on Dec 12th, 2008 in Mail Processing & Transportation | 28 comments
 

The Postal Service moves mail using planes, trains, trucks, cars, boats, ferries, helicopters, bicycles, hovercrafts, subways and even mules.  It operates the largest civilian vehicle fleet in the world with more than 219,000 vehicles.  Its fleet of trucks drives nearly 4.1 million miles and uses more than 400,000 gallons of fuel daily.  To put this in perspective, when fuel costs increase by one penny, the cost to the Postal Service increases by more than $8 million annually.

The expense of providing this transportation infrastructure is staggering.  In 2007, it cost the Postal Service $6.5 billion — mostly for air and highway transportation.  This was an increase of 7.6 percent compared to 2006.  Yet mail volume has recently suffered a sharp decline.  If volume declines continue, the Postal Service could find itself operating and funding a transportation network that cannot be efficiently sustained.

How can the Postal Service’s transportation network make the best of mail volume declines?  What are the most promising opportunities to reduce transportation costs?  For example, should the Postal Service

  • Develop partnerships with other businesses that transport goods?
  • Reduce highway transportation routes that overlap?
  • Continue to eliminate underutilized trips?
  • Make more use of other, less costly forms of transportation such as rail or maritime?
  • Reduce its reliance on air transportation or shift volumes among carriers to ensure the lowest cost is obtained for responsive service?
  • Relax the delivery timeframe standards?

What do you think?

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28 Comments


My thought is that the USPS could cut out at least one delivery day (IE: SAT) thus saving hours, pay , gas and fleet usage. I am sure we could live two days a week with out mail. Otherwise, you could pick a week day to not operate.
Thanks Robert

I agree that Saturday would be the day to drop.

I'm sorry, but I don't buy the one cent increase in fuel prices costs $8 million nonsense. I have never seen a competent analysis which shows how this was calculated and it seems too high. In the past, I saw different numbers until this version of Kool-Aid was sent out.

Also, now the price of gas has declined by $2.35. Why isn't this described as a one cent change impacts fuel prices by $8 million? Why isn't this figure being trumpeted today at USPS? By my simple calculation, the recent decline in fuel prices has saved the Postal Service $1,880,000,000 (235 * 8 million) - or almost $2 BILLION! I can't see why there would be financial problems given this financial windfall. I have to call BS on this whole thing. Show me the money!!

I agree wholeheartedly with the Professor. I don't believe the $8 million per one penny fuzzy math. The Postal Service ought to lock in these relatively attractive rates before the price of fuel goes up.

Professor,
I too have wondered why the postal service has not mentioned the money that they didn't have to spend on gas since the price has plummeted. Possibly because they are eyeing the next spike which is on it's way.
I emailed Link about the alternative energy vehicles they were talking about and was assured that the testing was ongoing.
My opinion on that is that they are going too slow. The more alternative energy vehicles we use the less gas we use and the more money is saved on it's purchase. I also think that with the size of the fleet that we own; we ought to be a leader in R & D and be pushing the envelope with most of the fleet, if not all of the fleet being alternative fuel driven.
Some one (organization, business) has to have a breakthrough in alternative fuels that will work for the masses and why shouldn't it be USPS?

Weren't there some articles about the Postal Service buying flexible fuel vehicles and using regular gas in them? How can we be sure the Postal Service actually gets the benefits from alternative energy vehicles?

(shrug) I'm just going by what I read and an email conversation with the editor of link.

BMEU Clerk, you're absolutely right that the Postal Service could make a real difference if it focused on alternative energy. After all, the post office has supported the development of so many industries in the U.S. such as aviation.

The answer is: Implement dropship rates for bulk First Class. Mailers will do a very efficient job of getting the mail to its destination, and you just take it out. Mailing costs will be low. Volume will be high. And you don't have to transport it at all.

But my understanding is that most bulk First Class is local by nature -- for example, local utilities sending bills to and receiving payments from local customers. So there may not be significant cost savings opportunities with dropshipping rates for bulk FCM.

My understanding is the same, Radix.

The question to which we are responding refers to heavy transportation costs of all kinds and asks what can be done about it. Possibilities suggested in the question are to reduce the use of air and to reduce service standards.

