PRC agrees with NNA’s arguments in mail processing network changes

November 28, 2012

Opinion on Service
Standard Changes:
USPS picks wrong path

Arguments put forth by the National Newspaper Association in the “service standards case” were agreed to by the Postal Regulatory Commission advisory opinion Sept. 29 on the U.S. Postal Service’s “Mail Processing Network Rationalization” plans.
The advisory opinion was required because the service standard changes require the PRC, by law, to give such an opinion. Unfortunately, the complex case took 10 months to resolve, and USPS plans to close processing plants proceeded without the opinion this past summer.
Whether any of the advice given will be heeded remains to be seen, they are “advisory” as titled. But often the Postal Service does respond favorably to at least some PRC recommendations.
NNA witnesses were David Bordewyk, South Dakota Newspaper Association executive director and vice-chair of NNA’s Postal Committee, and me.

What did USPS do
to service standards?
Using the deceptive title “Modern Service Standards,” USPS has degraded its important revenue category, First-Class Mail, by moving from one-day to two-day all mail handled by more than one processing facility. And by January 2014, even intra-SCF First-Class Mail may not get one-day service. Two-day delivery goes to three-day.
That may not seem like a big deal, but it was in one case I dealt with of a college sports publication traveling about 90 miles from the Lexington, KY, SCF to a Cincinnati SCF-area post office in the “exurbs.” The customer, who should have gotten Periodicals delivery within one to two days, upgraded to First Class at a much higher cost to get his copy of “Cats Pause” sooner because of Periodical service “failures.”
Not only did USPS not meet its own lowered First-Class service standards of two days, but also it was taking three to five days to get there. And because transportation was in place that could have still permitted one-day delivery, it appears that USPS slowed the presorted mail down to meet or exceed on the long side the lower standards USPS gives itself.
Periodicals mail has moved from one to nine days nationwide to two to nine days for mail entered at a processing plant. (NNA has worked hard to ensure that mail entered at the post office, or “delivery unit,” gets the same one-day (usually next day) service that it has historically had. With plant closures so far, NNA has seen member complaints of mail sent to a single processing plant take three to seven days to get delivered when it should have been two or three days.
The plan, if fully implemented, would close or consolidate 229 of 461 plants in two phases. The worst is yet to come.

What NNA testimony
did the PRC like?
• NNA said that USPS was moving mail from smaller, more efficient processing plants in small SCFs to more inefficient urban plants. Although I know this from my life as a newspaper-mailing consultant working with NNA members, USPS disagreed. But the PRC found our reality to be true, as small plants had greater productivity in postal measurements, with cost-per-piece 31 percent lower at small plants.
The trouble was that USPS provided self-serving, cost-saving computations based on a plant’s square footage and not real productivity. Productivity at urban plants would have to improve 20 percent—an unlikely circumstance—to meet USPS savings goals. In fact, studies show productivity decreases after plant consolidations. So rather than saving $968 million, it might increase costs $500 million. The PRC concluded that USPS could realize significant savings, perhaps 85 percent of its projections, with little or no cuts in service standards. And one of the PRC expert witnesses testified that a “productivity-based optimization path … shifting mail from less productive to more productive plants,” could save $1.3 billion instead “without changing service standards.”
• Hubs should be created, said NNA, to keep “direct” containers of 5-digit/carrier-route sorted copies in the old SCF plant, if closed, to provide more timely delivery back to towns within a newspaper’s outer service area, rather than sending that mail many more miles—sometimes hundreds—to the “receiving plant” only to be returned unworked to destination post offices.
We had worked with postal managers since March 2011 on this option, and had been promised that it would happen. Yet it was not mentioned in the “network optimization” plan. PRC commissioners told NNA that, without our testimony, it would not have known about such hubs and their possibilities.
It makes sense, because it is in the best interest of USPS—not to mention newspapers—not to haul direct containers long distances only to haul them back, especially when a simple dock transfer at the closing plant or other designated hub facility would save time and cost of that haul, while giving more timely delivery to newspapers.
Impact witness Bordewyk recently discovered that was not happening in Mobridge, SD, where one of the plant closures was already completed, depriving newspaper subscribers and other mailers of timely delivery. So newspapers must remain vigilant to remind postal managers until corrected. The PRC opinion recommends that USPS “conduct a comprehensive analysis of hub operations … and make its determinations known to mailers.”

What else did the PRC conclude?
The PRC determined that USPS, as it often does, overestimated potential cost savings and underestimated potential volume and revenue losses.
The original postal filing estimated $2.6 billion in savings. That was reduced to $1.6 billion by February 2012, based on studies of previous plant consolidations. The PRC concluded the savings could be as low as $45 million to as much as $1.9 billion, a much-smaller number thus being highly likely.
Revenue loss from lower service standards was estimated at 1.7 percent and $499 million by USPS. Many witnesses testified that the volume/revenue loss would be much greater. An early USPS study, hidden from interveners at first, projected volume loss at 7.7 percent.
The PRC was unable to replicate the USPS estimates, and concluded the USPS market research and surveys were questionable and therefore unreliable for loss projection. But it pointed out that even the projected $500 million loss is substantial (especially since the PRC concluded that 85 percent of the savings could be achieved without changing service standards).
In its normal “Alice-in-Wonderland” approach, postal witnesses testified with straight faces (but no proof) that “customers are more concerned with reliability than speed of service.” They’ve obviously not talked to angry customers of community newspapers.
To heighten the ridiculous, postal research even claimed that 18 percent of respondents said they would increase mail volume in response to slower service standards. USPS also “contends that slower delivery is enhancing the value of service….”
“The reduction in service standards is actually an end run on the price cap” set by the 2006 postal reform bill, Tonda Rush, NNA chief executive officer and postal lawyer, pointed out. Mailers and recipients get less for postage paid, sadly. © Max Heath 2012

MAX HEATH, NNA postal chair, is a consultant for Publishing Group of America (American Profile, Relish, & Spry) and Landmark Community Newspapers. E-mail

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