Audit Reports

Objective

Our objective was to assess opportunities to optimize the Postal Service’s transportation network and meet service performance goals.

Transportation is a core part of Postal Service operations, combining Postal Service-owned and operated assets with contractor operations. Every day a team of transportation and logistics professionals manage an average flow of over 390 million mailpieces throughout the Postal Service network, which includes 285 processing facilities and about 35,000 retail locations. Postal Service facilities are linked by a complex transportation system that depends on the nation’s highway, air, rail, and maritime infrastructures. The success of each system affects the success of the others. This audit focuses on the surface and air networks, as they transport most of the mail.

In fiscal year (FY) 2019, the surface transportation network cost about $5.7 billion and transported mail mostly by highway contract routes (HCR) and Postal Vehicle Service (PVS) operations. Area and local transportation managers are responsible for operations, including continually reviewing surface routes to balance on-time service with costs.

The air transportation network costs were about $3.1 billion in FY 2019, consisting of contracted services from FedEx, commercial airlines (CAIR), UPS, supplemental charters, and terminal handling services (THS) operations. During FY 2019, FedEx transported [redacted] percent of total air volume, CAIR transported [redacted] percent, UPS transported [redacted] percent, and supplemental charters transported the remaining [redacted] percent. THS staff prepare the mail for tender to supplemental charters and FedEx. Postal Service Headquarters (HQ) controls operations and coordinates with area-level staff to execute the daily transportation plan.

The transportation network has key performance indicators (KPI) for the surface and air networks. Surface network KPIs include trips on time, extra trips, cancelled trips, unrecorded or incomplete trips, trips departed not arrived, and trailer utilization (percentage of trailer used). Air network KPIs include delivery scanning, network density, delayed mail, and use of bypass containers (include mail for a single destination requiring no FedEx sorting) and mixed containers (include mail for multiple destinations requiring sorting at a FedEx hub).

In a previous audit, U.S. Postal Service Transportation Network Operations and Cost Optimization Practices (Report Number 19XG002NL000-R20, dated November 7, 2019), we identified several factors that increased transportation costs, including the Operational Window Change – which reduced the transportation window, a growth in package services, fluctuating fuel costs, national long-haul and local driver shortages, a lack of competitive choices in air suppliers, and regulatory requirements.

This audit was designed to further determine the causes of transportation operational and service challenges. To do so, we conducted site visits at eight processing and distribution centers (P&DC) nationwide. We observed lower and better performing facilities which we selected by analyzing efficiency and service performance metrics for both transportation and mail processing operations. We also visited four THS facilities and selected the sites based on FedEx mail volume, delayed mail, and charter activity.

Our fieldwork was completed before the President of the United States issued the National Emergency Declaration concerning the novel coronavirus disease outbreak (COVID-19) on March 13, 2020. The results of this audit do not reflect process and/or operational changes that may have occurred as a result of the pandemic.

The Postal Service estimates significant revenue declines due to the COVID-19 pandemic and the resulting economic fallout, and it could run out of money by FY 2021. Therefore, it is vital for the Postal Service to focus on its financial health and address causes for costs increasing at a time when mail volumes decreased.

Findings

The Postal Service has opportunities to optimize its transportation network and improve service performance. Specifically, it routinely uses the surface and air networks to mitigate mail processing, delivery, and other delays (such as weather and traffic). In FY 2019, the Postal Service spent over $550 million extra in transportation to mitigate delays that occurred in the network.

In the surface network, it is critical for processed mail to be available for transportation in a timely manner and for transportation contractors to meet their obligations. When operational issues exist, there is a downstream effect that causes management to face difficult and costly decisions. In FY 2019, mitigation efforts for surface transportation cost $410 million. These efforts included:

• $266 million in extra trips;

• $130 million in PVS overtime; and

• $14 million in late trips.

In the air network, when mail does not make its intended flight, it is tendered to the next available flight, even if that means moving it to another air carrier or waiting until the next day. In FY 2019, mitigation efforts for air transportation cost at least $140 million. These efforts included:

• $76 million in bedload trucks (moving mail to [redacted] hub for sortation);

• $60 million [redacted] charters [redacted] flights that were not originally scheduled); and

• $4 million in offloads (moving mail to a region with available airlift).

Even with transportation’s mitigation efforts, the Postal Service did not meet most of its service performance targets in FY 2019. In FY 2019, the Postal Service met annual service performance targets more than once for only five (15 percent) of the 33 mail products.

