December 30, 2024

Issue 24/12

The leading voice for nonprofits on postal issues for over 44 years.

Copyright 2024: Alliance of Nonprofit Mailers—All rights reserved.

The Alliance of Nonprofit Mailers is a 501 (c)(4) nonprofit organization established by nonprofits for nonprofits.

OIG report raises questions about RTO

The USPS Office of Inspector General issued a report that raises serious questions about the Regional Transportation Optimization (RTO) initiative. The OIG looked at 15 locations around the country where RTO was implemented between October 2023 and August 2024.

RTO is bureaucratic for eliminating the evening pickup of outbound mail at all post offices more than 50 miles from the agency’s new mega-centers for processing mail and packages. The Postal Service proposed taking the initiative nationally to save almost $4 billion annually.

If fully implemented, RTO will affect about half of the nation’s population and impact mainly First-Class Mail that people send to pay bills, make donations, and correspond with friends and relatives. The affected communities will be mostly rural, the very areas that continue to rely heavily on postal mail.

The OIG found that so far, the RTO program:

• worsens delivery of on-time service,
• increases customer complaints,
• lacks measurement of cost savings,
• increases transportation costs, and
• ensures the security of mail left overnight in post offices.

The findings of the IOG:

Finding #1: Service to Customers

Service Performance Impact

Delaying the transportation of mail at the LTO

impacted offices resulted in an overall decrease

in service to the American public served by these

facilities. We analyzed the service performance

data of the originating First‑Class Mail for the

first six LTO regions with 1,542 optimized offices

implemented through March 2024. While service

performance can be impacted by many variables,

a decrease in service performance for both Single

Piece and Presort First‑Class Mail followed the LTO

implementation. Additionally, the rural population

experienced a greater decline in service performance

for Single Piece First‑Class Mail. As of July 2024,

Presort First‑Class Mail service performance nearly

returned to pre LTO levels, while Single Piece First

Class Mail service performance had not recovered

(see Figure 2). Most presort mail is inducted directly

at the processing plants instead of the local offices,

and therefore, the impact to service performance for

presort mail was minimal.

Finding #2: Mail Security

We judgmentally selected 26 LTO optimized offices

to conduct observations and interview local

Postal Service personnel between September 3, 2024,

and September 5, 2024, (see Appendix A, Table 7).

We found the Postal Service implemented consistent

safeguards to protect the security of the mail held

overnight at 20 of 2615 offices visited. Specifically,

during our site observations at those 20 offices,

personnel secured the mail overnight for the morning

pickup, as communicated internally by management

on October 25, 2023. For example, we observed

buildings were locked overnight, and the mail was

staged in secured areas behind the service counter

window, or a separate room in the back of the office.

Finding #3: Expected Cost Savings

The Postal Service cannot effectively calculate,

record, and track costs and savings related to the LTO

initiative. Specifically, we found that management

did not establish a process to accurately track

optimized and non-optimized offices to determine

the cost savings. During our audit, we requested

a list of LTO optimized and non-optimized offices.

While management provided multiple lists during

our audit, we identified discrepancies with these

lists, including offices listed as both optimized and

non‑optimized. Additionally, four locations we visited

were listed as LTO optimized offices, but LTO had not

been implemented at those offices at the time of our

visits. We received updated lists of LTO optimized and

non-optimized offices on September 16 and 23, 2024,

and we continued to identify inaccuracies in the

information provided.

Further, we initially asked on August 13, 2024, for

the cost savings information. On August 22, 2024,

management stated that the Finance group

had not yet validated the data, even though the

first LTO implementation was initiated almost

10 months prior in the Richmond, VA, region

October 28, 2023. Management also stated it did

not perform a cost savings analysis. Management

subsequently provided the summary level

transportation expenditures for the 15 LTO regions

September 26, 2024.

A primary goal of the Delivering for America plan is

to cut transportation costs. The Postal Service revised

the estimated savings18 from $1 billion to $651 million

for the LTO initiative19 but could only provide OIG

with estimated transportation expenditures for the

optimized offices. However, management cannot

develop cost savings estimates without accurately

tracking LTO optimized and non-optimized offices.

Based on the information provided, we noted the

Postal Service’s overall transportation expenditures

increased by $7.13 million for the 15 LTO implemented

regions (see Table 6).

The LTO initiative is a direct result of USPS leadership somewhat desperately searching for ways to reduce costs to achieve the goal imposed by Congress of financial self-sufficiency. Management has shown an extreme focus on reducing truck trips and resulting transportation expenses.

