Postal Service transportation costs have increased $1.7 billion (or about 25 percent) since fiscal year (FY) 2014 despite an overall decline in mail volume of 8.8 billion pieces (or about 6 percent), as well as several initiatives to reduce transportation costs.
Our objective was to analyze practices and cost trends and identify risk areas within the Postal Service’s transportation network.
Transportation is a core part of Postal Service operations and the Postal Service has one of the largest transportation and logistics networks in the world, reaching every community in the U.S. Its facilities are linked by a complex transportation system that depends on the nation’s highway, air, rail, and maritime infrastructures.
The Postal Service’s transportation network consists of surface and air transportation to transport mail and equipment among 285 processing facilities and about 35,000 post offices, stations, and branches. In FY 2018, the Postal Service transported 146.4 billion mailpieces throughout the country at a cost of $8.5 billion, which includes in-house and contract transportation.
The surface transportation network costs about $5.6 billion and is decentralized and managed locally by district and area personnel. The network includes about 11,800 Postal Vehicle Service (PVS) routes for fleet operations and about 12,500 Highway Contract Routes (HCR). The air transportation network cost about $2.9 billion in FY 2018 and is centralized at Postal Service Headquarters (HQ) Logistics, but area-level staff are involved in executing planned air operations.
What the OIG Found
Increased transportation costs were driven by several factors, including the Operational Window Change (OWC) which reduced the transportation window. Other factors affecting costs include a 35 percent growth in package services (a 2.2 billion piece increase) from FY 2014 to FY 2018, fluctuating fuel costs, a lack of competitive choices in air suppliers, national long-haul and local driver shortages, and regulatory requirements.
The OWC was implemented in 2015 to revise First-Class Mail service standards, eliminating single-piece overnight First-Class Mail service and shifting mail from a two-day to a three-day service standard. These revisions enabled the Postal Service to expand the mail processing operational window; however, this change reduced transit time (the transportation window) by 12 hours. As a result of the reduction in the transportation window, the Postal Service diverted a larger portion of this mail from surface to air transportation to meet service standards.
Surface Transportation Costs
From FY 2014 to FY 2018, surface transportation costs for the two largest components — HCRs and PVS routes — increased by about $878 million (from $4.5 billion to $5.3 billion, or about 20 percent). HCRs increased by about $753 million, or 22 percent, and PVS by about $125 million, or 13 percent. Further, the Postal Service incurred costs for exceptional services, such as extra detours and late trips totaling $729 million for FY 2014 through FY 2018. The Postal Service attributed these increases to the nationwide shortage of long-haul truck drivers, highway contract rate increases, and rising fuel costs in FY 2018.
Surface Transportation Performance
Surface Transportation is responsible for servicing a fixed network and requiring daily transportation to and from about 35,000 postal facilities, regardless of mail volume. Local management of the surface network is critical to controlling surface transportation costs.
Surface Transportation management uses six key performance indicators (KPI) in the surface transportation dashboard to monitor and manage the surface network. Our analysis of the six indicators for the period FY 2014 through FY 2018 determined:
- Extra trips (trips not planned which are in addition to regularly scheduled trips) for existing routes increased from about 776,000 to 1.5 million trips, or 90 percent.
- Late trips arriving or departing after the scheduled time increased from 7.1 million to 11.3 million trips, or 60 percent.
- Canceled trips (trips that were scheduled but canceled) for scheduled transportation increased from 2 million to 3.8 million trips, or 93 percent.
- Unrecorded or Incomplete trips (trips that occurred but were not recorded or did not show both an outbound and inbound arrival in the transportation system) increased from about 684,000 to 1 million trips, or 50 percent.
- Trips Departed Not Arrived due to incomplete trip scans (the trip showed a depart but no arrival scan in the transportation system) decreased from 90,000 in FY 2017 to 67,000 in F
- Trailer usage increased slightly from about 21 percent in FY 2014 to about 24 percent in FY 2018. While there was improvement in trailer usage, there is still significant excess capacity which could provide an opportunity to shift mail volume from air to surface, thereby reducing transportation costs.
