The following are excerpts from a United States Government Accountability Office (GAO) Report requested by Chairman [Congressman] Darrell Issa, Committee on Oversight and Government Reform, House of Representatives on “U S Postal Service: Delivery Mode Conversions Could Yield Large Savings, but More Current Data Are Needed.” {note: some paragraphs may be out of sequence}

The most expensive delivery mode is directly to the customer’s door, primarily because of the added personnel expense when compared to USPS’s other modes, such as to a customer’s curbside mailbox. To capture potential savings, proposed postal reform legislation has included provisions to reduce door delivery.To ascertain the cost of each delivery mode and the potential savings from delivery mode conversions, we obtained USPS data and supporting documentation on the costs of different mail delivery modes from fiscal years 2008 through 2012. In addition to the cost data, USPS generated several scenarios with estimates of potential savings from converting specific numbers of delivery points In this context you [Congressman Darrell Issa] asked us to examine potential cost savings and related delivery conversion issues. This report discusses (1) the estimated costs of each delivery mode and potential savings associated with converting to less costly delivery modes, and (2) USPS actions to convert delivery modes to less costly modes, and any impediments to conversions.

According to USPS data, in fiscal year 2013 about 41 percent of existing delivery points received curbline delivery, about 30 percent received centralized, and about 28 percent had other modes, which primarily consist of door delivery. These percentages have changed little over the past 5 years From fiscal years 2008 to 2013, the total number of door delivery points declined by about 308,000—including about 287,000 residential door delivery points, and about 21,000 business door delivery points—leaving about 32.2 million residential door delivery points and about 5.6 million business delivery points (see fig. 3). According to a USPS official, these changes mostly reflect redevelopment, such as replacement of older homes that had door delivery with new apartment buildings with centralized delivery, and new business developments such as office parks and strip malls. While the number of door delivery points declined by 1.2 percent from fiscal years 2008 to 2013, the number of curbline and centralized delivery points—the primary modes of delivery—increased by 0.1 percent and 1.1 percent respectively. From fiscal years 2008 to 2013, the number of centralized delivery points increased by 2.8 million, while the number of curbline delivery points increased by 1.9 million. See appendix II for details on the number of delivery points for each mode in fiscal years 2008 through 2013.

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USPS estimates of delivery mode costs and potential savings from converting to less costly modes have limitations because they rely on cost estimates and data from a 1994 USPS study.12 1139 U.S.C. § 403(a). The study collected data on the time postal employees used to prepare and deliver mail for each mode of delivery. These data were then combined with postal wage and benefit cost data, as well as other data (e.g., delivery vehicle costs), to estimate the costs for each mode of delivery. In lieu of current data, USPS increased these 1994 cost estimates for each mode of delivery by 55 percent, based on the total percent change in the Consumer Price Index for All Urban Consumers (CPI-U) from fiscal year 1994 to 2012. (See app. III for further details on USPS’s methodology for conducting this study.) Because CPI-U is a measure of inflation for the U.S. economy, changes in CPI-U over this period of time may not have been the same as changes in USPS delivery costs, which are affected by factors such as postal wage rates, postal benefit costs, and gasoline prices. In fact, according to USPS officials, key delivery-related costs increased more than inflation from 1994 to 2012. These cost increases may have been offset by gains in postal productivity, such as automated mail sorting by delivery sequence, which reduces the amount of carrier time needed for manual sorting..

Another potential weakness in the estimates is USPS’s application of the same 55 percent increase in the 1994 data for the cost of each delivery mode—a method that assumes that the cost for each delivery mode increased at the same rate from fiscal years 1994 to 2012. Available evidence suggests this assumption may not be correct. According to USPS, since the original study was conducted, it has adopted work rules that disproportionately increase the cost of door delivery. For example, to comply with current collective bargaining agreement work rules, city postal carriers must manually collate some advertising mailing before loading it into satchels to carry on foot routes and park-and-loop routes, which are largely door delivery, according to USPS.This work rule does not apply to motorized routes, such as curbline routes where carriers load mailboxes from the delivery vehicle. In addition, to the extent that some modes of delivery are more labor intensive than others, the actual increase in USPS wage and benefit costs from fiscal years 1994 to 2012 may have affected the costs of some delivery modes more than others. So it is unclear whether USPS’s estimates are generally understated or overstated.

