U.S. Postal Service
Ending Saturday Delivery Would Reduce Costs, but Comprehensive Restructuring Is Also Needed Gao ID: GAO-11-270 March 29, 2011The U.S. Postal Service's (USPS) financial outlook has deteriorated as customers have shifted to electronic alternatives. Mail volumes have declined over 20 percent since fiscal year 2006 and are expected to continue declining. To help its financial outlook, in March 2010, USPS presented a detailed proposal to the Postal Regulatory Commission (PRC) to move from a 6-day to a 5-day delivery schedule. USPS projected this would save about $3 billion annually and reduce mail volume by less than l percent. This proposal factors in widespread changes to USPS's workforce and networks. USPS has also asked Congress to not include language in its annual appropriation requiring 6 day-a-week delivery. As requested, GAO assessed (1) USPS's cost and volume estimates and the operational impacts associated with its 5-day delivery proposal and (2) the trade-offs and other implications associated with this proposal. GAO reviewed USPS's proposal (including its assumptions, methodologies, and conclusions) and other information from the PRC's 5-day delivery proceeding, surveyed postal employee and mailer groups, and interviewed USPS officials and postal employee groups. Because GAO previously recommended that Congress consider providing financial relief to USPS, as well as other cost-saving options, this report contains no new recommendations. USPS generally agreed with GAO's findings and provided additional context on its proposed change to end Saturday delivery.
USPS's proposal to move to 5-day delivery by ending Saturday delivery would likely result in substantial savings; however, the extent to which it would achieve these savings depends on how effectively this proposal is implemented. USPS's $3.1 billion net cost-savings estimate is primarily based on eliminating city- and rural-carrier work hours and costs through attrition, involuntary separations, or other strategies. USPS also estimated that 5-day delivery would result in minimal mail volume decline. However, stakeholders have raised a variety of concerns about USPS's estimates, including, (1) First, USPS's cost-savings estimate assumed that most of the Saturday workload transferred to weekdays would be absorbed through more efficient delivery operations. If certain city-carrier workload would not be absorbed, USPS estimated that up to $500 million in annual savings would not be realized. (2) Second, USPS may have understated the size of the potential mail volume loss due to questions about the methodology USPS used to develop its estimates of how 5-day delivery may affect mail volumes. The extent to which USPS can achieve cost savings and mitigate volume and revenue loss depends on how well and how quickly it can realign its operations, workforce, and networks; maintain service quality; and communicate with stakeholders. USPS has spent considerable time and resources developing plans to facilitate this transition. Nevertheless, risks and uncertainties remain, such as how quickly it can realign its workforce through attrition; how effectively it can modify certain finance systems that cannot be changed until congressional approval for 5-day delivery is granted; and how mailers will respond to this change in service. Further, uncertainties remain as factors other than delivery frequency--e.g., price increases--can also affect mail volumes and revenues. USPS's proposal involves several factors that need to be considered. It would improve USPS's financial condition by reducing costs, increasing efficiency, and better aligning its delivery operations with reduced mail volumes. However, it would also reduce service; put mail volumes and revenues at risk; eliminate jobs; and, by itself, be insufficient to solve USPS's financial challenges. USPS's role in providing universal postal services can affect all American households and businesses, so fundamental changes involve key public policy decisions for Congress. If Congress decides 5-day delivery is necessary, then Congress and USPS could factor the savings into deliberations about what package of actions should be taken to restore USPS's financial viability. Conversely, if Congress maintains the mandate for 6-day delivery, Congress and USPS would need to find other ways to achieve equivalent financial savings, so that the package is sufficient to restore USPS's financial viability. This would likely entail difficult decisions with broad implications for USPS's infrastructure, workforce, and service. As GAO has reported, a package of actions by Congress and USPS is urgently needed to modernize USPS's operations, networks, and workforce.
GAO-11-270, U.S. Postal Service: Ending Saturday Delivery Would Reduce Costs, but Comprehensive Restructuring Is Also Needed
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United States Government Accountability Office:
GAO:
Report to the Ranking Member, Subcommittee on Federal Workforce, U.S.
Postal Service and Labor Policy, Committee on Oversight and Government
Reform, House of Representatives:
March 2011:
U.S. Postal Service:
Ending Saturday Delivery Would Reduce Costs, but Comprehensive
Restructuring Is Also Needed:
GAO-11-270:
GAO Highlights:
Highlights of GAO-11-270, a report to the Ranking Member, Subcommittee
on Federal Workforce, U.S. Postal Service and Labor Policy, Committee
on Oversight and Government Reform, House of Representatives.
Why GAO Did This Study:
The U.S. Postal Service‘s (USPS) financial outlook has deteriorated as
customers have shifted to electronic alternatives. Mail volumes have
declined over 20 percent since fiscal year 2006 and are expected to
continue declining. To help its financial outlook, in March 2010, USPS
presented a detailed proposal to the Postal Regulatory Commission
(PRC) to move from a 6-day to a 5-day delivery schedule. USPS
projected this would save about $3 billion annually and reduce mail
volume by less than l percent. This proposal factors in widespread
changes to USPS‘s workforce and networks. USPS has also asked Congress
to not include language in its annual appropriation requiring 6 day-a-
week delivery.
As requested, GAO assessed (1) USPS‘s cost and volume estimates and
the operational impacts associated with its 5-day delivery proposal
and (2) the trade-offs and other implications associated with this
proposal. GAO reviewed USPS‘s proposal (including its assumptions,
methodologies, and conclusions) and other information from the PRC‘s 5-
day delivery proceeding, surveyed postal employee and mailer groups,
and interviewed USPS officials and postal employee groups. Because GAO
previously recommended that Congress consider providing financial
relief to USPS, as well as other cost-saving options, this report
contains no new recommendations. USPS generally agreed with GAO‘s
findings and provided additional context on its proposed change to end
Saturday delivery.
What GAO Found:
USPS‘s proposal to move to 5-day delivery by ending Saturday delivery
would likely result in substantial savings; however, the extent to
which it would achieve these savings depends on how effectively this
proposal is implemented. USPS‘s $3.1 billion net cost-savings estimate
is primarily based on eliminating city- and rural-carrier work hours
and costs through attrition, involuntary separations, or other
strategies. USPS also estimated that 5-day delivery would result in
minimal mail volume decline. However, stakeholders have raised a
variety of concerns about USPS‘s estimates, including,
* First, USPS‘s cost-savings estimate assumed that most of the
Saturday workload transferred to weekdays would be absorbed through
more efficient delivery operations. If certain city-carrier workload
would not be absorbed, USPS estimated that up to $500 million in
annual savings would not be realized.
* Second, USPS may have understated the size of the potential mail
volume loss due to questions about the methodology USPS used to
develop its estimates of how 5-day delivery may affect mail volumes.
The extent to which USPS can achieve cost savings and mitigate volume
and revenue loss depends on how well and how quickly it can realign
its operations, workforce, and networks; maintain service quality; and
communicate with stakeholders. USPS has spent considerable time and
resources developing plans to facilitate this transition.
Nevertheless, risks and uncertainties remain, such as how quickly it
can realign its workforce through attrition; how effectively it can
modify certain finance systems that cannot be changed until
congressional approval for 5-day delivery is granted; and how mailers
will respond to this change in service. Further, uncertainties remain
as factors other than delivery frequency-”e.g., price increases-”can
also affect mail volumes and revenues.
USPS‘s proposal involves several factors that need to be considered.
It would improve USPS‘s financial condition by reducing costs,
increasing efficiency, and better aligning its delivery operations
with reduced mail volumes. However, it would also reduce service; put
mail volumes and revenues at risk; eliminate jobs; and, by itself, be
insufficient to solve USPS‘s financial challenges. USPS‘s role in
providing universal postal services can affect all American households
and businesses, so fundamental changes involve key public policy
decisions for Congress. If Congress decides 5-day delivery is
necessary, then Congress and USPS could factor the savings into
deliberations about what package of actions should be taken to restore
USPS‘s financial viability. Conversely, if Congress maintains the
mandate for 6-day delivery, Congress and USPS would need to find other
ways to achieve equivalent financial savings, so that the package is
sufficient to restore USPS‘s financial viability. This would likely
entail difficult decisions with broad implications for USPS‘s
infrastructure, workforce, and service. As GAO has reported, a package
of actions by Congress and USPS is urgently needed to modernize USPS‘s
operations, networks, and workforce.
View [hyperlink, http://www.gao.gov/products/GAO-11-270] or key
components. For more information, contact Phillip Herr at (202) 512-
2834 or herrp@gao.gov.
