USPS: PRC finds Delivering for America has significant problems

Steve Hutkins giving an update of Louis DeJoy’s plan to make the USPS more efficient and profitable.

PRC finds Delivering for America has significant problems, urges USPS to reconsider its plan

Steve Hutkins “Save the Post Office“

Yesterday the Postal Regulatory Commission issued its Advisory Opinion on the Postal Service’s Delivering for America plan. The Commission found that the DFA has significant problems, especially in rural areas, and it urges the Postal Service to reconsider the DFA.

Below are the PRC Press Release, its list of recommendations, a FAQ page issued by the Commission, and a list of links to some of the main documents in the N2024-1 docket. There’s more about the docket on our N2024-1 dashboard and DFA dashboard.

Press Release

Washington, DC – The Postal Regulatory Commission (Commission) issued an in-depth analysis of the Postal Service’s Delivering for America (DFA) initiatives proposing nationwide changes to mail service. While the Commission acknowledges the challenges the Postal Service faces are significant, and change is essential, the Commission finds the Postal Service is irreversibly changing its network without laying a foundation for success.

• First, the Postal Service’s plan depends on defective modeling and does not appear to be ready for implementation.
• Second, the Postal Service relies on overly optimistic and unsubstantiated financial projections for cost savings that are not likely to improve the financial health of the Postal Service.
• Third, the Postal Service’s proposal has significant negative impacts on rural communities throughout the United States.

The Commission urges the Postal Service to reconsider whether the speculative, meager gains from this proposal outweigh the certain downgrade in service for a significant portion of the nation.

Since the start of the DFA initiatives in 2021, the Postal Service and Commission have received service complaints from around the country. Many of those service complaints continue today. The Commission strongly encourages the Postal Service to consider the concerns and recommendations outlined in the Advisory Opinion as it continues to develop and implement the proposed changes. Further, the Commission advises the Postal Service to closely monitor the impact of its changes on mail products and rural communities.

The Commission’s findings are summarized below, and in the Advisory Opinion’s executive summary. The Commission also compiled a list of all its recommendations in an appendix to the report.

Significant Negative Impact on Service

The proposal is likely to have significant negative impacts on certain mail products and rural communities. The Postal Service’s plan focuses on the potential service enhancements under the proposed service standards and downplays the significant adverse effects that its proposal will have on certain mail categories, mail classes, and rural communities.

• Rural communities will experience disproportionate downgrading of service standards when analyzed by ZIP Code pairs (mail sent from one ZIP Code to another).
• For Single-Piece First-Class Mail (such as individual letters and postcards, the type of mail most likely to be used by a household), 49.5 percent of ZIP Code pairs will experience downgraded service.
• Periodicals and Package Services will experience significant downgrades.
• Considerable decline in service performance has already been demonstrated in areas such as Richmond, Virginia, and Atlanta, Georgia, where the proposed network changes have already been implemented.
• The Postal Service currently lacks a system to accurately, reliably, and representatively measure service performance at the 5-digit level.

Cost-Savings Are Speculative and Likely Overstated

The proposal is unlikely to significantly improve the financial health of the Postal Service for multiple reasons.

• Concerns with the Postal Service’s methodology for estimating cost savings due to a lack of historical or empirical foundation.
• An unclear timeline for savings to be realized, and a lack of clarity regarding the overall effect on the Postal Service’s financial health.
• Total projected cost savings, even if fully realized, represent approximately 4 percent of the Postal Service’s FY 2024 operating expenses of $81.8 billion.

Defective Modeling and Is Ill-Prepared for Implementation

• The Postal Service used a defective modeling methodology which did not address variations in the postal network, for example the daily changes in the volume and type of mail that enters the network.
• The Postal Service worsened the impact of its defective modeling methodology by failing to integrate transportation and processing. This prevented the Postal Service from optimizing the efficiency and performance of the full network.
• Given the lack of convincing evidence, the Commission finds it is unlikely that the Postal Service will create a more efficient network compared to the legacy network.