Further, our analysis of FY 2018 HCR exceptional service (e.g., extra, late, and detour trips) payment data revealed these costs were often not allocated to the proper accounts and are, therefore. understated. Specifically, we compared the exceptional service cost of $139.5 million reported in the general ledger against actual payments in the Service Change Request system and determined actual payments were $239.3 million. We were unable to reconcile the difference of $99.8 million, or 42 percent.
We also identified that data in the Surface Visibility (SV) dashboard is incomplete and inaccurate for extra and canceled trips. In addition, we found 344 expired HCRs (802,538 trips) that were inactive in the Transportation Contracting Support System; however, they were still shown as scheduled trips in SV. Further, because required SV transportation data is not available to validate payments, the Postal Service incurred over $28.8 million in unsupported questioned costs in FY 2018.
We also found canceled trips were not always omitted from HCR supplier payments as required by the HCR statement of work. Specifically, we reviewed about 38,000 canceled trips costing about $2.9 million and identified $2 million that should have been omitted from supplier payments in FY 2018. Furthermore, we noted that highway contracts did not always include language, or consistent language, to omit payments when a trip is canceled by the Postal Service which could result in overpayments to suppliers.
Air Transportation Spend
Total air transportation costs were $2.9 billion in FY 2018. Currently [redacted] of mail transported by air is transported on cargo carriers, primarily [redacted] because the air transportation industry has limited options for meeting Postal Service requirements. From FY 2014 to FY 2018 air transportation costs for the three largest components — FedEx, UPS, and commercial air (CAIR) — increased from $1.8 billion to $2.6 billion, or about 42 percent. An increase in fuel costs, increased package volume, and additional contract air charter use contributed to these cost increases.
Management of the air transportation network is centralized at Postal Service HQ. The Postal Service is also constrained by internal and external requirements including service standards, limited ability to procure other commercial air carriers to participate in the program and federal restrictions that limit the size and weight of mail carried by commercial air carriers.
Air Transportation Performance
The Postal Service HQ Air Logistics Team is responsible for managing an air network comprised of about 80 air stops throughout the country. It also manages 69 terminal handling service (THS) sites which are used to prepare and dispatch mail for [redacted].
In FY 2017, the Postal Service re-negotiated all air contracts; therefore, our analysis for the air network was conducted on performance indicators for FY 2018 through FY 2019, Quarter 2. An analysis of the six KPIs the Postal Service uses to monitor and manage the air network revealed that:
- Postal Service contracts with FedEx, UPS, and CAIR to transport mail and during the 18-month period reviewed generally did not meet service performance standards.
- Delayed mail occurs when contracted air lift is impacted by events within or not within Postal Service control. Over 1 percent (48 million pounds) of total mail volume was delayed in FYs 2018 and 2019, Quarter 2.
- THS are separate operations that prepare both originating and destinating [redacted] mail for transport. Bypass containers contain mail for one destination and require minimum handling by THS operations, but in FY 2018, the Postal Service did not use 59.72 percent of its planned Bypass containers.
- Network utilization determines if forecasting plans are met and the network is used at capacity. The air network utilization forecast vs. actual mail volume for January 2018 through March 2019 showed a national average difference of 1.15 percent; however, we found forecast variations among the seven Postal Service areas.
Cost Reduction and Technology Initiatives
The Postal Service’s various cost reduction and technology-based initiatives to optimize its transportation network have had limited success. In surface transportation, neither the HCR Optimization Initiative or the Dynamic Route Optimization program have met planned cost savings.
For the air network, there are currently three cost savings initiatives — using the lowest cost air carrier, maximizing the density of air containers, and a new initiative started in FY 2019 to optimize the use of Bypass containers. In FY 2019 through Quarter 2, the lowest cost carrier and Bypass container initiatives exceeded planned savings, but the density of air containers initiative has not realized savings.
What the OIG Recommended
We recommended management ensure extra trips are reconciled against Surface Visibility data and only authorized account numbers are used for exceptional service in the Service Change Request system; evaluate Highway Contract Route contracts to include consistent language to omit payment when trips are canceled and ensure they are omitted from supplier payments; perform data validation for the information in the Surface Visibility system to ensure extra and canceled trips key performance indicators are accurate and complete; and explore opportunities to increase the use of commercial air carriers.