[End of section]
Contents:
Letter:
Background:
USPS Should Achieve Significant Cost Savings from 5-Day Delivery, but
the Extent of Savings Will Depend on How Well the Change Is
Implemented:
Five-Day Delivery Would Provide Cost Savings, but Additional
Restructuring Actions Are Also Needed:
Agency Comments and Our Evaluation:
Appendix I: Objectives, Scope, and Methodology:
Appendix II: Results of GAO's Survey of Mailer and USPS Employee
Groups:
Appendix III: Comments from the United States Postal Service:
Appendix IV: GAO Contact and Staff Acknowledgments:
Related GAO Products:
Tables:
Table 1: Highlights of USPS's 5-Day Delivery Proposal:
Table 2: Description of USPS's Cost-Savings Estimate Associated with
Moving to 5-Day Delivery:
Table 3: USPS's Estimate of Gross Savings from Its 5-Day Delivery
Proposal, Had It Been Fully Implemented in Fiscal Year 2009:
Table 4: USPS's Estimate of How 5-Day Delivery Would Affect Mail
Volume and Net Revenue:
Table 5: Analysis of Key Operational Issues for USPS's 5-Day Proposal:
Table 6: Key Trade-offs Associated with 5-Day Delivery:
Figures:
Figure 1: Implementation Issues or Concerns about USPS's Proposal:
Figure 2: Views of Mailer Groups on Whether USPS's 5-Day Delivery
Proposal Would Affect the Volume of Mail That Their Members or
Customers Send:
Figure 3: How Mailer Groups Expect USPS's 5-Day Delivery Proposal to
Affect the Financial Condition of Their Members:
Figure 4: Overall Views on USPS's 5-Day Delivery Proposal:
Abbreviations:
FTE: full-time equivalent:
MTAC: Mailers Technical Advisory Committee:
NALC: National Association of Letter Carriers:
PRC: Postal Regulatory Commission:
USPS: U.S. Postal Service:
[End of section]
United States Government Accountability Office:
Washington, DC 20548:
March 29, 2011:
The Honorable Stephen F. Lynch:
Ranking Member:
Subcommittee on Federal Workforce, U.S. Postal Service and Labor
Policy:
Committee on Oversight and Government Reform:
House of Representatives:
Dear Mr. Lynch:
The U.S. Postal Service (USPS) has a number of challenging financial
problems, and its financial condition is on our high-risk list.
[Footnote 1] Over the last 4 years, mail volumes have declined by over
20 percent (from 213 billion pieces at the end of fiscal year 2006 to
171 billion pieces at the end of 2010) because of the economic
downturn and the public's changing use of mail. USPS's financial
condition has deteriorated, with cumulative losses of over $20 billion
in the past 4 years. In fiscal year 2011, USPS projects a $6.4 billion
loss and expects to reach its $15 billion statutory debt limit.
Additionally, its long-term outlook is poor. USPS projects that mail
volumes will continue to decline further in the coming decade, with
volumes in fiscal year 2020 comparable to those in fiscal year 1986,
particularly for First-Class Mail. These volume shifts are having a
profound impact on USPS revenues. According to USPS, it generated
$1.80 in daily revenue contribution for each delivery point in fiscal
year 2000; but by fiscal year 2009, that number had shrunk to $1.40,
and by fiscal year 2020, it could be around $1.00. These trends raise
serious concerns about USPS's business model, which has relied on
growth in mail volume to help cover costs.
We have reported that restructuring USPS is urgently needed to enhance
its current and long-term viability.[Footnote 2] We reported that
action by Congress and USPS is needed on a number of difficult issues
so that USPS can move toward financial viability by reducing costs,
increasing efficiency, and generating revenues. On March 2, 2010, USPS
released its Action Plan that identified strategies for addressing its
financial situation.[Footnote 3] The plan included actions that USPS
could take under its existing authority, as well as seven key areas in
which it would need legislative changes or support, one of which was
moving to 5-day delivery. Specifically, USPS asked Congress to not
include the language in its annual appropriations legislation that
requires it to deliver mail 6 days a week. Later that month, it
presented a detailed 5-day delivery proposal and projected this change
would save approximately $3 billion annually and would have a minimal
effect on mail volume. On March 30, 2010, USPS sought a nonbinding
advisory opinion on its proposal from the Postal Regulatory Commission
(PRC). PRC issued its nonbinding advisory opinion on March 24, 2011;
however, since our audit work was completed in early March, this
opinion was not included in this report.
In 2010, Senator Thomas Carper introduced legislation, based on
proposals made by USPS that included a provision that would give USPS
authority to adjust delivery frequency.[Footnote 4] The recently
issued Report of the National Commission on Fiscal Responsibility and
Reform[Footnote 5] also recommended removing the 6-day delivery
requirement. However, 6-day delivery continues to be required in
USPS's annual appropriations legislation, and some Members of Congress
have raised concerns about eliminating Saturday delivery. For example,
Senator Susan Collins also introduced legislation in 2010 to improve
USPS's financial situation[Footnote 6] and stated that pursuing
significant service reductions, including elimination of Saturday mail
delivery, was not a viable long-term solution to the challenges
confronting USPS. To assist the subcommittee in its work, GAO was
asked to review USPS's 5-day proposal and evaluate its related
analysis. Specifically, our objectives were to assess (1) USPS's cost
and volume estimates and the operational impacts associated with its 5-
day delivery proposal and (2) the trade-offs and other implications
associated with USPS's 5-day delivery proposal.
To assess USPS's cost and volume estimates and the operational impacts
associated with its 5-day proposal, we reviewed information submitted
during PRC's proceeding to consider the proposal. This proceeding
included seven public, on-the-record hearings and generated thousands
of public comments, as well as testimony and input on the proposal
from mail users and interested members of the public. We also reviewed
several USPS plans, including its action plan; 5-day delivery
proposal;[Footnote 7] operational specific implementation and
communication plans; and other financial and operational reports. We
interviewed officials from USPS, postal labor unions, and postal
management associations. We analyzed USPS's estimates and the
operational impacts of 5-day delivery, including reviewing the
assumptions and methodologies that USPS used as the foundation for its
conclusions and estimates for cost savings and mail volumes. We also
reviewed relevant congressional hearings and testimonies, proposed
postal reform legislation, and our past work.
To gain additional insight into the financial and operational impacts
associated with USPS's 5-day proposal, we surveyed 65 stakeholder
organizations in the summer of 2010. These organizations included the
seven major postal labor unions and management associations and 58
mailing industry associations that either (1) had formally
participated in the PRC proceeding on 5-day delivery or (2) were
members of the Mailers Technical Advisory Committee (MTAC), a venue
for USPS to share technical information with mailer associations and
other organizations related to the mailing industry and to receive
their advice and recommendations on postal matters. While these groups
represent major segments of the mailing industry and their members
generate most mail volume, they are not statistically representative
of all organizations in the industry, and therefore our survey results
cannot be generalized to the industry as a whole. Finally, to assess
the trade-offs and other implications associated with USPS's 5-day
delivery proposal, we analyzed the evidence collected for this
engagement and our past work on the need to restructure USPS.
We conducted this performance audit from May 2010 to March 2011 in
accordance with generally accepted government auditing standards.
Those standards require that we plan and perform the audit to obtain
sufficient, appropriate evidence to provide a reasonable basis for our
findings and conclusions based on our audit objectives. We believe
that the evidence obtained provides a reasonable basis for our
findings and conclusions based on our audit objectives. Appendix I
contains a detailed discussion of our scope and methodology. We
requested comments from USPS on a draft of this report and its
comments are discussed later in this report and reproduced in appendix
III.
Background:
Mail delivery is central to USPS's mission and role in providing
postal services to "bind the nation together through the personal,
educational, literary, and business correspondence of the people."
[Footnote 8] USPS is required by law to provide prompt, reliable, and
efficient services, as nearly as practicable, to the entire U.S.
population.[Footnote 9] USPS is also required to maintain an efficient
mail collection system. These and related requirements are commonly
referred to as the "universal service obligation." The PRC has
reported that delivery frequency is a key element of universal postal
service.[Footnote 10] Further, provisions in annual USPS
appropriations since 1984 mandate 6-day-a-week delivery and rural mail
delivery at certain levels.[Footnote 11]
The frequency with which customers receive mail service from USPS has
evolved over time to account for changes in communication, technology,
transportation, and postal finances. As recently as 1950, residential
deliveries were made twice a day. It is useful to note that while most
current customers receive delivery service 6 days a week, some
customers receive 5-day or even 3-day-a-week delivery, including
businesses that are not open 6 days a week; resort or seasonal areas
not open year-round; and areas not easily accessible, some of which
require the use of boats, airplanes, or trucks to deliver the mail.
Mail delivery accounted for nearly one-third of USPS's $76 billion in
expenses in fiscal year 2010. That year, USPS recorded compensation
and benefit costs of nearly $23 billion and 586 million work hours for
its more than 310,000 full-and part-time mail carriers. Delivery is
labor intensive and includes carriers manually sorting certain mail
[Footnote 12] into the sequence in which it will be delivered and
delivering mail to, and collecting it from, nearly 131 million
residential and business addresses.[Footnote 13] Moreover, this
delivery network has grown on average by over 1 million addresses each
year over the last 5 years, resulting in additional personnel, fuel,
and vehicle costs. Declines in volumes, however, challenge USPS's
ability to make corresponding cost reductions because some activities--
such as providing 6-day delivery--continue regardless of mail volume.
