Distilling Information from USPS Responses

Part of the Postal Regulatory Commission’s process for considering a Postal Service request for an advisory opinion – like the one now before it regarding changes to USPS service standards – is the opportunity for intervening parties to ask questions of Postal Service witnesses, based on their written testimony.

Last month, as an intervenor in the case, Mailers Hub submitted questions to three USPS witnesses: Logistics VP Robert Cintron; Stephen Hagenstein, Director, Logistics Modeling and Analytics; and Acting Budget Director Curtis Whiteman.  Some were about vehicle utilization and dispatch times, while others focused on the reasons for the changes that were proposed.  After some debate over what constitutes a “question” (the number that can be submitted is limited at 25), the USPS witnesses filed their responses on June 1.

As would be expected, the parrying is seldom successful in extracting any revelatory answers from the witnesses.  Like witnesses in any similar proceeding, their lawyers assist in crafting answers that say just enough to be responsive.  Nonetheless, some useful information does get through.

Trucks and planes

The Postal Service has a different concept of space utilization than the layman might expect.  It doesn’t use “full” in the literal sense when discussing truck loads.  Though a 53-foot trailer has an internal capacity of 3,489 cubic feet, the USPS model for “100% utilization” is “based on the equivalent load of 42 All-Purpose Containers (APCs), or 1,575 cubic feet.”  At the same time, we were told that

“Operations are instructed to dispatch containers 75% full for dispatch on early trips, prior to the Dispatch of Value.  Filling APCs to the theoretical maximum capacity is possible, however not probable.”

That means that mail would fill only about 1,181 cubic feet of a “full” 53-foot trailer, just over one-third of its capacity.

Though the USPS stated in testimony that the current network average is 42% utilization of floor space, it also acknowledged that the model it uses “is not allowed to use different truck sizes other than 53-foot trailers.”  Though other logistics companies might strive to find ways to move less air in a “full” trailer, the USPS stated that “[b]edloads and other containers were not used in the model.

Even though using a mix of smaller vehicles might better match load and capacity, and enable point-to-point direct transportation, the USPS modeled using only 53-foot trailers and ways to fill them.  Trying to explore further, particularly on the point of “efficiency,” we were told:

“[O]ne of the goals is to reduce the number of trips, dock activity, and yard traffic in our processing and network facilities.  Planning to incorporate variable trailer sizes and trucks in the network would introduce added complexity, costs, trips and traffic. ...

“Transportation efficiency is currently based on utilization of the network, with a goal of achieving 65% utilization.  Part of the goal to improve utilization is also to reduce /control costs, reduce trips, and reduce yard and dock activity. ...

“Efficiency-increasing measures include adding multi-stop routings, increasing the use of Surface Transfer Centers, and shifting volumes from more expensive air routings to less expensive surface routings. ...

This would seem strongly to suggest that service was being sacrificed in order to reduce transportation costs.  Consolidating volume into larger loads by using a series of stops and transfers to reduce trips seems desirable to the USPS even if that means taking longer to move the mail (compared to current or potential service levels).  A witness stated

“The proposal is designed to minimize trips and mileage by building full tractor-trailer loads – to move more volume on fewer trips.”

Another witness was asked about the modeling exercises for transit times:

“Several iterations were modeled and reviewed with Postal leadership to assess different available transit windows.  The iterative review process was used to arrive at the proposed business rules balancing perceived operational capability with potential savings.

Moving mail by air is clearly in disfavor at the USPS.  The PMG once owned a logistics company, which might explain some of the impetus for moving more mail by truck, but the airlines reinforced any such bias last winter when, because of the pandemic, they drastically reduced their fleets (and, in turn, the capacity to move mail by air).  A witness stated:

“As package volumes have increased and clearance times pushed later, both 2 and 3-day pairs, where letters, flats, and packages share transportation, either need to wait for volumes to clear, or depart without all the committed volumes.  Air transportation is typically more expensive, limited in capacity, and has not been a viable alternative.