Although the Postal Regulatory Commission is expected to release its Advisory Opinion on the effort in a month, all signs are that the Postal Service will plow forward with the changes.

Many customers and members of Congress are objecting to the purposeful diminution of service quality. Now the OIG has documented the other objection that USPS never seems to be able to achieve the promised cost savings from its operational initiatives. The severe negative impacts on service are a sure thing while the promised cost savings seem to be a pipe dream.

USPS proposes BPM elimination and merger with Marketing Mail

The Postal Service filed a proposal with the PRC on December 20 to eliminate Bound Printed Matter as a product classification in Market Dominant Mail and to increase the weight limits for marketing Mail flats to accommodate the former BRM mailings.

USPS described its proposal as follows:

This request is an effort by the Postal Service to simplify, streamline, and

rationalize some of our market-dominant products and their pricing.

This request would remove both the Bound Printed Matter Flats (BPM

Flats) and Bound Printed Matter Parcels (BPM Parcels) products from the

market-dominant product list. With their removal, the Package Services class will

contain only two products, Alaska Bypass and Media / Library Mail (Table 1).

Table 1: Package Services After Removal of Bound Printed Matter

PACKAGE SERVICES

Alaska Bypass Service

Bound Printed Matter Flats

Bound Printed Matter Parcels

Media Mail/Library Mail

The Postal Service also filed today a notice changing the weight limit for

Marketing Mail, raising the maximum weight for the Marketing Mail Flats product to 20 oz., for all other flat-shaped pieces within Marketing Mail to 24 oz., and for the Marketing Mail Parcels product to 15 pounds. Docket No. MC2025-958, Notice of the United States Postal Service of Update to the Maximum Weight Limit for Marketing Mail, Dec. 20, 2024 (and if the Commission wishes for convenience to consolidate the two dockets, the Postal Service has no

objection). The maximum weight for all Marketing Mail letter-shaped pieces will

remain at 15.999 oz., i.e. letter-shaped pieces in Marketing Mail must still weigh

less than 16 oz. (Table 2.)

Table 2: Proposed New Maximum Marketing Mail Weights,

By Product and Shape

Product                                                               Shape     Max. Weight

High Density and Saturation Flats/Parcels Flat        24 oz.

Carrier Route                                                     Flat         24 oz.

Flats                                                                     Flat         20 oz.

Parcels                                                                Parcel      15 pounds

The increase in maximum weights in Marketing Mail is necessary for it to

accommodate pieces currently sent as BPM Flats and BPM Parcels after those

products are removed.

BPM Flats and BPM Parcels pieces that contain catalogs, promotional

material, or other advertising material may then be sent as Marketing Mail. BPM

Flats and BPM Parcels pieces that contain books, however, may not be sent as

Marketing Mail because the class excludes order fulfillment, DMM § 243.3.2.2,

but may be sent by Media / Library Mail or by various competitive products,

including USPS Ground Advantage.

Of course, appropriate prices, price categories, and requirements for the

new, heavier weight Marketing Mail pieces do not yet exist, and so the Postal

Service asks that these companion filings be made effective only upon the Commission’s approval of new and expanded Marketing Mail prices in a future

rate case, which the Postal Service plans for implementation no earlier than July

2025.

While this proposal seems to make sense in terms of simplifying mail products, individual mailers will need to assess whether there is a significant cost impact on their specific mail.

USPS November results bring the high-flying October back to reality

Postal Service leaders probably are the only people wishing that every month had a presidential election. Unfortunately for them, they benefit from only one month every four years with a smaller bump from mid-terms.

In October, USPS reported a net income of $701 million according to Generally Accepted Accounting Principles (GAAP). The more accurate income of GAAP minus the random adjustment of non-cash workers’ compensation (NCWC) was $134 million.

In October, Market Dominant (MD) mail volume was up 13.6% (thanks to the election) and revenue increased by 14.8% (thanks to the election and rate hikes). Competitive package volume increased by 3.2% and revenue rose by 5.4%. USPS work hours jumped by 4 million or 4.1%, reflecting the extraordinary measures the agency had to employ to get ballots delivered on time.

Transportation expenses in October, the focus of so much Postal Service effort, came down by $102 million or 13%. Keep in mind that the total operating expenses were $7 billion, so $102 million savings are welcome but not very impactful.