The Postal Service stopped developing average haul information for the subclasses in the mid 1980s. This may not have been a good idea. In FY2007, the long-haul transportation costs (omitting local transportation such as most intra-SCF, all vehicle service drivers, and all carrier vehicles) for First-Class letters was $1.4 billion. Of this, $736 million was for air, which is only used when an overnight truck cannot get it there. Most of the rest is long-haul highway. In addition to transportation costs, there are handling costs associated with distance, as the mail is loaded and unloaded, transferred around, and containers are sorted.

These figures suggest that a great deal of First Class is non-local. Many banks and insurance companies mail nationwide from one point. Even local utilities have no incentive to take their mail to an SCF near its delivery points.

We have limited dropship discounts in Periodicals and a very great deal of it is now entered at destination facilities. Mailers not only do an effective job of getting it there, they deal with their service needs at the same time. More could be done here.

Dropship discounts for Standard Mail (formerly third class) were implemented in 1990. The proportion that is destination-entered has grown phenomenally. Sometimes printing can be done near the destination so no transportation at all is needed. This also allows the rates to be more competitive. Service is also often important. More could be done here too. Mailers get the same discount amount for driving the mail 200 miles as they do for driving it 2,500 miles. Also, 1 truck of lightweight pieces gets the same discount amount as 4 trucks of heavier pieces. The situation is not good, but it is much better than in 1990.

In First Class, the signals in the rates are poor. The rates say to a New York mailer: You can print it in California if you want to; we will carry it back on a big airplane, at no additional cost to you. Also, the Postal Service adheres to high service standards even when the mailer does not require rapid service.

The position of the Postal Service has been that there is a high return on investment for the delivery point sequencing equipment and that the equipment allows low carrier costs. If this is the case, the cost of completing delivery for letters dropshipped to the DPS machine should be the lowest thing around. If these costs are recognized in rates, mailer costs should be low, even after doing an efficient job of getting the mail to the destination. This would help keep volume up and would serve the nation well, which should be the goal.

This is quite informative. Thanks.

I am not opposed to more worksharing opportunities and better incentive pricing for FCM. I just did not think they were much opportunities in dropshipping. But you suggest otherwise. I hope you're right. Given the current declining mail volume situation, perhaps it is high time to revamp strategically the whole FCM pricing structure to incorporate more worksharing, specifically more dropshipping opportunities. while the Postal Service goes about rethinking strategically its Bulk-FCM pricing structure, they need to reconsider the amount of automation discounts they are currently offering and whether they make sense economically and strategically. But I am getting off topic here. Thanks again for the post above. I found it informative.

rmit,
I don't know that drop shipping first class is the answer. As a BMEU clerk I am at a low level and I don't think that the volume would be there. I too think that our volume is tied to economics. I am able to spend some time doing this, because our volume is down.
Something I've always have heard is that a business must advertise in all economic conditions to survive. Especially in bad economic conditions. The idea is to keep your name out there so that people will think of you when they are ready to spend.

Volume is certainly affected by the economy. But we cannot change that. We can only deal with other things.

Also, if doing it on the Internet costs 1 cent and the mail is 42 cents, reducing the rate for the mail by a few cents is not going to change things much. Still, we should do what we can to make the mail effective.

We must leave the advertising to the marketing people, and hope they are good. An old friend of mine used to say: Encouraging people through advertising to use more mail is like encouraging people through advertising to breathe more air. They will breathe the amount that is efficient for them, and they will quit at that, no matter how much advertising you do. There is no one around that does not know that the Postal Service is available.

Dropship First Class is not "the answer." The question is whether it will help make a more effective Postal Service and a more efficient Postal Sector. The average mailer is much larger and much more capable than he was a few decades ago. Technology is to the point where mail can be sent electronically to its destination, printed, given to the Postal Service, and taken out. The Options should be given and mailers should work on it.

I also agree that dropshipping First Class Mail (FCM) is not the answer; however, the efficiency argument is most compelling. I can't think of a reasonable policy argument against dropshipping bulk FCM. The question then becomes not should the Postal Service offer dropshipping, but why shouldn't the Postal Service offer dropshipping. Is there a good answer? If discounts are based on sound economics, everybody, even those who don't mail FCM, wins.

Does anybody with instituional knowledge know why dropshipping for FCM has not been suggested before? Thanks.

Dropship FCM has been thought of many times by many people over many years. It is anathema to USPS. But as a larger and larger proportion of the mail is sent by large, sophisticated mailers, and as these mailers become more effective in what they can do, the issue just becomes more important.