Further, we identified causes that impacted the optimization of the surface and air networks to include misaligned scheduling, insufficient management oversight, imbalanced performance measurements, employee availability, and the inefficient allocation of mail.

Misaligned Scheduling

In both the surface and air networks, misaligned transportation scheduling hindered efforts to meet service performance and cost savings goals. Specifically, some surface transportation schedules were not consistently updated by management. In addition, operating plans and run plan generators (which help manage mail processing operations by projecting daily machine run) were not always followed and the plant processed mail past its clearance time, causing transportation delays.

In the air network, volume arrival profiles, which dictate the times plants send their mail to the THS site, were misaligned. Specifically, the volume arrival profiles did not allow time for the THS sites to build bypass containers, which reduce overall [redacted] costs.

Insufficient Management Oversight

Insufficient management oversight of day-to-day operations created inconsistencies and inefficiencies throughout the surface and air networks. We found there was inconsistent management oversight of HCR operations in the surface network and of THS operations in the air network.

During our surface network site visits, we observed HCR operations senior-level managers and front-line supervisors were generally not present during the evening and early morning shifts. At the eight P&DCs we visited, 76 percent of HCR trips ran during evening and early morning shifts, but only 25 percent of transportation supervisors worked during these shifts.

In the air network, THS sites were not issued Surface Visibility mobile scanners which were contractually required at three of the four THS sites we visited. The scanners are needed to track trucks and the mail volume coming into the facility. There was also a lack of consistency as to what information Postal Service THS liaisons (liaisons) reported to HQ and who was responsible for responding to identified anomalies.

Imbalanced Performance Measurements

In the surface network, National Performance Assessment (NPA) goals did not align with surface transportation’s KPIs. The only NPA indicator that aligned with the six KPIs was trips on time. There were no NPA indicators for the other five KPIs and no target goals for the surface network’s KPIs.

Employee Availability

In FY 2019, there was a PVS driver shortage of 1,247 drivers (12 percent) nationwide. We also noted a shortage of 56 surface network managers (6 percent) nationwide. Additionally, for the same time period, unscheduled sick leave and leave without pay comprised 2 percent of all PVS workhours (563,000 of 32 million).

Inefficient Allocation of Mail

The Postal Service could put more mail on CAIR, rather than using higher cost carriers. The Postal Service uses an allocation code to determine how much volume flies on each carrier and for each air stop, allowing it to maximize the use of the lowest cost carrier. However, we determined the code had inaccuracies, leading to a misallocation of First-Class Mail (FCM) [redacted], costing the Postal Service about $50 million annually. Additionally, density assumptions in the air allocation model did not match actual density in the network, which could lead to a misestimation of needed airlift.

The Postal Service could use more CAIR airlift in 56 of 63 air stops (89 percent). During FY 2019, the Postal Service flew about 60 million pounds of mail on [redacted] of insufficient CAIR capacity. The Postal Service has not considered discussing with CAIR providers the air stops for which it could use more airlift.

Finally, Transportation Security Administration (TSA) restrictions limit mailpieces flown on CAIR to under 16 ounces unless it is screened. The Postal Service mainly uses CAIR to transport FCM, which weighs 13 ounces or less. There are techniques, such as certified third-party canine screening and electronic detection, that the Postal Service could possibly use to expand its mail screening so that more mail classes could fly on CAIR.

Recommendations

We recommended management:

• Create reason codes in the Surface Visibility Web 2.0 system for why extra trips are being ordered.

• Require bedloads [redacted] charters, and offloads to be filled with mixed mail over bypass mail to the extent possible.

• Issue supplemental guidance to evaluate recurring late, canceled, and extra trips, and trips with consistently low trailer utilization; and update, remove, or consolidate trips; and adjust transportation schedules accordingly.

• Align volume arrival profiles with THS operations to allow time to build the planned amount of bypass containers.

• Increase management oversight for highway contract route operations for evening and early morning tours.

• Equip THS sites with Surface Visibility mobile scanners, develop a daily condition report template for Postal Service THS liaisons, and standardize the Postal Service’s corrective action procedures in response to liaisons’ reporting.

• Develop target goals for the surface transportation KPIs to reduce mitigation expenditures.

• Establish appropriate hiring incentives to increase the number of PVS drivers.

• Fix inaccuracies in the Air Allocation Model and institute a system of quality controls for the model to include periodic reviews for accuracy, a manual for how to use the model, and a log documenting changes made to the model.

• Increase use of the lowest cost carrier by updating density assumptions, requesting additional lift from commercial airlines in target markets, and coordinating with the TSA to expand screening.