November started bringing the Postal Service back to recent trends. The agency reported a GAAP loss of $664 million and a GAAP-NCWC loss of $404 million. For the year-to-date, the mail agency has a GAAP net income of $37 million, but a more meaningful GAAP-NCWC loss of $270 million.

In November, MD mail volume fell by 4.7%, and rate hikes increased revenue by 1.3%. Competitive package volume dropped by 4.6% while revenue fell by 2%. For the first two months, MD volume was up 4.7% while revenue increased 8.2%. Competitive package volume was down by 0.8% while revenue was up only 1.5% or $85.2 million.

The recently released USPS Integrated Financial Plan projected a $2.3 billion increase in package revenue just to reach a planned $6.9 billion loss. The agency will need about $2.2 billion in increased package revenue in the remaining ten months.

Privatization of USPS is once again a discussion point

As much as it is a tempting avenue to fix the Postal Service’s financial ills, full privatization remains very unlikely. The Congressional and public opposition to the Regional Transportation Optimization initiative is just one example that America wants more than a privatized business would offer. This is especially true of the first mile and the last mile. Most of the 31,000 post offices do not cover their costs and would not be of interest to private-sector businesses. The cost of carriers visiting all addresses six days a week also is not financially remunerative.

The middle mile of the Postal Service already is largely privatized in the transportation of mail. The Delivering for America plan is, however, attempting to reverse one of the longest-standing and most beneficial public-private partnerships in the U.S. The USPS is insourcing much short-haul trucking of mail to its unionized employees. It also is weakening the financial incentives for work-sharing of middle-mile processing and transportation.

Much of the mailing industry believes that the goal of privatizing the USPS can be partially achieved to everyone’s benefit, except maybe the postal unions, by outsourcing much of the middle mile. The fact that pre-sorted mail service delivery is much better than end-to-end mail is a testament to this.

Full privatization is very much a pipe dream. Remember what happened six years ago when there was talk of privatizing USPS? There was significant opposition in Congress. Constituents like and depend on universal postal service at a reasonable price. Here’s a Washington Post “perspective” article from 2018 to remind us:

Congressional opposition to Trump’s postal cuts, privatization plan grows

Lawmakers stand behind the “Federal agency with the highest public approval rating.”

September 24, 2018

Democrats and Republicans on Capitol Hill want to stop a Trump administration plan that envisions a privatized U.S. Postal Service.

Perspective by Joe Davidson

A hefty, bipartisan congressional coalition wants to ensure that the mail carriers who trudge through snow, rain, heat and gloom of night are federal employees.

Democrats and Republicans on Capitol Hill increasingly appear ready to block President Trump’s plan to privatize and diminish the U.S. Postal Service (USPS).

With Sen. Claire McCaskill (D-Mo.) taking the lead and 27 co-sponsors, including five Republicans, backing her, a significant segment of the Senate joins the House in telling Trump that a privatization plan would meet stiff opposition in Congress.

McCaskill’s proposed Senate resolution, introduced last week, says “Congress should take all appropriate measures to ensure that the United States Postal Service remains an independent establishment of the Federal Government and is not subject to privatization.”

It is a companion measure to a House resolution introduced in July by Rep. Stephen F. Lynch (D-Mass.). That was co-sponsored by 36 Republicans and 196 of the chamber’s members.

With more than one-quarter of the Senate and almost half the House declaring opposition to USPS privatization, the plan seems like a lost cause.

McCaskill, in a tough campaign for reelection, focused her fight against privatization on the problems it would cause for rural constituents.

“Local post offices are the backbones of our rural communities — even more so now as small businesses rely on the Postal Service for the ability to participate in online business,” her statement said. “The incentives simply aren’t there for private companies to take mail that last mile for people living in rural communities, and I’m going to fight tooth and nail to ensure that every Missourian — whether in a small town or big city — has access to the critical services the Postal Service provides.”

The administration’s privatization plan is part of a grand, government restructuring effort unveiled in June. “Delivering Government Solutions in the 21st Century” envisions a USPS that would provide fewer services to customers and cuts for employees.

“A private postal operator that delivers mail fewer days per week and to more central locations (not door delivery) would operate at substantially lower costs. A private entity would also have greater ability to adjust product pricing in response to changes in demand or operating costs,” the administration predicted. “Freeing USPS to more fully negotiate pay and benefits rather than prescribing participation in costly Federal personnel benefit programs, and allowing it to follow private sector practices in compensation and labor relations, could further reduce costs.”