The opposition is probably three fold. First, it does not want a nationwide network with v. little mail on it. Second, it does not want to face the unions who do not want a reduction in employment levels. Third, heads of large organizations usually feel like bigger is better--I want many people reporting to me, I want a bigger staff, I want more power, I want more influence, and so on.

The problem is that none of these reasons are any good, particularly in the long run. The discounts would probably be small at first and would be based on avoidable costs. If you can avoid 2.5 cents and you give a discount of 1 cent, then you save 1.5 cents each time a piece becomes dropshipped. The network has to be adjusted over time. Further, some studies show diseconomies of scale, so a smaller, tighter network might even be better. As far as labor goes, we don't need constraints that are essentially make-work schemes. It has been understood for 100 years that an economy does not advance by keeping jobs that are not needed. As far as wanting a bigger staff goes, that is a bad reason from the start.

Different people have different versions of how we got started on other kinds of worksharing. The truth probably is that the Rate Commission pushed it and the Postal Service came in kicking and screaming. Now, however, the Postal Service takes credit for it and points out how much better off we are with it.

I think that first class mail is going to eventually go away. People are not writing letters. They are paying their bills on line. If it wasn't for greeting cards it would be on a respirator right now.
We must advertise and tighten belts. Service needs to be number one. One thing I have noticed with scans of tracking. Our carriers and plants don't buy into it. I have sent packages out with tracking and it will be scanned in on purchase and nothing else. With UPS, I can get several scans a day from departure to arrival. It this keeps up, we'll be the dinosaur and be S.O.L.
Also upper level management has to start doing things to get people to retire or move on. We are too top heavy. Like the auto industry we need to retool.

I totally agree with you on your idea. Management does not recognize and punish carriers accordingly. There are carriers that are misdelivering mail on a daily basis and got so many complains from customers and management do nothing about that.

i get the wrong mail many times a month.

Hi, I found the above discussion informative but the track it took on drop shipping bulk First-Class is a minor one. Sure, generating new mail volume at lower costs is just what the Postal Service needs to do, but maybe the big picture question should be "If mail volume continues to decline due to the internet,etc. what kind of future, downsized postal service is the US going to end up with - or what kind of future downsized postal service do we want to establish?"

Drop shipping first class isn't the answer. Being lean and mean, developing new products, and reducing the size of the company are what is important. Service, service, service, like location, location, location. If we don't provide the service, people will pay more to our competitor because service is number one. The non reliability of package delivery has me thinking about switching over to our competitor.

This is a great discussion!!! Now, my 2 cents on how to reduce transportation cost. Basic business strategy: when revenues decrease, expenses MUST also decrease...unless the company wants to go out of business. I know the Postal Service can focus on increasing revenues, which is a great idea, but the bleeding has to stop also.

Now, not knowing the background of why there are transportation routes that overlap or are underutilized, my initial suggestion is to immediately stop the bleeding by eliminating both of these situations.

In addition, although it may be difficult to reduce the reliance on air, airline carriers are also suffering financially and transporting mail may not be all that bad. If the Postal Service has not already done so, it should develop air carrier delivery standards and hold the airline carrier financially accountable when it does not meet those standards...this could be another stream of income (that's a joke).

I also disagree with relaxing delivery timeframe standards...although the mission is to deliver the mail...the competitive edge is to deliver the mail timely!

I think the Postal Service needs to take advantage of the fact that they visit, or at least pass every house every day. From utility companies needing meters to be read to marketing companies wanting to know the type of car parked in the driveway. I believe the Postal Service could provide valuable information to companies who would be willing to pay for this type of service.

Using the numbers above, a 1 cent increase in fuel is actually $1.25 million per year, not $8m. The bigger question is why is the fleet using vehicles that get 10.5 mpg. The average truck in your fleet does about 19 miles per day, which makes it the perfect candidate for electric. Phoenix Motors and Coda Automotive would be good fits for the USPS.

I think the postal should do ALL of the things mentioned in the original post. Why is it even an issue? Heck, if we could trust people, we could also use every day citizens to move bulk mail.

The OIG needs to examine transportation schedules. The closing of some BMC's and other offices has caused trucks to not be needed but the PostaL Service has not adjusted the truck schedules. Trucks are driving empty. Many other schedules have trucks scheduled one on top of another causing the second trucks to have no mail to carry. The biggest problem is late trucks--late for no reason, then the same contractor being paid for an additional trip because the first one caused late dispatch.

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