on Feb 16th, 2010 in Delivery & Collection | 11 comments
 

By Robert Cohen

Should the Postal Service pursue a last mile strategy? A strategy that emphasizes delivery and deemphasizes the retail, processing, and transportation functions which are outsourced explicitly or through pricing incentives. In some ways, the Postal Service is already pursuing a last mile strategy. Historically, the Postal Service has generally set worksharing discounts based on cost avoided. In other words, the discount is set at the amount of money the Postal Service saves if it doesn’t do the activity itself. If a presorter can sort the mail more efficiently than the Postal Service, it will choose to do so. This is good for society as a whole because it provides the lowest overall cost for end-to-end mail service. It also means that the Postal Service receives the same profit per piece whether it is workshared or not. The profit from the 80 percent of the mail that is workshared comes from delivery. A last mile strategy would mean that the Postal Service should extend worksharing to provide discounts for dropshipping bulk First-Class Mail. This would benefit many bulk First-Class mailers because the printing of their mail could be distributed around the country eliminating mail processing and transportation costs and delays. It would provide a greater incentive for First-Class mailers to use the delivery system, and research has shown that new worksharing discounts are highly stimulative to new volume. (See "The Effects of Worksharing and Other Events on U.S. Postal Volumes and Revenues" by Edward S. Pearsall available at www.prc.gov.) The introduction of dropship discounts in Standard Mail was associated with a large expansion of Standard Mail volume. The strategy would also imply that the Postal Service should move towards 100 percent passthrough for all its worksharing discounts and thereby reduce upstream costs to the mailers. Again, this would maximize the incentive to use the delivery network. In some cases discounts are not set at 100 percent of avoided cost because these discounts are not defined well and and they lead to anomalous results (e.g. Standard mail dropship discounts). The Postal Accountability and Enhancement Act of 2006 may have given the Postal Service the opportunity to adjust worksharing discounts so that they are less than avoided cost. Setting discounts that are smaller than avoided cost adds a small additional amounts of institutional cost contribution relative to the large amount included in the implicit price for delivery. It is, however, inconsistent with a last mile strategy because it increases upstream prices. Looking at the Postal Service more broadly, the strategy would encourage contracting out upstream activities that can be done at a lower cost than in-house. It may be that savings and service improvements could be generated by contracting out significant portions of the ground transportation network in a way similar to the FedEx air transportation contract. There are presorters in almost every large city that would be prepared to sort single piece and bulk letter mail. This would be most attractive in cities where the Postal Service’s processing productivity is comparatively low. Retail also deserves attention because much of this function could be contracted out. Selling some retail facilities and then contracting for retail services from the new owners could allow the full utilization of their commercial potential. Worksharing began as presorting in the 1970s and was a significant move in the direction of a last mile strategy because it allowed the bypass of some upstream activities. Over the years worksharing has been further developed so that it now encompasses almost all upstream activities. The result has made mail service in the United States a collaboration between the Postal Service, mailers, and third party providers. A rate structure was created around worksharing that put virtually all the institutional cost contribution of workshared mail in the implicit charge for the delivery function and the one thing the Postal Service reserves to itself is the delivery of mail to the mailbox. An explicit last mile strategy would simply be a continuation of the successful outsourcing strategy that began over thirty years ago. An unabridged treatment of this topic is available here. Mr. Cohen was the manager of the Mail Classification Research Division at the U.S. Postal Service from 1974 to 1978 when he joined the Postal Rate Commission, now known as the Postal Regulatory Commission. In 1979 he was named the director of the Commission's Office of Rates, Analysis and Planning. He retired from that position in 2005 and has been an independent consultant since then. DISCLAIMER: The views expressed in this post are solely those of Mr. Cohen and do not necessarily represent the views of the United States Postal Service or the Office of Inspector General. The U.S. Postal Service Office of Inspector General cannot guarantee the source, originality, accuracy, completeness, or reliability of any statement, data, finding, or opinion presented by this guest blogger.

11 Comments

The Postal Service is in the buggy whip business. Like any paradigm, the owner of the paradigm doesn't see it until it's too late.

The USPS, and the OIG that oversees it, all need to be privatized. It's all a bad joke. To mail I letter I have to drive miles to find a 'blue box'. Which genius had the brilliant idea of scrapping those?

It's too bad that the hard working Postal carriers will have to be affected, but great news that the bloated bureaucratic management in both organizations, will have to all go out and find real jobs where they have to work for a living.

I disagree with your comment about the Postal Service needs to be privatized. This non-profit organization does not use taxpayers funds to operate. The organization operates soley from stamps and USPS products. Some operations may need to be streamlined and updated for the 21st century. The organization should not be pre-paying health insurance to fund other government agencies for the United States government. These employees work hard especially those that started in the organization only making $2.15 per hour...delivering, distributing, and sortiung the mail. I believe so many people are ignorant about the situation at hand.

