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PRC issues “Advisory Opinion” on USPS five-day delivery proposal

By Jeff Berman, Group News Editor
March 28, 2011

Last week, the Postal Regulatory Commission (PRC) issued an Advisory Opinion on a United States Postal Service (USPS) plan to end Saturday mail delivery, collection, and outbound mail processing.

According to the PRC, the USPS advised it that due to falling mail volumes and revenues it is considering eliminating Saturday mail collection and delivery except for Express Mail and existing post office box service.

Removing the majority of Saturday-based operations has been discussed on and off in recent years, as the USPS has seen its fair share of financial challenges, due in large part to economic pressures and a migration to electronic media having a significant adverse impact on mail volumes and operating revenues. This has subsequently played out in its numbers, with the USPS beginning the new fiscal year with a $329 million loss in the first quarter, following an $8.5 billion loss in fiscal year 2010.

The PRC’s Advisory Opinion contained its own estimates weighing the financial savings impact of Saturday operations, coupled with USPS estimates. Some of its more notable findings were:
-an annual savings of $1.7 billion, with the USPS estimate at $3.1 billion, with full savings not likely to be achieved until year three after implementation;
-a $0.6 billion estimate of net revenue losses due to volume declines caused by Saturday service cuts, with the USPS estimate at $0.2 billion;
-an average of 25 percent of First-Class and Priority Mail to be delayed by two days; and
-customers in rural, remote, and non-contiguous areas likely to be particularly affected by the USPS’s plans.

“Some of the Commission’s analysis in today’s Advisory Opinion suggests that even lower estimates of savings and higher volume losses are possible,” said PRC Chairman Ruth Y. Goldway in a statement. “In all cases, we chose the cautious, conservative path. Our estimates, therefore, should be seen as the most likely, middle ground analysis of what could happen under a five-day scenario.”

USPS Postmaster General Patrick R. Donahoe said that five-day delivery is an integral part of the USPS action plan for the future.

“It’s important to remember that the Postal Service came well prepared to this undertaking,” Donahoe said in prepared remarks. “Based on extensive outreach to our customers and other stakeholders, we developed an operational plan, analyzed the potential cost savings and conducted extensive market research to document customer reaction and estimate mail volume changes that could result from implementation of this plan.”

In March 2010, the USPS released a report—“Ensuring a Viable Postal Service for America: An Action Plan for the Future”—which addressed seven key areas which would make it a more financially viable entity. Among these findings was adjusting delivery days to better reflect current mail volumes, which it said would likely would mean the end of Saturday home delivery, although most of its 32,741 post offices would remain open that day.

This measure raised several questions by the non-partisan Government Accountability Office in a July 2009 report, including how it would impact the USPS’s efforts to grow mail volume and encourage commercial mailers to continue using the mail, how it would affect mail processing costs, salary, and benefits for mail processing employees and carriers, the expected effects on delivery service standards, and how consumers and businesses would be affected by a move to 5-day delivery, among others.

In a 2009 interview with LM, Donahoe, who was then serving as USPS Deputy Postmaster General and Chief Operating Officer, explained that the USPS has seen a 23 percent decline in mail volume since the end of 2006, which has forced it to “look very seriously” at this measure, adding that a slowly improving economy may help temper falling volumes somewhat, but at the same time the USPS is not forecasting a substantial volume uptick.

What’s more, at a time when the USPS is taking various steps to make its Package Services and Shipping Service more competitive with FedEx and UPS, PRC Commissioner Nanci Langley commented.

I believe that cutting Saturday delivery and processing diminishes the Postal Service’s competitive advantage in the package delivery sector,” wrote Langley. “In FY 2010, its Parcel Select volume increased by 18.5 percent and Parcel Return Service volume increased 44.4 percent. By leveraging its first- and last-mile network, the Postal Service successfully partners with private parcel carriers. The Commission found that currently, 21.2 percent of parcels are delivered on Saturday and that the elimination of Saturday delivery and processing would delay Package Services even more than First-Class Mail. Why forfeit the significant competitive advantage of six-day a week delivery in a 24/7 environment?”

According to USPS data, Saturday is the lightest delivery day in terms of volume at 15.6 percent, but the PRC petitioned the USPS for volume breakouts by service and day, and although Saturday is the lightest day for mail volumes—because most businesses are closed—Saturday is the highest delivery day for parcels at 21.2 percent.

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About the Author

Jeff Berman headshot
Jeff Berman
Group News Editor

Jeff Berman is Group News Editor for Logistics Management, Modern Materials Handling, and Supply Chain Management Review. Jeff works and lives in Cape Elizabeth, Maine, where he covers all aspects of the supply chain, logistics, freight transportation, and materials handling sectors on a daily basis. .(JavaScript must be enabled to view this email address).

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