“Expanding air transportation could alleviate some of the misalignments if capacity was available at an increased operating cost.  However, the air network has not proven effective and continues to struggle to meet the Post Service’s operating plans and desired service performance levels, particularly since the onset of the pandemic.  Extending the service standards increases the routing flexibility to implement more cost-effective surface transportation, alleviate the capacity issues currently observed in the air network, decrease costs, and meet customer expectations set by the proposed service standards.

“... [A]dding time to the transit window allows for multi-stop routings, and routings via Surface Transfer Centers to improve utilization, reduce surface trips, and reduce yard and dock activity.  The added transit window also extends the surface reach to allow surface routing of volume, where air capacity is limited, or where determined surface transportation is less costly.”

Rates and discounts

Though significant changes to the processing network might suggest related changes in discounts tied to points of entry, the USPS declined to explore what any might be.

“The Postal Service has not decided, and has no current plans, to change zoned rates or destination entry discounts currently available based on mail entry or processing through the current Network Distribution Center (NDC) network in order to implement the proposed service standard changes or related network adjustments.

“It would be speculative to predict if the Postal Service may decide at any time in the future whether to change zoned rates or destination entry discounts currently available based on mail entry or processing through the current NDC network in order to implement the proposed service standard changes or related network adjustments.”

As a corollary, we asked a witness:

“Please clarify the statement that ‘destination-entry presort mail will remain unaffected by the proposed service standard changes,’ particularly to define what the term ‘unaffected’ means in your use of it in this statement.  Please explain how Presorted First-Class Mail will ‘remain unaffected’ if the origin/destination pair represented by the facility where the mail is deposited and the facility serving the destination of the mail will be moved from a two-day service standard to a three-day service standard ‘by the proposed service standard changes.’”

In response, in a rare acknowledgment of what was obvious to mailers, we were told:

“Commercial presort First-Class Mail volumes, properly prepared, and entered at the SCF prior to CET will still be eligible for overnight service.  No destination entry Periodicals or Marketing Mail will be impacted by the proposed service standard change.  Overnight presorted First-Class Mail will remain unaffected by the proposed service standard change.  Network First-Class Mail, presort or single-piece, will be affected by the proposed service standard change.

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The responses we got maintained the position expressed by the Postmaster General that the service standard changes and the 10-year Plan, in general, were all discussed with stakeholders in advance.

“The pre-filing conference [held remotely April 6] was the introduction of the proposal to the industry and public at large.  The Postal Service also conferred with industry representatives prior to the pre-filing conference.  For instance, after the release of the 10 Year ‘Delivering For America’ plan and prior to the pre-filing conference, the Postal Service discussed the proposed service standard changes at MTAC with over 600 people in attendance.”

“The Mailer Technical Advisory Committee is another forum to discuss the proposed service standard changes with the mailing industry.  The Postal Service did not create specific presentations about the proposed service standard changes as the subject was reviewed in the pre-filing conference and the specific details of the proposal filed publicly with the PRC.”

The USPS – notably the PMG – and the industry remain at odds over how each interprets communication.  Essentially, the Postal Service position is that presenting and reviewing the Plan or the service standard proposal constitutes “conferring” or “discussing” with stakeholders, while those stakeholders might have the view that what the USPS did is not the pre-decisional dialogue that should have occurred.  Telling customers what’s been decided isn’t the same as seeking their input before making the decision.

The USPS also has a different opinion about the benefits customers derive from being told of service standard changes.  For example, one witness states that:

“In order to mitigate any harm from this change, the Postal Service will work to inform retail customers about the service changes, so that they can set appropriate expectations for delivery times.”

In turn, we asked:

“Please explain the ‘harm’ to which the statement refers and how informing retail customers about the service changes will materially mitigate that ‘harm.’  Please explain how the Postal Service will mitigate ‘harm’ to commercial customers.  Please explain the criteria the Postal Service used to determine that enabling customers to ‘set appropriate expectations for delivery times’ will mitigate ‘harm’ to those customers interests, and how that would offset dissatisfaction over slower service.”