Former Postmaster General John Potter testified in January 2009 that 6-
day delivery was becoming unaffordable and requested that Congress not
include the restriction in annual appropriations legislation so that
USPS could move to a 5-day delivery schedule. USPS had been unable to
cover its costs, many of which were difficult to cut, as mail volumes
and revenues were declining. USPS developed a cross-functional,
internal task force composed of experts across various operational
areas to examine a variety of topics, including the economic value,
financial and operational impacts, and business risk of eliminating a
day of delivery. The task force solicited input from the public,
mailing industry, and postal unions and management associations. Based
on this work, the task force prepared USPS's March 2010 5-day delivery
plan, which was approved by USPS's Board of Governors. Table 1
summarizes highlights of this plan. The plan recognizes that certain
customers may be negatively affected by the proposed reduction in
service; however, USPS believes the reduction is necessary to improve
its long-term financial viability. In a March 2, 2011, testimony, the
current Postmaster General Patrick Donahoe reiterated USPS's position
on 5-day delivery, stated there is no longer enough mail volume to
support a 6-day delivery model, and said that moving to a 5-day
schedule would strengthen USPS's future.
Table 1: Highlights of USPS's 5-Day Delivery Proposal:
Operational area: Delivery;
What would change under 5-day delivery:
* There will be no Saturday mail delivery to street addresses for
homes and businesses;
What would stay the same under 5-day delivery:
* P.O. Box-addressed mail will still be delivered 6 days a week;
* Express Mail will continue to be collected and processed from
dedicated Express Mail boxes and accepted and processed at post
offices on Saturday, and will continue to be delivered 7 days a week.
Operational area: Mail collection and acceptance;
What would change under 5-day delivery:
* Mail will not be picked up from collection boxes or post offices on
Saturday;
* Mail deposited in collection boxes or accepted at post offices on
Saturday will be processed the following Monday, unless Monday is a
holiday (then it would be processed on Tuesday);
* There will be no Express Mail or Priority Mail Carrier Pickup at
homes and businesses on Saturday;
What would stay the same under 5-day delivery:
* No post office will be closed as a result of the change to 5-day
delivery. Post offices open on Saturday will continue to accept mail
on Saturday;
* Postal facilities that accept business mail on Saturday and Sunday
(e.g., mailings of bills, advertisements, and magazines) will continue
to do so;
* Detached mail units, such as those located at facilities of business
mailers, will be open to accept bulk business mail on Saturday and
Sunday.
Operational area: Mail processing;
What would change under 5-day delivery:
* Mail processing facilities will no longer process (sort and
organize) mail accepted on Saturday, except for Express Mail and local
bulk business mail;
* Transportation of mail between mail processing facilities and post
offices will be reduced;
What would stay the same under 5-day delivery:
* For mail already sorted and organized, transportation will generally
continue as it currently does between mail processing facilities on
Saturday and Sunday;
* Mail processing facilities will perform limited operations needed to
support;
* delivery to P.O. Boxes on Monday through Saturday, and;
* business mail pickup from USPS facilities (Caller Service) on Monday
through Sunday.
Source: GAO analysis of USPS proposal.
[End of table]
USPS estimated that if 5-day delivery had been in effect in fiscal
year 2009, it would have realized $3.1 billion in net savings--
including $3.3 billion in gross savings less $0.2 billion in revenue
losses due to a slight volume decline. Of these savings, $2.7 billion
would have resulted from reducing work performed by city and rural
carriers. City carriers employed specifically to handle delivery on
the sixth day, as well as other part-and full-time city carriers used
to replace regular carriers on the sixth day, would no longer be
needed. USPS plans to achieve these work-hour reductions by attrition,
involuntary separations, or other strategies to reduce work hours.
[Footnote 14] Aside from these city-carrier savings, other savings
would be achieved by eliminating rural-carrier work hours that would
no longer be needed on Saturday, as well as other associated vehicle,
supervisor, and transportation costs.
USPS's estimate of gross savings was based on "full-up savings," which
assumed that the transition to 5-day delivery, including the
associated operational and workforce changes, had been fully
implemented.[Footnote 15] USPS has not reported how many years this
transition would take, but has noted that it would include realigning
USPS's workforce through attrition and other changes. Tables 2, 3, and
4 summarize USPS's gross savings, mail volume, and net revenue
estimates, including the supporting methodology and assumptions.
Table 2: Description of USPS's Cost-Savings Estimate Associated with
Moving to 5-Day Delivery:
Conclusion: USPS estimated that if 5-day delivery had been in effect
in fiscal year 2009, it would have realized $3.3 billion gross cost
savings, achieved by saving over 40,000 full-time equivalent (FTE)
positions. Of these savings, over 90 percent would be achieved by
eliminating 26,400 city-carrier and 9,925 rural-carrier FTE positions.
USPS estimates that this change would lead to reductions of 47 million
city-carrier work hours and 18 million rural-carrier work hours. Table
3 shows how USPS determined its gross savings.
Methodology: USPS's methodology for calculating its cost-savings
estimate relied on three key steps:
Step 1: Establish the appropriate baseline for the 6-day environment.
This included looking at the operations that support Saturday
delivery--for example, USPS determined that 145 of its 270 mail
processing facilities process outgoing First-Class Mail on Saturday;
Step 2: Review the operational response to 5-day delivery to identify
possible cost implications of the operational changes. In doing so,
USPS modeled operations at each processing facility to determine the
changes that would be needed to transition to a 5-day operating
environment. This included analyzing operations that would be
eliminated on Saturday, operations that would continue on Saturday,
operations on Monday through Friday that would be influenced by the
migration of mail from Saturday, and changes in indirect resources,
such as supervisors and vehicles;
Step 3: Calculate the sum of the direct and indirect cost impacts and
then subtract them from the corresponding 6-day delivery costs
determined in Step 1. USPS relied on operational and costing experts
to translate these operational changes into dollar cost savings.
Key assumptions: To develop its estimates of gross savings, USPS made
the following key assumptions:
* A significant amount of mail that is currently delivered on Saturday
is expected to be shifted to Monday without causing major increases in
the time city carriers spend delivering mail. Based on the judgment of
its operational experts, USPS assumed that most of the Saturday
workload transferred to weekdays would be absorbed through more
efficient delivery operations. USPS noted that city-carrier
productivity has been falling in recent years as mail volumes have
declined. USPS then concluded that higher carrier productivity would
again be achieved in a 5-day environment because weekday delivery
volumes would increase with the addition of Saturday volumes;
* USPS's air transportation network would have sufficient capacity
because it has, given current volume levels, excess capacity under the
existing contracts;
* USPS would be able to reduce work hours and match reductions in
workload through (1) retirements or attrition, (2) involuntary
separations of employees not covered by no-layoff protections, most of
whom are part-time employees, (3) work-hour reductions for some part-
time employees, and (4) reassignments.
Source: GAO analysis of USPS proposal.
[End of table]
Table 3: USPS's Estimate of Gross Savings from Its 5-Day Delivery
Proposal, Had It Been Fully Implemented in Fiscal Year 2009:
Operation: Delivery: City carriers;
Work-hour savings: 47.2 million;
Gross savings: $2.263 billion.
Operation: Delivery: Rural carriers;
Work-hour savings: 18.0 million;
Gross savings: $484 million.
Operation: Transportation;
Work-hour savings: 1.2 million;
Gross savings: $376 million.
Operation: Mail processing;
Work-hour savings: 2.4 million;
Gross savings: $123 million.
Operation: Retail operations;
Work-hour savings: 1.2 million;
Gross savings: $53 million.
Operation: Total;
Work-hour savings: 70.0 million;
Gross savings: $3.300 billion.
Source: USPS data.
Note: Gross savings are from all sources of savings, such as
compensation, benefits, and contract savings (e.g., savings from
contracts for long-distance transportation of mail).
[End of table]
Table 4: USPS's Estimate of How 5-Day Delivery Would Affect Mail
Volume and Net Revenue:
Estimate: USPS estimated that if 5-day delivery had been in effect in
fiscal year 2009, mail volume would have been 0.71 percent less (about
1.2 billion pieces), resulting in a loss in gross revenue of $466
million. USPS estimated that this loss would have been offset by a
$260 million decrease in costs avoided by not handling this volume. As
a result, USPS estimated a net revenue loss of $206 million due to the
volume loss resulting from the change to 5-day delivery.
Methodology: USPS contracted with a market research company to develop
and support its estimate of the impact a 5-day delivery schedule would
have on mail volume. Among other things, the company surveyed business
mailers and the public in late 2009, asking them to estimate how
USPS's 5-day proposal would affect their mail volume levels. To do
this, USPS described its 5-day proposal to business mailers and then
asked them to estimate the following:
* their USPS mail volumes in the coming year under 6-day delivery;
* the likelihood that 5-day delivery would cause their organization to
modify their mail volumes, rated on a scale from 0 to 10, where "0"
means extremely unlikely and "10" means extremely likely; and;
* for those who had answered the likelihood question from "1" to "10"
(i.e., all answers but "0") their USPS mail volumes in the first 12
months after 5-day delivery was implemented.
USPS then calculated each mailer's estimated change in volume and
judged how to apply the "likelihood factor" to the mailer's estimate
as follows:
* Example 1: If a business mailer estimated a 50,000-piece volume loss
and said its likelihood was "10" on the 0 to 10 scale, USPS would
factor in a 50,000-piece volume decline;
* Example 2: If a business mailer estimated a 50,000-piece volume loss
and said its likelihood was "5" on the 0 to 10 scale, USPS would
factor in a 25,000-piece volume decline;
* Example 3: If a business mailer estimated a 50,000-piece volume loss
and said its likelihood was "1" on the 0 to 10 scale, USPS would
factor in a 5,000-piece volume decline.
