Our objective was to assess the Postal Service’s efforts to reduce transportation costs of Mail Transport Equipment (MTE) in the Mail Transport Equipment Service Center (MTESC) network.
The MTESC network is a nationwide network of 14 contractor-operated facilities. MTESC facilities process, repair, store, and distribute MTE (containers, sacks, trays, flat tubs, sleeves, and pallets) to processing and distribution centers (P&DCs) and business mailers. The cost to move MTE nationwide decreased from $41.5 million in fiscal year (FY) 2017 to $31.7 million in FY 2018. However, the cost to move MTE within the MTESC network increased from $21.3 million to $30.2 million during this period.
The Postal Service Headquarters MTE group coordinates the replenishment of MTE across the MTESC network by contracting with six intermodal (truck and rail) transportation suppliers. Intermodal transportation suppliers are contracted to provide trailers for one-way trips by truck or rail within 48 hours of notification. In FY 2017, the Postal Service began using an existing highway contract route (HCR) supplier to move MTE within the MTESC network, which allowed the Postal Service to supplement intermodal transportation. In FY 2018, the Postal Service modified the contract to allow the HCR supplier to continue fulfilling urgent MTE requests.
We found that opportunities exist for the Postal Service to reduce MTE transportation costs within the MTESC network. Specifically, the Postal Service is not maximizing the use of more cost-efficient intermodal suppliers and is increasingly relying on an HCR supplier to fulfill urgent MTE requests. We estimated the FY 2018 average cost to transport MTE using the intermodal suppliers was $1,569 while the average cost for using an HCR supplier was $2,110 per one-way trip. Further, we noted that HCR supplier costs were not allocated to the proper general ledger (GL) accounts.
We found that overall costs to move MTE intermodally decreased from $21.3 million in FY 2017 to $14.1 million in FY 2018 (33 percent), while HCR transportation costs increased by $16.1 million in FY 2018. In addition, for the same time period, intermodal trips decreased from 14,612 to 9,361 (36 percent) while HCR trips to transport MTE increased from 43 to 4,982 (11,500 percent).
This occurred because intermodal suppliers did not have sufficient lead time to meet contract requirements; and the Postal Service did not track, monitor, and report supplier nonperformance. The Postal Service has the ability to charge intermodal suppliers with replacement costs to transport MTE but has not consistently done so. These costs would equal the Postal Service’s costs for the replacement service (HCR supplier) less the existing intermodal contract rate.
We estimate the Postal Service could have saved $1.4 million in FY 2018 and an additional $1.4 million in FY 2019 by transporting MTE using intermodal suppliers rather than HCR suppliers.
During our audit, Postal Service management provided additional documentation on the steps it initiated in FY 2019 to improve intermodal and HCR supplier issues and concerns. For example, in August 2019, the Postal Service began requiring headquarters approval before using an HCR supplier to transport MTE. In addition, it began assessing the intermodal suppliers’ replacement costs for nonperformance.
Furthermore, our analysis of FY 2018 HCR service payment data revealed these costs were not allocated to the proper GL accounts; therefore, these accounts are understated. This occurred because transportation field personnel were using incorrect GL accounts to record HCR service expenses to move MTE within the MTESC network. Furthermore, management did not monitor transportation field personnel to ensure they used proper GL accounts to record these expenses.
As a result, costs to move MTE within the MTESC network were understated and management does not have accurate financial data to effectively manage and control these costs. Headquarters MTE management understood the importance of properly accounting for costs paid to the HCR supplier and took corrective action to update the HCR supplier contract to reflect the correct GL account beginning September 1, 2019; therefore, we are not making a recommendation regarding this issue.
We recommended management re-evaluate statement of work requirements, including standard response times for intermodal suppliers; develop a formalized process to require justification for using an HCR supplier rather than the intermodal supplier; track, monitor, and report suppliers’ nonperformance for transporting MTE between MTESCs; and hold suppliers accountable when they fail to meet contract terms.