Audit Reports

Objective

Costs for the Postal Service to process, transport, and deliver mail are outpacing its revenue and it faces considerable pressure to reduce costs without harming service.

We set out to determine how service performance has trended for all mail classes and compared that performance to cost trends over the last five years.

We analyzed service performance for Priority, First-Class, Periodicals, Marketing, and Package Services mail classes as they comprise all mail products the Postal Service offers. We also analyzed costs to process, transport, and deliver mail.

The Postal Service divides mail into different services, called “classes.” Each class of mail has different features, service levels, and postage rates. Each class of mail also has subdivisions, called “products,” which are usually based on different physical characteristics.

Service standards specify timeliness targets for delivering mail after receiving it from a customer. Service standards are determined by the class of mail, where it originates, and where it is going, or destined. Generally, the farther the mail must travel, the more days for the service standard. The Postal Service also has service performance targets for each mail class/product and determines service performance by measuring how much mail was delivered by the service standard.

• Priority mail products have service standards ranging from one to three days and a target of [redacted] percent of that mail delivered on-time.

• First-Class Mail products have service standards ranging from one to five days and a target of 95.25-96.8 percent delivered on-time.

• Marketing Mail products have service standards ranging from three to 10 days and a target of 91.8 percent delivered on-time.

• Periodicals have service standards ranging from two to nine days and a target of 91.8 percent delivered on-time.

• Package Services products have service standards ranging from two to eight days and a target of [redacted] percent on-time.

Other competitive package products have service standards ranging from two to eight days and a target of [redacted] percent delivered on-time.

What the OIG Found

Even though infrastructure costs have been increasing and volumes are declining, the Postal Service has not met the majority of its service performance targets over the past five years.

Even so, 80 percent of respondents to the Postal Service’s FY 2018 Delivery Survey were satisfied with their mail and package delivery. This satisfaction rate is significant and may suggest that service performance targets are not always aligned with customer expectations.

Costs, Revenue, and Volume

During the last five years, costs associated with processing, transporting, and delivering mail have increased by about $5 billion dollars, or 13 percent (when adjusted for inflation, costs increased by $2.5 billion, or 6 percent), while mail volume decreased by 8.8 billion pieces, or 5.7 percent. Specifically, mail processing costs increased $301 million, transportation costs increased $1.7 billion, and delivery costs increased by about $3 billion.

During that same time, total revenue increased $3.1 billion, or 5.1 percent, due to Priority Mail and Package Services revenue growth of almost [redacted] percent, respectively. Revenue for the other mail classes decreased between about 5 and 21 percent.

The Postal Service does not know how much it would actually cost to meet its current service performance targets or the financial and customer service impacts of reducing the targets. Yet costs associated with processing, transporting, and delivering mail are already outpacing revenue. When the Postal Service’s processes are not completed as designed or when delays occur, management can, and often does, take actions outside the normal process to keep the mail moving and meet service targets; however, these actions can result in additional costs. Postal Service field managers we surveyed indicated they prioritize service significantly higher than the financial health of the Postal Service. This could explain why costs continue to rise as managers attempt to meet service performance targets.

Service Performance

The Postal Service did not meet national service performance targets for any mail class in FY 2018. Further, over the last five years, the Postal Service met annual service performance targets more than once for only four (or 13 percent) of the 31 mail products.

Survey of Postal Managers

We surveyed about 1,500 plant managers, in-plant support managers, transportation managers, and postmasters. The 744 managers who responded to the survey identified the main causes of service failure as:

• Missent Mail

• Late Trucks to Delivery Units

• Employee Availability

• Untrained Employees/Managers

• Mail Processing Operations Not Completed On-Time

Furthermore, 72 percent of respondents ranked financial health as the lowest of the four corporate priorities when considering their daily duties and management decision making. This is an indication that as field managers make decisions about moving the mail, while they consider several factors, they do not always prioritize the associated costs as the most important factor. Meeting service performance targets is often a higher priority. The priorities for respondents, in order, were: 1) a Safe Workplace and Engaged Workforce followed by 2) High-Quality Service, 3) Excellent Customer Experiences, and 4) Financial Health.

Service Performance Metrics

In evaluating service, we analyzed performance metrics for FY 2018 and found the Postal Service’s processes were routinely not working as designed:

• Of the 11 indicators that measure how much mail completed processing operations on-time, only four had at least 90 percent of the mail processed on time.

• Twenty-nine percent of all surface transportation (Postal Service and contractor) trips were late.

• Almost 9 million mailpieces per day, or 1 percent, were reported as mail processing delays.

• Between 4 and 8 percent of mail transported by air carriers arrived late.

• 3.25 percent and 2.76 percent of single piece and presort mail, respectively, was not delivered the day it was available for delivery.

• Almost 2 percent of mail received at collection points arrived at processing facilities late.

• Over 12,000 Priority and one million First-Class mailpieces per day were delayed due to air transportation.

When these processes are not completed as designed, management interventions can occur to keep the mail moving and meet service targets. Interventions can include using overtime to process and deliver mail, delaying transportation until mail processing is completed, and using extra transportation trips. These interventions can help meet service performance targets but also result in additional costs.

Over the last five years, despite decreasing mail volume:

• Overtime and penalty overtime costs in mail processing increased $327 million, or 43 percent.

• Overtime and penalty overtime costs in delivery increased about $576 million, or 26 percent.

• Mail processing delays increased 43 percent.

• Late trips increased almost 60 percent and extra transportation trips have increased 90 percent. The Postal Service reported these trips cost $140 million in FY 2018.

What the OIG Recommended

We recommended management:

• Conduct a cost-benefit analysis, including a sensitivity analysis, of current service performance targets. This analysis should include an evaluation of additional costs incurred for extra operational services performed to meet service performance targets and opportunities that exist to limit extra services when they are not financially feasible.