USPS asked similar questions of residential customers surveyed to
obtain their estimates of how 5-day delivery would affect their mail
volumes, including applying the likelihood factor. These customers
were asked for their actual mail volumes in the past 12 months and
what these mail volumes would have been if 5-day delivery had been in
effect during that time.
Key assumptions: USPS assumed that mailers would overstate the impact
of 5-day delivery on their mail volumes. In support of this
assumption, USPS stated that the "likelihood factor" is a measure of
purchase intention routinely used in market research studies to assess
consumer intention to purchase possible new products and services.
USPS said the information collected by its 5-day research was typical
of such market research studies and, thus, the application of the
"likelihood factor" to reduce mailer estimates would produce more
accurate results.
USPS also assumed that its volume-impact estimate was usable even
though it was based on respondents' reactions to a 5-day proposal that
reduced service more than the 5-day proposal USPS subsequently
proposed. Specifically, USPS modified its original 5-day delivery
concept based on input from mailers, market research, and other
analysis. For example, USPS decided it would not close business mail
entry units and would continue to accept certain bulk mail on
weekends, and would continue weekend Express Mail collections from
dedicated collection boxes. These modifications were designed to
mitigate the impact of 5-day delivery on business and individual
mailers.
Source: GAO analysis.
[End of table]
These assumptions, methodologies, and conclusions have generated a
significant amount of debate since USPS requested an advisory opinion
from PRC in March 2010. USPS is required to request a PRC advisory
opinion on a service change when USPS determines that there should be
a change in the nature of postal services that will generally affect
service on a nationwide basis.[Footnote 16] The resulting PRC public
proceeding has provided a detailed record that includes, among other
things, USPS's proposal and its supporting evidence; input provided by
interested parties through oral and written testimony and other
supporting evidence; and various statements and rebuttals submitted by
USPS and interested parties. PRC issued its nonbinding advisory
opinion on March 24, 2011; however since our audit work was completed
in early March, this opinion was not included in this report.
USPS Should Achieve Significant Cost Savings from 5-Day Delivery, but
the Extent of Savings Will Depend on How Well the Change Is
Implemented:
Cost Savings from 5-Day Delivery Are Likely to Be Significant, but
Some Savings Will Depend on Increasing City-Carriers' Productivity:
USPS is likely to achieve significant cost savings by reducing
delivery from 6 days to 5 days because it would eliminate costs
associated with carriers traversing their routes on Saturday. During
the PRC proceeding, however, stakeholders raised a variety of
criticisms about the assumptions, methodology, and conclusions USPS
used to determine its cost-savings estimate. Exchanges have occurred
between the stakeholders and USPS about these criticisms. Our analysis
of these exchanges and our independent analysis[Footnote 17]
identified a key area of concern that may have a considerable impact
on USPS's estimate of net financial savings--how efficiently USPS can
absorb the cost of its workload transferred from Saturday to weekdays.
USPS assumed that most of the Saturday workload transferred to
weekdays would be absorbed through more efficient operations.
According to USPS, this assumption was based on operational judgments
that excess capacity in city-delivery operations would be used to
accommodate this shifted mail volume because, among other things, the
time associated with certain carrier activities (i.e., loading mail
into mailboxes) could be performed with greater mail volumes without
much increase in work hours. USPS also assumed that a significant
portion of its delivery operations would not be substantially affected
because this work must be performed regardless of mail volumes (e.g.,
driving the route). USPS stated it expects that absorbing shifted mail
volumes would raise city-carrier productivity, and in doing so, would
reverse the productivity declines experienced from shrinking mail
volumes. Specifically, USPS has reported that city-carrier
productivity[Footnote 18] has decreased in recent years as mail volume
has declined. USPS stated that in a 5-day environment, with Saturday
volume transferred to weekdays, higher carrier productivities would be
reached.[Footnote 19] The National Association of Letter Carriers
(NALC), which represents city carriers, expressed concerns that this
higher city-carrier productivity may not be realized. Specifically, it
stated that recent route adjustment efforts have resulted in routes
that have little or no excess capacity to absorb the transferred
volumes. If certain Saturday city-carrier delivery work hours were not
absorbed under 5-day delivery (when mail is transferred to other days
of the week), USPS estimated the cost savings would be reduced by up
to $500 million. To the extent to which USPS can absorb this Saturday
workload, city-carrier productivity and cost savings should increase.
We believe that USPS could realize some increase in city carriers'
productivity under 5-day delivery, but the extent to which such an
increase would be realized and workload from Saturday to weekdays
would be absorbed between Monday and Friday would depend on several
factors. These factors would include how effectively USPS implemented
its 5-day delivery plans and managed its city carriers and their
workload based not only on 5-day delivery, but also on other actions
to increase delivery efficiency, such as adjusting delivery routes and
deploying flat-mail sorting equipment.
In addition, the Greeting Card Association raised concerns during the
PRC proceeding about the compensation rates and attrition levels USPS
used in calculating its initial work-hour savings. USPS acknowledges
it will not achieve its estimated savings from 5-day delivery within
the first year of implementation, in part because some savings are
based on realigning USPS's workforce over time through attrition and
other changes. USPS can use workforce strategies to support its
workforce transition, such as not filling vacancies before
implementing 5-day delivery or offering early-out retirement. USPS
also has flexibility to reduce hours for different types of noncareer
part-time employees whose wages vary widely, but are generally less
than the wage levels USPS assumed in its cost-savings estimates. The
timing and amount of savings achieved would be influenced by how these
strategies were employed and when eligible employees decided to retire.
Five-Day Delivery Will Likely Result in Volume Loss and Concerns Have
Been Raised that USPS May Have Understated these Losses:
USPS and many others agree that 5-day delivery will produce some
volume loss as mailers and customers see service reduced with the
elimination of Saturday delivery. Concerns have been raised, however,
that USPS may have understated the potential volume losses based on
questions about the methodology USPS used to develop its estimate and
the impact of other factors that can affect mail volumes. During the
PRC proceeding, for example, some stakeholders raised questions about
USPS's methodology for adjusting mailers' estimates of how 5-day
delivery would affect their mail volumes. USPS adjusted these
estimates in one direction which could lead to estimates that would
underestimate potential volume loss in a 5-day environment. For
example:
² Example using USPS methodology. If a business mailer estimated (1) a
50,000-piece volume loss and (2) it was 50 percent likely to modify
its mail volume under 5-day delivery, USPS adjusted the mailer
estimate and incorporated a 25,000-piece volume loss into its analysis.
² Alternative methodology. If a business mailer estimated (1) a 50,000-
piece volume loss and (2) it was 50 percent likely to modify its mail
volume under 5-day delivery, it may have been more appropriate to
adjust the estimated loss in both directions. Under this methodology,
the analysis could incorporate losses of 25,000 and 75,000 pieces.
² Alternative methodology. Make no adjustments and incorporate the
mailer estimates at face value.
Although USPS indicated that its method of adjusting mailer estimates
was a standard industry practice, decision makers may find it useful
to have an analysis that reflects adjustments in each direction or
just takes the mailer estimates at face value. In addition, some
stakeholders expressed concern about potential bias in USPS's mailer
surveys supporting its estimate of a 0.71 percent volume loss
resulting from a shift to 5-day delivery--some said that the
questionnaire language elicited overstatements of volume loss, while
others said that it elicited understatements of volume loss. USPS
stated that its estimate likely overstated the volume and revenue
losses that would result from its 5-day delivery proposal because
respondents were asked about service cutbacks that USPS subsequently
dropped after conducting the survey. According to NALC, however,
aspects of the questionnaire language encouraged respondents to
understate the degree to which 5-day delivery would affect their
future mail volumes. USPS responded that the questionnaire was
designed to address potential biases and was carried out in a manner
that avoided them.
In addition to these methodological issues, information collected from
our survey of mailer groups in the summer of 2010 suggests that these
groups are somewhat uncertain about how 5-day delivery would affect
future mail volumes.[Footnote 20] For example, when asked "do the
members of your organization expect USPS's proposal for 5-day delivery
to affect the mail volumes that they or their customers send?" 51
percent of respondents answered "yes," 29 percent "no," and 20 percent
"not sure" (see appendix II for survey results). Five-day service is
only one factor among many others, such as postage prices, the
availability of electronic alternatives, competition, the cost-
effectiveness of mail, quality of service, and ease of use that
residential and business customers consider as they plan their current
and future use of mail. Changes in any of these key factors may affect
future mail volume, particularly given the uncertainty about the
effects of 5-day delivery.
Addressing Operational Concerns Would be Key To Successfully
Implementing 5-Day Delivery:
Implementing 5-day delivery would require USPS to realign its
operations network to increase efficiency, maintain service, and
address many of the operational issues raised by stakeholders. To its
credit, USPS has dedicated a substantial amount of staff time and
other resources to study the staff, system, network, and operational
realignments needed to transition to a 5-day environment and has
developed communication and implementation plans to support this
effort. Risks remain, however, that could threaten USPS's ability to
implement these plans and achieve its financial targets.
