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In an advisory opinion on the Postal Service’s “Network Rationalization” plan [PDF] issued Sept. 28, the Postal Regulatory Commission (PRC) urged the Postal Service to preserve overnight mail delivery and concluded that ”there is a point in the Postal Service’s cost curve beyond which the additional savings captured are too small to justify the additional reduction of service that would result.”
The advisory opinion is the commission’s response to the Postal Service’s plan to close or consolidate half of the nation’s mail processing plants and to reduce delivery service standards for first-class mail, standard mail, periodicals and package services. The changes to service standards would ultimately eliminate all overnight delivery service for single-piece first-class mail, and delay much of current first-class two-day delivery to three-day delivery.
The PRC concluded that “the benefits of eliminating most overnight delivery of First-Class Mail” cannot be shown “to outweigh the risks of exacerbating declining mail volume trends or harm to the Postal Service brand.”
“We are pleased that the PRC recognized the importance of maintaining service standards,” said APWU President Cliff Guffey. “We’ve said all along that the Postal Service cannot cut its way to profitability. The PRC clearly shares our concern that cutting service will accelerate revenue and volume losses,” he said.
The Postal Service asserts that the savings would be approximately $2 billion a year, but the PRC’s analysis found that “in order to capture the anticipated cost savings upon full implementation … the Postal Service would have to improve average system-wide productivity by over 20%. The commission found this “remarkably ambitious” and risky.
In fact, according to the PRC, the savings could be as little as $46 million per year “assuming mail processing productivities remain at current levels.” In addition, the commission found that “these cost savings may be offset by volume losses and resulting contribution losses from mailers who believe the service levels no longer meet their postal needs.”
The commission was also critical of the way the Postal Service used network modeling tools to justify its decision. The advisory opinion says, “the Postal Service uses modeling to develop an initial list of facilities to be consolidated,” then “rejected much of the model results; more than half of the plants identified using modeling tools were replaced based on management insight before local studies were performed.”
The PRC wrote that the phased implementation of network consolidation announced by the Postal Service on May 17, 2012, provides an opportunity for the Postal Service to study the effects of service standard changes to better inform its decisions on how to preserve as much of the current services as possible.
The commission advised the Postal Service to delay its implementation plans until it considers the report’s recommendations — including alternatives that would avoid cutting back services such as overnight mail.