"but great news that the bloated bureaucratic management in both organizations, will have to all go out and find real jobs where they have to work for a living."
I hope your words ring true. I've never seen an organization with so many managers bumping into each other while trying to find something to do.

my town once had 32 collection boxes.then we now have 12. The ones that were removed ,were done so on orders from above. ONe common reason given to us is they were not generating enough letters. but of the 12, 5 sat in the alley behind the post office. this leaves 7 for the rest of town.now for the general public, where might you find a blue box in a strange town? other than at the front or rear of the post office(for obvious reasons), the next logical place to look is at the local court house if there is one.other than that, you probably would have to ask someone. ONE THING THAT HAS NEVER MADE SENSE TO ME IS THAT WE ARE TO PICK UP MAIL ATTHE IND HOUSES WHEN WE DELIVER THE MAIL DAILY, AND YET THIS TAKES TIME, BUT WE DON'T HAVE MORE BLUE BOXES BECAUSE THEY DON'T GENERATE ENOUGH VOLUME. IF THEY ARE GIVING ME THE TIME TO PICK UP LET'S SAY 400 INDIVIDUAL PIECES OF MAIL AT RESIDENCES, WHAT'S WRONG WITH ONE EXTRA MINUTE AT A BLUE BOX LOCATED ON MY ROUTE SOMEWHERE, THAT'S THERE FOR THE CONVENIENCE OF THE PUBLIC. BOTTOM LINE, YOU CAN'T SOAR WITH THE EAGLES WHEN YOU WORK WITH TURKEYS.

The writer really should do his homework first before spouting off how much the mailers are doing the Postal Service and the American People a favor.
According to Postal Service own figures as reported in:
A New Business Model for the United States Postal Service
November 20, 2009
We can barcode mail for $6 a thousand why are we giving workshare discounts at 10 cents a piece which is $100 a thousand? According to the same report we can manually sort the same mail for $86 a thousand. It would be cheaper for the Postal Service to sort the mail by hand!
If the Postal Service equipment can sort between 35 to 40 thousand pieces per hour that looks like a loss of $3200 dollars for every hours worth of mail that is processed through workshare discounts!

Daily in my station each carrier gets at least 300-400 pieces of bulk rate "presorted" mail, that will not conform to DPS standards because of size or thickness. They are tossed in tubs by the plant and are at our cases in the morning (no longer in sequence) for us to case individualy. Where is the savings to the USPS?

Good point! That's especially true when the mail has apartment #'s on them.

A number of years ago, Time Inc. experimented with DDU entry for our weekly magazines. The experiment involved 45 zip codes in Southern California. We learned a great deal. First, it's all about volume. You need significant volume to justify the truck expense for each DDU. Second, details are important. Not all DDUs can handle 53 foot trailers, so it's important to have an accurate database for each postal facility and schedule the trucks accordingly. There are other issues involving hours of operation for each DDU, available dock space, traffic, etc. This is not an easy business.

Valassis (formerly ADVO) has made DDU entry work for their business because of their high density. To make such a system work for other mailers, it would involve the development of local consolidation centers. Given the fact that the USPS already has such centers in place (SCFs), I suggest that the industry pursue a "last 10 mile strategy" (SCF entry) versus a last mile strategy (DDU entry). It will save everyone a lot of heartburn.

Here's one problem. A presorter may be able to sort the mail more efficiently than the Postal Service, but as an automation clerk, we run it whether it's in DPS (walk sequence) or not. It's integrated with the rest of the carrier's letter mail. So we're giving a discount to get it barcoded, carrier routed and walk sequenced...to just run it anyway? Twice for that matter.

It's interesting because in the UK the last mile is used as a way of keeping the postal service in State control although that may well change under the new coalition

There are doubtless cost savings to be made but I am inclined to agree with some of the previous commenters that the workers will go through the worry whilst it is all sorted out

This is the worst mess ever dumped on the consumer.

If you don't receive mail at your residence, no delivery, they will send it back. Even "Amazon" is using this USPS LAST MILE Service. SERVICE what a Joke!!!!

Waiting in line at the post office to be treated rudely then drag the shipment to the car.

Fed-X and United Parcel will harm themselves making a deal with the suto gov. USPS

Add new comment

This site provides a forum to discuss different aspects of the United States Postal Service and how it can be improved. We encourage you to share your comments, ideas, and concerns.

This is a moderated site—we will review all comments before posting them. We expect that participants will treat each other with respect. We will not post comments that contain vulgar language, personal attacks of any kind, or offensive terms that target specific individuals or groups. We will not post comments that are clearly off-topic or that promote services or products. Comments that make unsupported accusations will also not be posted.

We ask that reporters send questions to the USPS OIG Media Office through their normal channels and refrain from submitting questions here as comments. We will not post questions from reporters.

We recognize that the Web is a 24/7 medium, and your comments are welcome at any time. Given the need to manage Federal resources effectively, however, we will review comments and post them from 9:00 a.m—5:00 p.m Eastern Time, Monday through Friday. We will read and post comments submitted after hours, on weekends, or on holidays as early as possible the next business day.

To protect your own privacy, and the privacy of others, please do not include personal information or personally identifiable information such as names, addresses, phone numbers or e-mail addresses in the body of your comment.

Except when specifically noted, any views or opinions expressed on this forum (or any other forums available via an RSS feed) are those of the individual bloggers. The views and posted comments do not necessarily reflect those of the U.S. Postal Service Office of Inspector General, or the Federal government.

Thank you for taking the time to read this comment policy and disclaimer. We plan to blog weekly on as many emerging new media topics as possible. We encourage your participation in our discussion and look forward to an active exchange of ideas.