Objective

Our objective was to assess the effectiveness of Terminal Handling Services (THS) operations in Denver, CO.

There are 69 THS facilities nationwide that prepare and dispatch mail for [redacted] (aviation supplier). The Postal Service contracts with [redacted] (THS supplier) in Denver, CO, to prepare both originating and destinating mail for the aviation supplier to transport mail by air. For mail scheduled to fly, the Postal Service separates bypass mail from mixed mail during processing operations before delivering mail to the THS supplier. Bypass mail is destined for a single location and is not sorted until it arrives at the destination facility. Mixed mail is destined for multiple locations and is sorted at the aviation supplier’s hub, incurring additional charges for the Postal Service. The THS supplier builds bypass and mixed air cargo containers based on the mail delivered from the Postal Service. In fiscal year (FY) 2020, the Denver THS supplier handled 26.9 million pounds of mail and cost the Postal Service about $2.6 million.

To manage operations, both the Postal Service and THS supplier used a volume arrival profile (VAP). A VAP is a plan that details the hourly percentage of mail that a Postal Service facility is expected to deliver to the THS site. The plan should allow THS staff enough time to fill both bypass and mixed air cargo containers. The Postal Service requires the THS supplier to convert bypass containers that are less than 87 percent full to mixed containers to avoid under-utilized containers.

The Postal Service can assess liquidated damages for certain THS performance irregularities. The THS supplier is contractually required to self-report all performance irregularities and take corrective action when contract compliance issues are identified.

We conducted site visits at the Denver THS facility and the Denver Processing and Distribution Center (P&DC). We selected the Denver P&DC because it accounted for about 76 percent of the total mail volume delivered to the Denver THS. Our fieldwork occurred after the President of the U.S. issued the national coronavirus emergency declaration on March 13, 2020. Our results may not reflect process and/or operational changes that occurred as a result of the pandemic.

Findings

We found the effectiveness of the Denver THS operations could be improved with increased Postal Service oversight of bypass operations and contractual obligations.

The Denver P&DC’s operating decisions prevented the THS supplier from meeting the planned bypass container goals of 100 percent in FYs 2019 and 2020. In FY 2019, the Postal Service planned for 6,848 bypass containers but used 2,360 (34 percent) of the planned goal. In FY 2020, the Postal Service planned for 7,204 bypass containers but used 1,494 (21 percent) of the planned goal.

The Postal Service did not meet planned goals because the Denver P&DC employees were not following the VAP and not always separating bypass from mixed mail. Specifically, we observed employees processing mail past clearance times (latest time committed mail can clear an operation for proper dispatch or delivery), not always following the run plan generator (a software application processing facilities use to optimize machine usage and operational efficiency), and stopping the separation of bypass from mixed mail before clearance times.

While these departures from normal mail processing operations continued the mail flow, they caused the Denver THS supplier to receive insufficient bypass mail and convert 10,198 bypass containers to mixed containers in FYs 2019 and 2020. Consequently, the Postal Service paid about $1.3 million annually to the aviation supplier for sortation of additional mixed mail containers. In addition, these departures put the THS and aviation suppliers at risk of schedule delays, which could affect the Postal Service’s performance and goodwill branding.

Further, when the THS supplier does not receive mail on time, the mail is at risk of missing its intended flight and becoming delayed, which can create unanticipated volume in the network. To relieve this excess volume and maintain planned operations, the Postal Service used mitigation techniques such as bedload trucks (extra trips). In FYs 2019 and 2020, the Postal Service requested 68 extra trips to transport mail via surface that was originally planned to be flown. We estimated the Postal Service incurred about $818,000 annually for extra trips to the aviation supplier’s hub.

Additionally, we observed the THS supplier did not have a scale because it had been removed about three years ago. Contractual obligations require the THS supplier to provide a scale, weigh mail, and report density (weight of mail divided by cubic capacity) figures to the Postal Service. Density is important as it allows the THS supplier to load more mail into the air containers, thus reducing the number of containers needed to move the mail volume. As a result of our audit, the THS supplier did receive a scale to weigh containers and calculate density; however, it was not working and was placed in an inefficient location.

Finally, the Postal Service did not have a system to track and report performance irregularities with the Denver THS supplier as required by the contract. We determined the supplier should have self-reported to the Postal Service for failing to deliver mail as scheduled and for routing mail to the wrong locations in FYs 2019 and 2020. Further, the Postal Service liaison was required to, but did not, identify and report these irregularities.

These conditions occurred because the Postal Service did not effectively monitor THS supplier contractual obligations and, as a result, missed the opportunity to pursue liquidated damages for irregularities consistent with assessments outlined in the contract.

Recommendations

We recommended management:

  • Reiterate through formal communication the importance of clearance times and following the run plan generator and require the Denver Processing and Distribution Center to continue bypass separations for the entire duration of mail processing operations.
  • Conduct an analysis at the Denver Processing and Distribution Center and verify that processing operations are aligned with the volume arrival profile to allow Terminal Handling Service operations adequate time to build planned bypass containers.
  • Assess the functionality of the scale and the efficiency of the scale’s location at the Denver Terminal Handling Service supplier’s operations and take action as appropriate.
  • Establish a process for contract oversight to include verification that, at a minimum, the Denver Terminal Handling Service supplier is weighing mail and reporting accurate density figures and is tracking and reporting irregularities to the Postal Service so that liquidated damages can be pursued consistent with assessments outlined in the contract.

Read full report

Audit Resolution -- Recommendations 3 and 4

OIG Response

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