The answer we got somehow spun being told of degraded service into hearing good news:

“The ‘harm’ ... refers to some instances where the proposal would result in increased delivery times for certain mail piecesInforming retail customers about the service standards changes will materially mitigate that ‘harm’ by allowing retail customers to make informed decisions about their mailings, including placing letters and flats affected by the service standard change in the mail earlier to allow more time for delivery.

“Similar to retail customers, informing commercial customers about the service standards changes allows commercial customers to make informed decisions as to their business processes and their mailings affected by the service standard change. ...”

So, to the USPS, telling customers that their service will worsen, thus enabling them to lower their expectations, minimizes any “harm” from the degraded service.  That can be analogized to telling patients that there will be fewer doctors available, so they can lower their expectations about being treated and, in turn, not feel any “harm” from being given no medical attention.  Poor service must be OK if it’s expected...

The Postal Service was equally dismissive of the proposition that degraded service could worsen the loss of volume:

“While service performance may influence customer satisfaction with First-Class Mail, the primary driver of First-Class Mail revenue loss is overwhelming digital substitution.”

Such an answer suggests the USPS has concluded that, because First-Class Mail volume loss is absolutely inevitable, any measures to slow the decline are futile, so there’s no point in making the effort.  Why try to provide good service if the volume will be lost anyway?

Service performance

The Postal Service made the argument that it “is incapable of meeting its service performance targets, and hence providing reliable and consistent service, under the current standards.”  Trying to explore how this condition came to be, why it hasn’t been remedied, and why the answer is simply lowering the standards, failed to extract a very robust answer.

“There are various factors influencing service performance with respect to the Postal Service’s current service standards, including machine capability and capacity, network issues, staffing issues, and employee error.  Although the volume of First-Class Mail is declining, volume can still be a contributing factor at times, in particular, if a large mailing is entered that overwhelms the current capacity of an operation.

The significant increase in package volume has contributed to the challenges in mail processing that impact First-Class Mail service performance.  Resources are shifted to heaviest volumes to attempt to clear volumes in accordance with the operating plan.

“When the operating plans are not able to be achieved, dispatches are held, or volumes are missed.  When dispatches are held at origin, the volume on the trip is put at risk to make transfers and/or meet the destination sites’ critical entry times.  Adding time to the transportation window will better enable sites to dispatch all volumes on designated dispatches of value.  The added time will add buffers to transfer windows to better absorb transportation delays.

Given all of those potential challenges, we asked why the USPS hasn’t made the necessary changes to deal with them.  Referring to the data provided quarterly to the PRC, we noted that some districts have been able to meet current service performance targets (with relative consistency, while other just as consistently fail).  We asked the USPS to explain the steps it’s taken to determine why that was so, what actions it’s taken to apply those findings to enable failing districts to improve, and the results of those actions.  In response, we were told:

“The Postal Service conducted analysis to identify both under-performing and high-performing Areas, Districts, and Sites.  From Headquarters, the top-10 high and low performing Districts were identified and distributed to the Area and Field leadership on a weekly basis.  Area/Field leadership would create action plans to address performance issues.  Service teams were sent to high-impact sites that did not correct or show progress.  Peer mentoring was regularly used to assign high-performing site managers to assist low-performing sites.  Responsible managers in under-performing sites are reassigned when not able to correct issues.

Looking at service scores quarter after quarter would suggest that the steps outlined in the USPS response have not produced the service improvements that should have ensued.

Given the apparent link between transportation and service standard failures, we asked why less drastic changes couldn’t be made, particularly to the 3/5 day standard, and were told:

“The Postal Service evaluated a scenario that maintained current 2-day service standards while extending 3-day to 3-to-5-day service standards.  The results of this model scenario increased annual mileage by 36M miles and reduced estimated annual savings by approximately $80M versus the current proposal.”

To put that into perspective, the USPS spent $8.8 billion on transportation in fiscal 2020 so $80 million, though not a trivial amount, represents only 0.0091%.  The projected total benefit from the entire service standard change proposal is $174.8 million (or 0.0199%).  Whether such savings justify the related wholesale reductions in service is another matter.

