network management is another competence the Postal Service must seek. For instance, Deutsche Post will bypass outgoing processing at some originating plants (when volumes are low) and truck mail to other plants to consolidate outgoing volumes. In doing so, they save labor at the bypassed plants and benefits from economies of scale at the consolidation plants. Labor being more expensive than transportation (per unit worked or transported), this yields savings for them. The Postal Service's plant network is sufficiently dense that, by adopting a measure similar to that of Deutsche Post, service commitments would not suffer, even if unchanged.

In recent discussions with a former executive at UPS, he informed me that the cost of data capture and management had risen dramatically in their organization, because they run their business in near real time (network distribution decisions, hub staffing decisions, transportation mode assignment). But the payback has been that (1) they can operate at 99% service performance, and (2) overall operational costs are down....

As long as the current business model prevails at the Postal Service (i.e., one that makes up for cost contributions by increasing volumes, that are in a spiraling decline) there will be a compelling need to turn the organization into a knowledge-driven one. This is a difficult but necessary undertaking.

Pierre

What about charging different fees based on the distance the mail has to travel? Perhaps one fee for in-state and a higher one for out-of-state? I think we, as consumers, need to get used to the fact that our Government infrastructure also needs to turn a profit. If it means those that use the service have to pay more, then that's what we have to do. Lest we all lose the service.

The APWU, AFL-CIO Cape Cod Area Local compiled significant data to confirm this AMP study is nothing but a shameful attempt to benefit a few chosen individuals. From a logistical standpoint, the Wareham Annex is centrally located near major interstates. Route 195, 495, and 28 are all within one mile of our facility, including Routes 6 and 3 are within 5 miles. This clearly shows our facility can be a major component to the USPS financially. USPS continually searches for ways to improve customer service and strives in making good business decisions. Indisputably our geographic location shows we can increase our customer service; while at the same time reduce operating costs. So if the USPS is actually serious about true cost-effective changes, then this study should be primarily focused on the actual savings if the Brockton Facility was reclassified. Eliminating wasteful liabilities and taking hold of an actual asset is the real way to attain its greatest aspirations.

This blog article is comparing apples to oranges: total mail volume vs. highway miles. The increase in highway mileage is exactly what you would expect when you consider USPS's efforts to take mail off higher-cost air carriers and put on highway instead. This volume goes to highway carriers. Also, USPS's reductions in the number of major processing faciliites requires that the same volume of mail now travel longer distances to get to and from the fewer existing processing facilities.

A better inquiry could be made into whether the discounts that USPS offers for dropping mail at detination entry points fairly represents the actual costs avoided by USPS. In theory, the Postal Service should be able to transport mail from origin point to destination entry point at lower cost than any single mailer or consolidator, because USPS can consolidate all mail it receives whereas individual mailers only have their own mail or those of a smaller group of mailers. My guess is that USPS offers these discounts not because they represent actual transportation cost savings, but because it allows USPS to offer mailers discounts that lower total mailing cost. The better economic solution would be to simply give those mailers volume discounts, and let USPS transport the mail from origin to destination.

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