Stakeholders have raised a variety of operational issues about USPS's
proposal, such as the extent to which USPS will be able to maintain
high-quality service; align its processing, retail, and delivery
network with changes in workload; and communicate changes with
stakeholders. These operational issues would have a direct impact on
its ability to capture its estimated cost savings and retain volumes.
To address these issues, USPS has developed:
² communication plans for internal and external stakeholders,
including employees, mailers, and the public, and:
² implementation plans across functional areas, such as delivery,
transportation, mail processing, and post office operations. These
plans describe the major tasks, milestones, and time frames needed to
transition to 5-day delivery within 6 months of congressional approval.
Because USPS field officials will play a major role in making these
changes, USPS headquarters officials are working with field-staff
representatives to develop implementation guidance. This guidance,
which is to be finalized in March 2011, will include checklists of key
steps that field managers will have to complete to be adequately
prepared for the transition.
Table 5 identifies questions that we or stakeholders have raised about
USPS's ability to make the operational changes necessary to transition
to a 5-day environment.
Table 5: Analysis of Key Operational Issues for USPS's 5-Day Proposal:
Operational issue: How will USPS maintain service quality?
USPS response: USPS will monitor service quality and respond to any
issues that may arise;
GAO analysis: Service quality will depend on how well USPS makes the
operational changes discussed below, handles greater workload on
weekdays, and responds to any issues that arise.
Operational issue: Will USPS adjust mail entry times for bulk business
mail (e.g., bulk mailings of bills, advertisements, and magazines)?
USPS response: USPS is evaluating entry times for bulk business mail,
but has incorporated no changes into its current implementation plans;
GAO analysis: Balancing the types of mail, type of facility, capacity
at that facility (e.g., the extent to which dock space is available)
and mailer input will be important when evaluating possible changes to
entry times.
Operational issue: How will USPS handle additional Monday/Holiday
volumes?
USPS response: USPS has modeled operations at mail processing
facilities to determine needed changes. USPS expects the facilities to
have ample capacity under 5-day delivery, but has contingency plans to
use overtime work hours to process additional volume;
GAO analysis: How well USPS handles these volumes will depend on its
ability to use available time and capacity; realign its workforce; and
coordinate with mailers. It may take some time for these changes to be
implemented throughout the network.
Operational issue: Will USPS be able to change its surface and air
transportation contracts?
USPS response: USPS's transportation contracts may need to be
modified, renegotiated, or canceled under the change to 5-day delivery
using processes similar to those now being used to reassess
transportation needs and contracts;
GAO analysis: Factors such as the contract renewal terms, volume
shifts, and mailing pattern changes will be important when working
with transportation suppliers to modify contracts.
Operational issue: How will USPS adjust carrier assignments and
workload?
USPS response: These adjustments, which include eliminating positions
and adjusting carrier office and street time, will be made in
coordination with current collective bargaining agreements, existing
processes, or both;
GAO analysis: The success of these adjustments both during and after
the transition (particularly as volumes may fluctuate with the
operational and service changes) will depend in part on how
collaboratively USPS works with postal labor unions and how quickly it
adjusts carrier routes and assignments.
Operational issue: How will USPS reduce work hours?
USPS response: Key strategies include attrition (primarily through
retirements), elimination of positions, involuntary separations of
noncareer employees, work-hour reductions for part-time employees, and
reductions in overtime use;
GAO analysis: Because large numbers of employees are eligible for
retirement, USPS has opportunities to make work-hour reductions, but
fully implementing workforce changes will likely take more than a year.
Operational issue: What happens at the post offices and other retail
locations that do not offer Saturday retail hours?
USPS response: USPS stated that customer demand after implementation
would be analyzed and that retail hour adjustments, such as extending
current hours or instituting new hours, would be considered;
GAO analysis: Optimizing USPS's retail network will depend on
coordinating 5-day delivery with other efforts such as expanding
retail access using lower-cost alternatives and closing unneeded
facilities.
Operational issue: What is USPS's strategy for notifying stakeholders
of changes?
USPS response: USPS plans to use multiple strategies and channels to
notify stakeholders, including mailings, print and broadcast news
media, signage in retail facilities and collection boxes, call
centers, and its Web site, [hyperlink, http://www.usps.com];
GAO analysis: Because of the scope of these changes and the potential
for unexpected outcomes, it will be important for USPS to discuss
operational issues as they arise with relevant stakeholders and,
equally important, be proactive in communicating planned changes.
Source: GAO analysis.
[End of table]
As USPS recognizes, some actions included in its proposal would
require sizable modifications throughout its workforce and operational
networks, and some actions will take longer to implement than others.
Furthermore, due to their design and complexity, certain USPS
information systems (e.g., finance systems) will not be modified
unless and until Congress allows 5-day delivery. If any major
difficulties arise while these information systems are being updated,
the timing of other key operational changes may be delayed.
Five-Day Delivery Would Provide Cost Savings, but Additional
Restructuring Actions Are Also Needed:
Five-Day Delivery Involves Difficult Trade-offs:
USPS's 5-day delivery proposal involves both positive and negative
effects. Key benefits would include improving USPS's financial
condition by reducing costs; reducing the size of its workforce; and
increasing efficiency by better aligning delivery operations with
reduced mail volumes. On the minus side, it would reduce service; put
mail volumes and revenues at risk; eliminate jobs; decrease USPS
advantages over competitors that do not have Saturday delivery; and,
by itself, be insufficient to solve USPS's financial challenges. Table
6 summarizes these and other key trade-offs.
Table 6: Key Trade-offs Associated with 5-Day Delivery:
Pros of 5-day delivery:
Financial condition: This option is one of few options that USPS has
identified that would lead to multibillion-dollar cost savings after
it is fully implemented. This financial benefit would:
* reduce the need for other cost-saving actions that would affect
service, such as reducing window service hours at post offices and
retail facilities;
* reduce the size of its workforce, which may be facilitated by the
large number of retirement-eligible staff.
Efficiency: Would better align delivery operations with reduced mail
volume.
National implementation: Compared to other options that may impact
only certain customers in certain locations, this option would affect
all business and residential customers that receive carrier delivery;
Cons of 5-day delivery:
Service: This option would reduce service, which could negatively
affect certain customer groups that may depend more on USPS for mail
delivery than other groups that have alternatives:
* business mailers, local newspapers that rely on Saturday delivery,
and residential mailers who would be affected by longer mail transit
times; and;
* other population groups, such as rural residents, the homebound, or
the elderly.
Volumes/revenues: Would reduce volume and revenue.
Employees: Would reduce the number of USPS jobs and could lead to the
relocation or reassignment of certain employees and a reduction in
work hours for some part-time employees.
Advantage over competitors: Could reduce the advantage that USPS has
over competitors that do not offer Saturday delivery, particularly
delivering postal parcels on Saturdays at no additional charge.
USPS brand image: Could diminish USPS's image, in part by reducing
public contact with carriers.
Source: GAO analysis.
[End of table]
Moving to 5-day delivery would not, by itself, resolve USPS's
considerable financial challenges. We have reported that a variety of
actions are needed for USPS to adapt more quickly to changes in the
public's use of mail and to achieve financial viability. USPS's 5-day
proposal should be considered in the context of other restructuring
strategies both within and outside the delivery network. In April
2010,[Footnote 21] we discussed strategies and options across multiple
operational and financial areas targeted at reducing operational costs
and improving efficiency, including the following:
² Delivery operations--expand use of more cost-efficient delivery,
such as cluster boxes.
² Retail operations--optimize the retail facility network, move more
retail services to private stores and self-service locations, and
close unneeded facilities.
² Mail processing operations--close unneeded facilities or relax
delivery standards to facilitate closures or consolidations.
We have also reported on other actions that could improve USPS's
overall financial condition,[Footnote 22] including the following:
² revising retiree health benefits funding requirements,
² reducing compensation and benefit costs, and:
² generating revenues through product and pricing flexibility.
Mailer, business, and public use of the mail is changing as technology
and alternatives evolve. Five-day service is one factor among many
others, such as postage prices, the availability of electronic
alternatives, competition, the cost-effectiveness of mail, quality of
service, and ease of use that residential and business customers
consider as they plan their current and future use of the mail.
Through our survey of mailer groups and major postal labor unions and
management associations, conducted in the summer of 2010, we found
that they were divided over the merits of 5-day delivery, with the
groups offering diverse perspectives on the potential effects on mail
volume and members' finances. Asked about USPS's proposal for 5-day
delivery, about half of those surveyed did not express an overall
view, with some explaining that their members had differing views on
the matter. Of those surveyed, 22 percent favored USPS's proposal,
including some who said it would lower USPS's costs and thus help keep
rates down. Some other proponents qualified their support, such as by
stating they would favor 5-day delivery only as part of a package of
changes to improve USPS's financial condition. Twenty-eight percent
opposed USPS's proposal, often stating it would reduce mail volume and
harm USPS's business. Some mailer groups said the change would
negatively affect customers and increase their costs, while others
said they would prefer other options to improve USPS's financial
condition. Postal labor unions and management associations raised
similar objections. One employee organization expressed concern that 5-
day delivery would negatively affect vulnerable populations, such as
rural residents, the homebound, the elderly, and small businesses that
depend on the mail. Another employee organization expressed concerns
that 5-day delivery would negatively affect Saturday retail service
and efficiency, as well as reduce support for USPS and its monopoly on
delivering mail to mailboxes. See appendix II for tabulations of the
responses to our survey.