Postal Service Proposal

The Postal Service’s proposal calls for operational changes to create a nationwide network of regional processing distribution centers (RPDCs), and local processing centers (LPCs) that consolidate and reduce transportation lanes among facilities. It further plans to implement its regional transportation optimization (RTO) initiative nationally, resulting in a delay in processing some outgoing mail volume. The Postal Service estimates that these two initiatives will allow it to improve productivity and efficiency and achieve an annual cost savings of between $3.6 and $3.7 billion once the initiatives are fully implemented. The Postal Service also seeks to revise its service standards to align with these operational initiatives.

Commission Advisory Opinions

When the Postal Service determines there should be a change in the nature of postal services, which will generally affect service on a nationwide or substantially nationwide basis, it must submit a request to the Postal Regulatory Commission for an Advisory Opinion.

The Commission’s Advisory Opinion, executive summary, recommendations, and FAQs are available here and at www.prc.gov.

Recommendations

The Commission recommends that the Postal Service better prepare for its announced changes, including creating RTO-specific plans and models, before rolling out the RTO initiative on a nationwide basis.

The Commission urges the Postal Service to begin tracking metrics, such as the average number and length of nationwide layovers, before implementing RTO so that it has a baseline to which it can compare the success of the initiative.

The Commission recommends that, at relevant RTO Post Offices, the Postal Service extend the time customers have to deposit mail by collecting from blue collection boxes, lobby drops, and Self-Service Kiosk parcel receptacles closer to the morning dispatch time.

The Commission notes that to maximize cost savings, instead of static thresholds, the Postal Service could leverage its extensive facility-level data to develop and rely on thresholds for specific Regional Processing and Distribution Centers (RPDCs) or even develop non-threshold methods for determining RTO designations.

While the rollout of RTO requires successful implementation, the Commission recommends the Postal Service explore ways to categorize RPDC facilities and apply category-based thresholds to potentially increase the benefits of optimization and reduce the scope of downgrades without complicating implementation.

The Commission recommends that the Postal Service supplement its business judgment regarding a 50-mile threshold with more data-based analysis to explore different methods for determining RTO designations, such as one based on travel time, and measure the benefits of RTO against the service impacts.

The Commission recommends that the Postal Service resolve the contradiction of advocating for a regional approach while still allowing certain Local Processing Centers (LPCs) to retain cancellation operations.

The Commission recommends the Postal Service minimize the use of exceptions in implementing its initiatives by developing and implementing a systematic approach to capture the interactions between RTO and the network design.

The Commission agrees with the National Postal Policy Council (NPPC) recommendations to tie RTO implementation to the operational launch of the servicing RPDC into operation in a specific region, and not nationwide all at once.

The Commission recommends that the Postal Service learn from its negative experience implementing Dynamic Routing Optimization (DRO) to inform its preparation for implementing RTO.

The Commission encourages the Postal Service to create a thorough implementation plan to facilitate the strong execution of its RTO initiative and set up relevant timelines.

The Commission recommends a more measured approach to implementation strategy based on the Postal Service’s experience with Local Transportation Optimization (LTO) pilots where “compressed” timelines created issues. This might include a testing period with RTO pilots.

In order to establish an accurate representation for the potential impacts of RTO, the Commission recommends that the Postal Service initiate an RTO pilot before rolling the initiative out nationwide.

The Commission recommends that the Postal Service address concerns regarding outdated and inappropriate source data and assumptions to improve the internal validity of the LTO Model going forward.

The Commission recommends that the Postal Service develop a model that accurately reflects the nature of transportation under RTO as the LTO Model results cannot serve as an adequate proxy. Such a model should ideally include cost and service impact data from RTO pilots in which RPDC activations and other network changes are introduced along with RTO.

The Commission recommends the Postal Service conduct further preparation before beginning the RTO initiative to improve its likelihood of achieving implementation success, including finalizing the list of post offices eligible for RTO, creating a detailed project implementation plan for RTO beginning with a RTO pilot, and creating a model to estimate RTO transportation cost savings specifically