The U.S. Postal Service has aggressively moved to reduce costs by consolidating its processing network and realigning its delivery facilities. However, it has essentially eliminated rail transportation, which is the least costly way to move mail long distances. During the recent economic downturn, railroads invested heavily in infrastructure to improve service. Private industry shippers of time-sensitive materials have responded to these improvements by shifting volume from highway to rail. UPS (the largest rail customer in the U.S.) attempts to put any package traveling over 750 miles on rail. JB Hunt, one of the Postal Service’s largest highway contractors, has shifted a substantial freight volume to rail and now earns more than one-third of its overall revenue from intermodal rail transportation. The potential benefits to the Postal Service are clear. Rail is a less expensive and more environmentally friendly transportation mode compared to trucking. Recent estimates show that intermodal rail service can improve fuel efficiency by about 3.5 times relative to highway tractor-trailer service. In addition, rail gives the Postal Service more capacity flexibility as this mode can operate one-way, while highway transportation must be purchased in round-trips. Since Postal Service volumes tend to flow from north to south and east to west, utilizing rail would avoid the cost of paying for empty or near-empty trucks on the return trips. Rail is also far less susceptible to the weather interruptions that can wreak havoc on highways. The shift to rail, however, is not without its drawbacks. On average, rail is slower than highway transportation. It would also require greater monitoring and pre-planning and complex decision-making by management. For example, the Postal Service would need to choose when to dispatch to rail yards versus alternatives such as dispatching a highway trailer to a network distribution center or other consolidation points. Although it would require some additional efforts, the potential savings to the Postal Service of converting from highway to rail could be tremendous. While concerns related to speed of service moved the Postal Service almost completely away from rail, other shipping companies are embracing rail with vigor. This blog is hosted by the OIG’s Risk Analysis Research Center (RARC).
on Sep 5th, 2011
in Mail Processing & Transportation
| 5 comments
on Aug 18th, 2011
in Mail Processing & Transportation
| 31 comments
The U.S. Postal Service’s network was designed to deliver First-Class Mail in 1 to 3 days. If you drop a First-Class letter going to a local address in the mail, you can expect it to be delivered the next day. These basic delivery standards date from a time before e-mail and other electronic methods of of communication. Now, as some First-Class Mail shifts to electronic alternatives, are these service standards worth the cost? The overnight First-Class Mail service standard requires the Postal Service to keep its processing plants open through the night and on Sundays. The Postal Service needs more labor, machines, and facility space to meet the compressed time schedule. Two trips are often needed to take mail to the delivery unit so that carriers can start sorting manual mail while machines at the plant finish sorting automated mail. In addition, the tight transportation windows required by the overnight service standard limit the size of plants’ service areas, reducing the Postal Service’s ability to consolidate the network. The 2-day and 3-day standards for First-Class Mail and Priority Mail can also add to costs. Often the need to meet service standards means that First-Class Mail and Priority Mail have to travel by air rather than less expensive ground transportation. Some of the Postal Service’s largest business mailers have stated they value consistency over high speed and would tolerate slightly slower service to save costs. As the Postal Service examines many different alternatives to improve its financial position, could relaxing service standards be an option? The OIG asked Christensen Associates to examine the costs that could be avoided by relaxing service standards by 1 day. Christensen estimated the Postal Service could save up to $1.5 billion if service standards were loosened by 1 day for its higher speed products (First-Class Mail, Priority Mail, and Periodicals). To learn more, read the recently released white paper Cost of Service Standards. What do you think? Should the Postal Service relax the overnight service standard? Should it continue to use air transportation for First-Class Mail? This blog is hosted by the OIG’s Risk Analysis Research Center (RARC).
on Aug 15th, 2011
in Products & Services
| 18 comments
In today’s world we have the opportunity to do just about anything with just the click of a mouse and a few key strokes. Recent studies show online retail sales continuing to grow despite the economic slowdown and decline of overall retail sales. A previous blog, Could Radio Frequency Identification Make the U.S. Postal Service the Premier Delivery System, stated, “Last year Americans spent $155.2 billion shopping online. This year Americans are projected to spend more than $190 billion.” Purchases made online have to be shipped and this provides a great opportunity for the Postal Service to increase parcel delivery service. The Postal Service delivers almost half the world’s mail and more than 171 billion pieces annually, of this amount, roughly 3 billion are packages (Source: 2010 Report on Form 10-K, United States Postal Service). In addition, the Postal Service is often the last mile option for delivering FedEx, UPS and DHL packages. In 2007, if given a choice, 46 percent of consumers would select the Postal Service to deliver their packages.(Source:Package Delivery Study conducted by comScore, March 2007.) The Postal Service has received several ideas for improving its parcel delivery service. Many suggest the Postal Service could be more competitive if it offered an improved track and trace and confirmation system. Other suggestions include reliable on-time delivery, increased speed of service, and a better loss and damage policy. This blog is hosted by the OIG’s Sales and Service Team.