A Decision on 5-Day Delivery Should Be Made in Conjunction With
Additional Restructuring Actions:
The status quo is unsustainable as USPS is unable to finance its
current operations and service levels. Action by Congress and USPS is
urgently needed to comprehensively restructure USPS's operations,
networks, and workforce and to modernize its organization. We recently
reported that Congress and USPS urgently need to reach agreement on a
package of actions to restore USPS's financial viability and enable it
to begin making necessary changes.[Footnote 23] We also stated that
Congress should consider any and all options available to reduce
USPS's costs, and that one option for Congress is to not include
appropriations language requiring 6-day delivery. When fully
implemented, 5-day delivery would provide USPS with needed cost
savings, although the extent of those savings is uncertain. Additional
uncertainties remain as factors other than delivery frequency--e.g.,
price increases--can also affect mail volumes and revenues. USPS's
role in providing universal postal services can affect all American
households and businesses, so fundamental changes to universal postal
services involve key public policy issues for Congress to decide. Some
questions for Congress to consider include the following:
² What aspects of universal postal service, including frequency of
mail delivery, are appropriate in light of fundamental changes in the
use of mail?
² How much postal service does the nation need and what restructuring
of USPS's operations is needed for USPS to become more efficient,
cover its costs, keep rates affordable, and meet changing customer
needs?
² What incentives and oversight mechanisms are needed to ensure an
appropriate balance between providing USPS with more flexibility and
ensuring sufficient transparency, oversight, and accountability?
Congressional decision-making actions on USPS's 5-day delivery
proposal will be informed not only by this report but also by PRC's
public proceedings and advisory opinion on the proposal. If Congress
decides 5-day delivery is necessary, Congress and USPS could factor
the savings from 5-day delivery into deliberations about what package
of actions should be taken to restore USPS's financial viability.
Conversely, if Congress maintains the mandate for 6-day delivery,
Congress and USPS would need to find other ways for USPS to achieve
other substantial financial savings. This would entail difficult
decisions with implications for USPS's infrastructure, workforce, and
service.
USPS's financial crisis is nearing a tipping point as USPS anticipates
having insufficient cash at the end of fiscal year 2011 to meet all of
its obligations, as well as reaching its $15 billion statutory debt
limit. Addressing USPS's financial viability is critical, since USPS
plays a vital role in the U.S. economy and provides postal services to
all communities. Because GAO previously recommended that Congress
consider providing USPS with financial relief, and in doing so,
consider all options available to reduce costs, this report contains
no new recommendations.
Agency Comments and Our Evaluation:
We provided a draft of this report to USPS for review and comment.
USPS provided comments in a letter from the Vice President, Corporate
Communications, dated March 18, 2011. These comments are presented in
appendix III. USPS also provided technical comments, which we
incorporated where appropriate. USPS generally agreed with our
findings, but provided additional context for these findings. USPS
said that the net cost savings from ending Saturday delivery would be
significant given its operations and cost structure. USPS also stated
that it agrees with the findings in our report that said there are
always risks and uncertainties in modifying information systems.
However, USPS noted that most of its information systems that need to
be modified to support 5-day delivery have already passed rigorous
testing and there is no appreciable risk or uncertainty relating to
these systems. Finally, USPS commented that a change to 5-day delivery
is needed because there is no longer sufficient volume to sustain 6-
day delivery, and that moving to 5-day delivery is one of the
fundamental business model changes needed to help it close the gap
between revenues and costs.
We are sending copies of this report to the appropriate congressional
committees, the Postmaster General, the Chairman of the Postal
Regulatory Commission, and other interested parties. In addition, the
report will be available at no charge on GAO's Web site at [hyperlink,
http://www.gao.gov].
If you or your staffs have any questions about this report, please
contact me at (202) 512-2834 or herrp@gao.gov. Contact points for our
Offices of Congressional Relations and Public Affairs may be found on
the last page of this report. GAO staff who made key contributions to
this report are listed in appendix IV.
Sincerely yours,
Signed by:
Phillip Herr:
Director, Physical Infrastructure Issues:
[End of section]
Appendix I: Objectives, Scope, and Methodology:
The objectives of our work were to assess (1) the U.S. Postal
Service's (USPS) cost and volume estimates and the operational impacts
associated with its 5-day delivery proposal and (2) the trade-offs and
other implications associated with this proposal.
To assess these estimates and impacts, we reviewed documents and
testimonies from a wide variety of postal stakeholders, including
USPS, the Postal Regulatory Commission (PRC), mailers, unions,
management associations, economists, and concerned citizens. Much of
this information was submitted as part of PRC's review of USPS's
proposal to move to 5-day delivery. We also reviewed USPS's action
plan entitled Ensuring a Viable Postal Service for America: An Action
Plan for the Future; a 5-day delivery plan entitled Delivering the
Future: A Balanced Approach, Five-Day Delivery Is Part of the
Solution; operational-specific communication and implementation plans;
and other financial and operational information contained in USPS's
annual reports, integrated financial plans, and comprehensive
statements. We also reviewed reports from PRC, the USPS Office of
Inspector General, the Congressional Research Service, the
Congressional Budget Office, and the National Commission on Fiscal
Responsibility and Reform; relevant congressional hearings and
testimonies; laws requiring 6-day delivery; pending postal reform
legislation; and our past work. We interviewed officials from USPS,
including officials on its 5-day delivery task force, postal labor
unions, and postal management associations.
In conducting our analysis of the estimates and operational impacts of
5-day delivery, we also reviewed the assumptions and methodologies
that USPS used as the foundation for its conclusions and estimates for
cost reduction and mail-volume impact. We reviewed the multiple
exchanges before PRC about issues or criticisms that stakeholders had
raised about USPS's assumptions, methodology, operational issues, and
conclusions and USPS's corresponding responses. In assessing the
estimates themselves and these various exchanges, we considered the
following criteria for conducting these types of reviews: the
magnitude of criticism on the overall estimate; the internal
consistency; consistency with social science best practices; the
reasoning or support behind the methodology; and the presence of
agreement and/or disagreement among stakeholders.
After applying these criteria, we further analyzed two issues that may
significantly affect USPS's net financial savings estimate--(1) USPS's
assumption and judgment that most of the Saturday workload transferred
to weekdays would be absorbed through more efficient city delivery
operations and (2) USPS's methodology for estimating the effect of its
5-day delivery proposal on mail volume, including reducing mailers'
estimates based on their responses to the question asking about the
likelihood that their mail volumes would change if USPS implemented
its proposal.
We surveyed 65 selected stakeholders in the summer of 2010 about their
views on USPS's proposal for 5-day delivery, including implementation
issues, concerns, and questions; their views on whether the
implementation of USPS's 5-day proposal would affect mail volume and
mailers' financial conditions; and their overall position on USPS's 5-
day proposal. Stakeholders we identified included all seven major
postal labor unions and management associations and 58 mailing
industry associations that either (1) formally participated in PRC's
proceeding on 5-day delivery or (2) were members of the Mailers
Technical Advisory Committee (MTAC). MTAC is a venue for USPS to share
technical information with mailers and to receive advice and
recommendations from mailers on matters concerning mail-related
products and services. MTAC members include mailer associations and
other associations and organizations related to the mailing industry.
MTAC organizations represent major segments of the mailing industry
and members of MTAC organizations that generate most mail volume.
However, MTAC organizations are not statistically representative of
all organizations in the mailing industry and, therefore, our survey
results cannot be generalized to the industry as a whole. We received
responses from five major postal labor unions and management
associations and 45 mailing industry associations, for a combined
response rate of about 77 percent.
Our work to assess the trade-offs and other implications associated
with USPS's 5-day delivery proposal was based on analyzing the
evidence collected for this engagement and our past work on
restructuring options and strategies for USPS.
We conducted this performance audit from May 2010 to March 2011 in
accordance with generally accepted government auditing standards.
Those standards require that we plan and perform the audit to obtain
sufficient, appropriate evidence to provide a reasonable basis for our
findings and conclusions based on our audit objectives. We believe
that the evidence obtained provides a reasonable basis for our
findings and conclusions based on our audit objectives.
[End of section]
Appendix II: Results of GAO's Survey of Mailer and USPS Employee
Groups:
Tabulations of the 50 responses to our survey from five major postal
labor unions and management associations and 45 mailing industry
associations follow. Some questions in the survey were asked of all
organizations; other questions applied only to mailer groups.
Figure 1: Implementation Issues or Concerns about USPS's Proposal:
[Refer to PDF for image: pie-chart]
Mailer/USPS Employee Group Question: Do the members of your
organization have any issues or concerns regarding how USPS plans to
implement its proposal for 5-day delivery?
Yes: 88%;
No: 8%;
Not sure: 4%.
Source: GAO survey.