The Postal Service has “extremely high fixed costs,” the administration argued, “as a result of relatively generous employee benefits combined with a universal service obligation that is understood to require mail carriers to visit over 150 million addresses six days per week.” With its chronic financial difficulties, USPS “can no longer support the obligations.”

Encouraged by the congressional resolutions, the National Association of Letter Carriers welcomed “such a strong bipartisan defense in both the House and Senate against what amounts to an attack not simply on letter carriers and other postal employees, but the American people as well. Privatization of the U.S. Postal Service would hurt both low-income and rural Americans especially who live in areas where it might not be profitable to deliver to them.”

Trump issued an executive order in April establishing a task force “to evaluate the operations and finances of the USPS.” It didn’t mention privatization, but it did say USPS is “the Federal agency with the highest public approval rating.” The task force includes Treasury Secretary Steven Mnuchin, Office of Management and budget director Mick Mulvaney and Office of Personnel Management Director Jeff Pon or their appointees.

Stephen Kearney, executive director of the Alliance of Nonprofit Mailers, said his organization met with task force representatives in May and was surprised in June by the suggested privatization in the restructuring plan.

“There was no indication that the task force members, including the deputy assistant secretaries of treasury, were predisposed to any conclusion, including full privatization,” he said.

Kearney correctly notes that the proposal offers “future privatization of USPS as an option rather than a foregone conclusion.” Yet, the plan section labeled “The Opportunity” makes the administration’s direction clear: “A privatized Postal Service would have a substantially lower cost structure, be able to adapt to changing customer needs and make business decisions free from political interference, and have access to private capital markets to fund operational improvements without burdening taxpayers.”

Capitol Hill opposition means Kearney is right when he said “full privatization is a very remote possibility.”

The Postal Service leaves the privatization decision to legislators, but Postmaster General Megan J. Brennan has provided a clue on where she stands.

When the reorganization plan was released, Brennan said, “Ultimately, it will be for Congress to decide whether the best path to financial sustainability is to preserve the Postal Service status as a government institution focused on our mission of public service, while giving us more authority to meet our responsibilities or whether a profit-maximizing corporate model is preferable.”

Contrasting “our mission of public service” with “a profit-maximizing corporate model” hints at her preference.

A significant portion of Congress agrees.

###

Full privatization will be very difficult because it would require major legislation. Partial privatization that does make sense would involve greater contracting out of the “middle mile” of processing and transporting mail between the post offices where mail is entered and the carriers who deliver. Unfortunately, USPS is now moving in the opposite direction by taking mailers’ money to invest in a shiny new network of processing plants.

USPS service continues to deteriorate

Dave Lewis, President of SnailWorks, a leading provider of cutting-edge mail tracking services, describes the downward spiral of USPS service performance very well. Today we share his latest report:

It is difficult to imagine any other large business or organization performing like this and not addressing stakeholder concerns – finding ways to make it better. For better or worse, their core business is to deliver mail, not packages. USPS is not doing a good job of it.

US MAIL TRAFFIC REPORT DECEMBER 30, 2024

PLEASE PROVIDE YOUR OWN ADJECTIVES

Let’s start with the so-bad-it’s-funny one. 0.1% of First-Class flats in our sample were delivered on time. 99.9% were delivered late. As we have said before, our customers don’t mail a ton of First-Class flats (who can blame them?) so the sample is probably too small to be relevant. Still, out of about 15,000 pieces in four mailings originating in four different states, approximately 15 pieces were delivered on time.  Approximately 6,500 of those 15,000 pieces were delivered more than five days late.

It is worth noting that most of the First-Class flats we do track are financial statements that are too big to fit into letter-size envelopes – big money. Makes the paperless option attractive, I imagine.

As for the rest, First-Class letters “improved” to 66.9% on time. 8.3% were more than five days late. 91.5% of Marketing Mail letters were on time, so there’s that. Still, considering that the vast majority is SCF-entered – it is essentially taking an extra day to go from one side of the building to the other.

Only 76.5% of Marketing Mail flats were delivered on time – a worrisome number that gets worse and worse with each passing week. If your holiday catalog responses have been light, take heart – maybe the catalogs just haven’t been delivered yet.

If history is any guide, these numbers will all get worse in the first months of 2025. Except for First-Class flats. We can say, with some confidence, that the on-time percentage of First-Class flats will not get any worse.