The Objective of the Proposal

The clear objective of the proposed service standard changes is saving costs and improving “efficiency” at the expense of service.  We asked one witness:

“Please confirm that the primary objective of the proposed service standard changes is to reduce Postal Service costs by maximizing the volume of mail that can be moved by surface transportation, and not to maintain or improve on the current levels of achievement of the current service standards for First-Class Mail.”

In response, we were told:

“There are two goals of the proposed service standard change: to improve service performance capability and to improve cost-effectiveness of the network.

Asking further about why the Postal Service concluded that service standards should be aligned “with actual performance” rather than aligning operational performance to enable achievement of established standards, we were told

“The actual service performance demonstrates capability under the current network design.  It is possible changes could be made to improve capability of achieving current service standards, however, it would likely come with increased investment and operating costs.  Investments in new technology could improve sort accuracy and speed of sortation equipment.  Adding labor and equipment could reduce the mail processing operating windows at a cost of decreased productivity and added maintenance and overhead.  Added transportation to dedicate trips to moving specific product types, or adding direct transportation for problematic lanes, could improve service performance with the cost of added transportation and other associated impacts of increasing vehicle traffic in the facility yards and roads.  Increasing operational costs, however, is contrary to the organization’s direction to reduce costs and improve operational efficiency, thereby helping to ensure the viability of the Postal Service in the future.”

The Postal Service used the seemingly similar terms “service standard” and “service performance targets,” so we asked 

“Please explain the difference between ‘service standards’ and ‘service performance targets.’  Please confirm that the Postal Service must seek an Advisory Opinion from the Postal Regulatory Commission if changing nationally-applicable ‘service standards’ for First-Class Mail but can unilaterally adjust ‘service performance goals’ for any mail.”

In response, the USPS stated

“Service standards define the expected days to deliver a product from an origin to a destination.  Service performance targets are goals set to drive processing and delivery performance against the delivery expectation set by the standard.”

In that same vein, in a footnote, a witness stated that

“The Postal Service is not seeking an advisory opinion with respect to service performance targets through this proceeding, and our service standards do not, themselves, specify performance targets.  That being said, we expect to set service performance targets at 95 percent once the new service standards are in place, and we expect to meet or exceed them consistently upon implementation of our proposed service standard changes during all times of the year.”

We asked why the Postal Service wasn’t being direct about what its service targets will be, not just its expectations.  In response, we were told simply that

“The phrasing does not have substantive import – it simply reflects the fact that the targets for subsequent years have not yet been set by the Board.  As noted, these service standard changes will enable the Postal Service to achieve a 95% target.”

For the preceding several years, the targets for First-Class Mail were all above 95% (96.8% overnight, 96.5% two-day, and 95.25% 3-to-5 day).  Therefore, even under its proposed less demanding service standards, it will still be setting an even easier service performance target for itself.

Perhaps the most fundamental question we asked was whether the Postal Service first decided to transport more mail by surface, thus necessitating revising service standards, or whether the revised service standards were developed first and, in turn, drove changes in the transportation network.  The answer was short and as expected:

The Postal Service’s decision to transport more mail by surface transportation initiated the service standard change modeling and analysis.

In effect, the PMG, as part of his 10-year Plan, opted against investing in better service, instead deciding to cut service to reduce costs.  Though he would claim that decision was reached after hearing from stakeholders, reactions thus far from those same stakeholders would suggest otherwise.  Reliable and consistent poor service is not what they want.

And we asked whether those proposed changes will go forward regardless of the PRC’s advisory opinion, receiving this carefully worded and decidedly evasive response:

“The Postal Service is seeking an Advisory Opinion from the Postal Regulatory Commission because it intends to implement the proposed service standards.  The Postal Service will carefully consider the Advisory Opinion that is issued by the Commission.  The Postal Service cannot determine how or whether its plans may change in response to the Commission’s Advisory Opinion until after the Commission has issued it.”

Despite this lawyerly obfuscation, few observers doubt that the Postal Service, after accepting the advisory opinion and stating that it had “fully considered” it, won’t proceed with implementing its reduced service standards just as it has intended all along.


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