[End of figure]
Figure 2: Views of Mailer Groups on Whether USPS's 5-Day Delivery
Proposal Would Affect the Volume of Mail That Their Members or
Customers Send:
[Refer to PDF for image: pie-chart]
Mailer Group Question: Do the members of your organization expect
USPS's proposal for 5-day delivery to affect the mail volume that they
or their customers send?
Yes: 51%;
No: 20%;
Not sure: 20%.
Source: GAO survey.
[End of figure]
Figure 3: How Mailer Groups Expect USPS's 5-Day Delivery Proposal to
Affect the Financial Condition of Their Members:
[Refer to PDF for image: pie-chart]
Mailer Group Question: How would USPS's proposal for 5-day delivery
affect the financial condition (i.e., costs and/or revenues) of your
members?
Make better: 4%;
No effect: 24%;
Make worse: 40%;
No position: 22%;
No answer: 9%.
Source: GAO survey.
[End of figure]
Figure 4: Overall Views on USPS's 5-Day Delivery Proposal:
[Refer to PDF for image: pie-chart]
Mailer/USPS Employee Group Question: Does your organization favor,
oppose, or have no position on USPS's proposal to reduce delivery to 5
days a week?
Favor: 22%;
Oppose: 28%;
No position: 44%;
No answer: 6%.
Source: GAO survey.
[End of figure]
[End of section]
Appendix III: Comments from the United States Postal Service:
United States Postal Service:
Samuel M. Pulcrano
Vice President, Corporate Communications:
475 L'Enfant Plaza, Sw
Washington DC 20250-3100:
[hyperlink, http://www.usps.com]
March 18, 2011:
Mr. Phillip Herr:
Director, Physical Infrastructure Issues:
United States Government Accountability Office:
441 G Street, NW:
Washington, DC 20548-0002:
Dear Mr. Herr:
Enclosed are the Comments of the United States Postal Service to the
draft report of the United States Government Accountability Office
(GAO) to the Ranking Member, Subcommittee on Federal Workforce, U.S.
Postal Service and Labor Policy, Committee on Oversight and Government
Reform, House of Representatives, "Ending Saturday Delivery Would Reduce
Costs, but Comprehensive Restructuring Also Needed." We request that
our comments be included in Appendix III of the Report.
You and your team are to be commended as they have produced a balanced
report on the Postal Service proposal to eliminate Saturday delivery
and collection of mail and its readiness to do so. We are appreciative
of that effort.
Moving to a five-day delivery schedule is a critical element in the
Action Plan for the Future the Postal Service advanced in March 2010.
That plan details the strategies necessary to ensure a viable Postal
Service well into the 21st Century.
This subject is not new to the GAO, as you have in the past urged the
Congress to give this proposal serious consideration. For our part, we
did not come to this point without serious thought, and the decision
to ask that we be allowed to reduce delivery to five days a week was a
difficult one.
We believe, however, that we had made the case that a six-day schedule
is no longer sustainable. Postal finances can no longer afford it and
mail volumes cannot support it. Your continued interest in the Postal
Service is greatly valued.
Sincerely,
Signed by:
Samuel M. Pulcrano:
Enclosure:
[End of letter]
Response And Comments Of United States Postal Service To GAO Report On
Ending Saturday Delivery:
The Postal Service appreciates the efforts of the GAO to provide a
balanced report on its proposal to eliminating Saturday delivery and
collections of mail. The Postal Service provides below its comments in
response to the United States Government Accountability Office (GAO)
Report to the Ranking Member, Subcommittee on Federal Workforce, U.S.
Postal Service and Labor Policy, Committee on Oversight and Government
Reform, House of Representatives, "Ending Saturday Delivery Would
Reduce Costs, but Comprehensive Restructuring Also Needed." (GAO
Report)
We respond and comment on the discussion in the GAO Report concerning
the two key concerns raised by stakeholders - the Postal Service's
ability to realize the delivery operations cost savings and the amount
of the mail volume that would be lost due to implementation of five-
day delivery. We also comment on the discussion in the GAO Report
regarding the risks and uncertainties in implementing certain changes
in our Information Systems to support implementation of five-day
delivery.
Overview:
Reducing delivery frequency to five-days a week is a difficult
decision. We would not be proposing five-day delivery if six-day
delivery could be supported by current mail volumes or projected mail
volume trends. Plainly stated, there is no longer sufficient volume to
sustain six days of delivery. The volume reductions experienced in
recent years and projected into the future are such that continuing to
deliver and collect mail six days a week will result in employees not
having enough work to do every day of the week.
The USPS has incurred net losses in 15 of the last 17 fiscal quarters.
The 2010 fiscal year net loss was $8.5 billion. The USPS has sustained
operating losses despite existing cost cutting programs that
successfully removed more than $6 billion in costs. These cost cutting
efforts were not enough.
Elimination of Saturday delivery to street addresses will result in an
additional annual cost savings of $3.3 billion and a net cost savings
of about $3.1 billion. We need to realize these net cost savings as
one of the fundamental changes in our business model to help us close
the gap between revenues and costs.
The importance of maintaining a healthy and vibrant Postal Service is
crucial to the American economy. We will continue to work with
everyone who has a stake in the Postal Service to move forward,
embrace change and to find ways to succeed. This must consist of a
combination of efforts: the Postal Service must control costs, manage
its workforce effectively and find new and innovative ways to attract
customers and work with our business partners; our employees must
deliver the best service possible; and Congress should help the Postal
Service solve the far-reaching issues of Civil Service Retirement
System and Federal Employees Retirement System overfunding, retiree
health benefits prefunding, delivery frequency and by providing the
flexibility that the Postal Service needs in order to succeed.
Absorption of Delivery Operations:
GAO finds that stakeholders said: "If certain city carrier workload
would not be absorbed, USPS estimated that up to $500 million in
annual savings would not be realized." GAO Report, "Highlights".
The $500 million "at risk" number raised by stakeholders comes from
the extreme assumption that there are no savings of any volume-
variable street time. In PRC Docket No. N-2010-1, Six-Day to Five-Day
Street Delivery and Related Service Changes, 2010 (PRC case), postal
unions argued that the Postal Service approach may have assumed too
much absorption of volume variable time (about 75 percent). Their
argument was essentially there would be no absorption. However, it not
reasonable to imply there will be no absorption (0 percent).
In FY 2009 (the year of the cost savings analysis), the Postal Service
needed a total of 63 million city carrier hours on Saturdays to
deliver mail. Of that, just 17 million hours (27 percent) are the
volume variable street time hours that are at issue. Much of the rest
of Saturday hours are unaffected by workload delivery volume, such as
driving the route. These costs will be saved by elimination of
Saturday delivery to street addresses. The Postal Service assumed that
4 million of those 17 million variable street time hours will be
transferred to other days, so the absorption factor at issue relates
to just 13 million of the 63 million hours or 20.6 percent.
Instead of unreasonably assuming there would no absorption, we believe
a more reasonable sensitivity analysis is that there is uncertainty of
about of 40 to 50 percent of the $500 million in savings or $200 to
$250 million in savings. If the higher amount of $250 million were
used, for example, the cost savings would remain huge as they would be
reduced from about $3.3 billion to about $3.05 billion.
Potential Mail Volume Loss:
The GAO Draft Report states that the second key concern of
stakeholders is that:
USPS may have understated the size of the potential mail volume loss
due to questions about the methodology USPS used to develop its
estimates of how 5-day delivery may affect mail volumes. "Highlights".
We agree that there will be a volume loss if five-day delivery is
implemented because we will be reducing mail service. However, the
size of that loss is relatively small at about -.71 percent of total
volume. Even if the amount of volume loss is understated by some
factor, it does not change the decision that we reached that
implementing five-day delivery is a responsible exercise of our public
service obligation and a sound business decision.
That the volume loss will be near the estimate made by the Postal
Service is shown in the independent opinion polls and the market
research conducted by the Postal Service. In the polls and research,
most individuals and businesses said that they will accept a reduction
of delivery frequency to five-days a week. All of the research shows
that the American people and businesses care that the Postal Service
remains financially viable and most are willing to accept and adapt to
five-day delivery. No matter who or how the question is asked - a
majority of Americans favor eliminating Saturday delivery. For
example, in a May, 2010 Washington Post poll, an overwhelming 71
percent of those polled were willing to give up on Saturday delivery.
The USA Today/Gallup poll conducted in March 2010 found that 71
percent favored ending Saturday delivery as a way to ensure the Postal
Service's financial stability. In three Rasmussen polls conducted since
March 2010, a majority of Americans supported eliminating Saturday
delivery. In the March 2010 Rasmussen poll, 58 percent supported the
proposal when the question was a stand alone question. In its July
2010 poll, 68 percent supported the proposal when the 5 day delivery
concept was presented in context of avoiding a price increase. In its
February, 2011 poll, 52 percent supported the proposal when the
question was a stand alone question.
The concerns raised by stakeholders about the market research should
also be put in context by referring to the rebuttal testimony in the
PRC case of Dr. Peter Boatwright, Associate Professor of Marketing in
the Tepper School of Business at Carnegie Mellon University. He
testified about the methodology used by the Postal Service's market
research and evaluated the estimates of the volume, revenue and
contribution loss from moving to Five-Day Delivery. PRC Docket No.
N2010-1, Tr. Vol. 11 at 3112 et seg. He concluded that the estimated
loss of contribution of $206 million is a reasonable estimate. Id. at
3119. As he testified:
Predicting the future involves some degree of uncertainty, including
prediction of future costs, volumes, and revenues. To reduce the
uncertainty surrounding a new product decision, firms conduct market
research, forecast sales volumes, and analyze projected costs.
Critically important, the purpose of gathering and analyzing data is
not to eliminate uncertainty but rather to reduce uncertainty, because
in the end the future always retains some uncertainty.
Id., at 3220-21.
Whatever uncertainties about the estimate of volume and, hence,
contribution loss, exist, as Dr. Boatwright testified, id. at 3143,
the fact remains that the loss will be "dwarfed" by the cost savings.
Dr. Boatwright testified that the research methodology could mean that
the estimate of contribution loss were off by as much as five percent
(+/- five percent). This variance would mean that the contribution
loss would be between $196 and $216 million. Id. at 3143. Such a
variance would have no effect on the decision of whether moving to
five-day delivery as the net cost savings would still be over $3
billion.
If a sensitivity analysis of the estimate of volume loss were made
that the estimate was off by 100 percent, the contribution loss would
double to $412 million instead of the $206 million. And the conclusion
reached by Dr. Boatwright would remain - the net cost savings would
still "dwarf' the loss of contribution by almost $2.9 billion.
In summary, no matter how one looks at the financial results and the
potential volume loss, the inescapable conclusion is that the net cost
savings are huge, even if all the suggestions to reduce the estimated
cost savings and increase the estimated revenue loss are incorporated.
It is incontrovertible that eliminating Saturday delivery and
collections will result in a net cost savings of about $3 billion,
even if the size of the volume loss is understated. We would add that
the cost savings still dwarf the volume loss, even if the absorption
of carrier street time is $250 million less as the net cost savings
would be about $2.8 billion.
IT Risks:
The GAO Report finds that there are risks and uncertainties regarding
modifying the Postal Service's Information Systems to support five-day
delivery. Highlights and at 16.
Many of the changes in the information systems that need to be changed
to support five-day delivery are complex. However, the complexity has
been resolved and 29 applications have passed rigorous testing and
have been deployed or will be implemented by November, 2011. While the
information systems that need to be changed after Congress acts are
complex and something could happen that would prevent updates, they
are the type of changes that the Postal Service executes routinely and
without any delay.
The status of the information systems changes (IT) is that the last
six of 28 applications, capable of supporting both five and six day
street delivery, will be in daily production by November, 2011. Of the
remaining nine, one was eliminated from the IT plan because it did not
require modification and four are non-IT supported applications (small
non-critical applications programmed by other Postal Service
organizations) that either require minor modifications or will be
discarded. The last four are financial applications relate to
recording workhours to support payroll. Programming will be resumed if
no legislative barrier to implementation of five-day delivery is
imposed and union negotiations regarding five-day delivery are
concluded. Based on available information, none of these remaining
Finance applications changes are considered extensive.
We agree with the GAO Report that there are always risks and
uncertainties in modifying information systems. However, we do not
believe that there is any appreciable risk or uncertainty that we will
make the necessary modifications to the remaining four applications on-
time. These four applications are ones that the Postal Service
regularly makes changes in for craft employees after a new contract is
signed and when a new contract year starts. Such changes have been
made on-time for over 30 years. For example, we will be making changes
in these applications as a result of the new contract with the
American Postal Workers Union.
[End of section]
Appendix IV: GAO Contact and Staff Acknowledgments:
GAO Contact:
Phillip Herr, (202) 512-2834 or herrp@gao.gov:
Staff Acknowledgments:
In addition to the individual named above, Teresa Anderson, Brittany
Alfonso-Guerrero, Joshua Bartzen, Patrick Dudley, Heather Frevert,
Brandon Haller, Kenneth John, Hannah Laufe, and Crystal Wesco made key
contributions to this report.
[End of section]
Related GAO Products:
High-Risk Series: An Update. [hyperlink,
http://www.gao.gov/products/GAO-11-278]. February 2011.
U.S. Postal Service: Foreign Posts' Strategies Could Inform U.S.
Postal Service's Efforts to Modernize. [hyperlink,
http://www.gao.gov/products/GAO-11-282]. February 16, 2011.
U.S. Postal Service: Legislation Needed to Address Key Challenges.
[hyperlink, http://www.gao.gov/products/GAO-11-244T]. December 2, 2010.
U.S. Postal Service: Action Needed to Facilitate Financial Viability.
[hyperlink, http://www.gao.gov/products/GAO-10-601T]. April 22, 2010.
U.S. Postal Service: Action Needed to Facilitate Financial Viability.
[hyperlink, http://www.gao.gov/products/GAO-10-624T]. April 15, 2010.
U.S. Postal Service: Strategies and Options to Facilitate Progress
toward Financial Viability. [hyperlink,
http://www.gao.gov/products/GAO-10-455]. April 12, 2010.
U.S. Postal Service: Financial Crisis Demands Aggressive Action.
[hyperlink, http://www.gao.gov/products/GAO-10-538T]. March 18, 2010.
U.S. Postal Service: Financial Challenges Continue, with Relatively
Limited Results from Recent Revenue-Generation Efforts. [hyperlink,
http://www.gao.gov/products/GAO-10-191T]. November 5, 2009.
U.S. Postal Service: Restructuring Urgently Needed to Achieve
Financial Viability. [hyperlink,
http://www.gao.gov/products/GAO-09-958T]. August 6, 2009.
U.S. Postal Service: Broad Restructuring Needed to Address
Deteriorating Finances. [hyperlink,
http://www.gao.gov/products/GAO-09-790T]. July 30, 2009.
High-Risk Series: Restructuring the U.S. Postal Service to Achieve
Sustainable Financial Viability. [hyperlink,
http://www.gao.gov/products/GAO-09-937SP]. July 28, 2009.
[End of section]
Footnotes:
[1] GAO, High-Risk Series: An Update, [hyperlink,
http://www.gao.gov/products/GAO-11-278] (Washington, D.C.: February
2011).
[2] See the list of related GAO products at the end of this report.
[3] USPS, Ensuring a Viable Postal Service for America: An Action Plan
for the Future (Washington, D.C., March 2010).
[4] On September 23, 2010, Senator Thomas Carper introduced The Postal
Operations Sustainment and Transformation Act of 2010 (POST Act of
2010). S. 3831, 111th Cong. (2010).
[5] The White House, The National Commission on Fiscal Responsibility
and Reform, The Moment of Truth (Washington, D.C., December 2010).
[6] On December 2, 2010, Senator Susan Collins introduced the U.S.
Postal Service Improvements Act of 2010. S. 4000, 111th Cong. (2010)
and reintroduced the bill on February 15, 2011, as the U.S. Postal
Service Improvements Act of 2011. S. 353, 112TH Cong. (2011).
[7] USPS, Delivering the Future: A Balanced Approach-Five-Day Delivery
is Part of the Solution (Washington, D.C., March 2010).
[8] 39 U.S.C. §101.
[9] 39 U.S.C. §§101 and 403. USPS is to provide a maximum degree of
effective and regular postal services to rural areas, communities, and
small towns where post offices are not self-sustaining.
[10] PRC, Report on Universal Postal Service and the Postal Monopoly
(Washington, D.C., Dec. 19, 2008).
[11] These provisions have specified that "6-day delivery and rural
delivery of mail shall continue at not less than the 1983 level." See
e.g., Pub. L. No. 111-117, 123 Stat. 3200 (Dec. 16, 2009).
[12] This mail includes parcels and flat-sized mail such as magazines,
newspapers, and oversized envelopes.
[13] Another 20 million addresses are provided delivery as part of
USPS's Post Office box service. These deliveries are made by USPS
clerks.
[14] Current collective bargaining agreements contain "no-layoff"
provisions that cover most career employees and require USPS to
release lower-cost noncareer part-time and temporary employees before
it can lay off any career employees without layoff protection.
[15] USPS defines "full-up savings" as the annual gross savings less
associated volume-related reductions in net revenue available after
the completion of all adjustments needed to reduce staffing and adapt
contracts, facilities, and equipment to the 5-day environment.
[16] 39 U.S.C. § 3661.
[17] A summary of the methodology and criteria used during this
analysis can be found in appendix I.
[18] In this case, USPS measured the productivity of city carriers by
calculating the number of mail pieces delivered per hour on their
routes.
[19] This assumption did not depend on which weekdays would receive
the additional workload.
[20] See Appendix II for tabulations of our survey responses.
[21] GAO, U.S. Postal Service: Strategies and Options to Facilitate
Progress toward Financial Viability, [hyperlink,
http://www.gao.gov/products/GAO-10-455] (Washington, D.C.: Apr. 12,
2010).
[22] GAO, U.S. Postal Service: Legislation Needed to Address Key
Challenges, [hyperlink, http://www.gao.gov/products/GAO-11-244T]
(Washington, D.C.: Dec. 2, 2010) and [hyperlink,
http://www.gao.gov/products/GAO-10-455].
[23] [hyperlink, http://www.gao.gov/products/GAO-10-455].
[End of section]
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