Government auditing standards state that managers are responsible for providing reliable, useful, and timely information for transparency and accountability of programs and their operations.16 Legislators, oversight bodies, and the public need to know whether or not government services are provided effectively, efficiently, and economically. This standard is particularly relevant because pending postal reform legislation in the House and Senate would mandate the conversion of some delivery points from door delivery to centralized or curbline delivery.18 Furthermore, the administration’s budget for fiscal year 2015 also proposes “allowing the Postal Service to begin shifting to centralized and curbside delivery where appropriate.”19 Internal controls for federal agencies state that financial information is needed to support operating decisions, monitor performance, and allocate resources.20 Without such information on costs of modes and on potential savings through delivery conversions, USPS and lawmakers may not have an accurate understanding of the impact of delivery mode changes on which to base their decisions.

USPS officials told us that its estimates of delivery mode costs and potential savings “have validity” despite the use of the inflation adjustment in lieu of updated data. USPS officials stated that although many aspects of postal operations have changed over the past 20 years, the manner in which a carrier delivers mail on the street has changed little. However, USPS officials also acknowledge the weakness of USPS’s delivery mode data. USPS estimates the cost of a new delivery study using ongoing operational data at $75,000 to $100,000, and the cost of a more extensive study collecting new data at $250,000 to $750,000. Mail delivery represents the largest cost area relative to USPS’s annual expenses of approximately $72 billion, and updating the 1994 study would be relatively low cost compared to those expenses. Without a current delivery cost study, USPS may be less able to determine accurate cost savings from various delivery mode conversion scenarios.

Based on the differences in delivery mode costs, USPS provided us with estimates showing that it could realize large savings from large-scale mandatory conversions of both residential and business delivery points from costly door delivery even as it continues to add new delivery points every year. For example, there were about 770,000 new delivery points added in fiscal year 2013, an increase of about half of 1 percent from fiscal year 2012 levels. Specifically, USPS estimates that potential ongoing annual savings exceeding $2 billion could be achieved by mandatory conversion of 12.2 million door delivery points over the next decade to a mix of centralized and curbline boxes (see fig. 5). This level of conversion is about one-third of the 38 million door delivery points and would still provide future opportunities to realize savings from additional conversions. About 85 percent of these conversions would be residential and 15 percent would be business delivery points. Based on USPS’s schedule for these conversions, the potential savings would be realized in the first full fiscal year after full implementation—fiscal year 2024—and every following fiscal year. USPS also estimated proportionately smaller savings from less extensive mandatory conversions (see fig. 5). We determined that these were the only data available and have limitations for estimating delivery costs and potential savings. However, these estimates may not be the best source to inform decisions about conversion approaches, as estimates based on updated data may yield differing results.

To understand how USPS estimates it could realize these savings, it is important to understand how the changes would reduce USPS’s workload and how this would translate into lower USPS costs. Conversion of delivery points from door to curbline and centralized delivery would reduce the time required to organize and deliver the mail. Motorized routes with centralized and curbline delivery require less of a carrier’s time than walking from door to door. Reducing carrier workload through mandatory conversions could enable USPS to reorganize delivery into smaller numbers of routes, with each route including a larger number of delivery points. The resulting decrease in the number of routes could help reduce the number of carriers needed to fulfill delivery needs. USPS has historically reduced its workforce through attrition and has no-layoff provisions in its collective bargaining agreements with its four major postal unions. In this regard, large numbers of career carriers are expected to retire in the coming years. In addition to realigning delivery routes, our prior work has found that USPS can use established work methods for accomplishing delivery to a given geographic area with fewer carriers.

USPS estimated it would cost about $73 per delivery point to buy and install cluster boxes, which could be recouped in less than 5 months based on the ongoing savings from more efficient delivery. Further, USPS could adjust to lower carrier workload by reducing overtime as well as the number of hours worked by carriers with flexible schedules. In this regard, most door delivery is made to city delivery routes served by city carriers. The average hourly wage and benefit costs of all city carriers, including career and non-career employees, exceeds $41 per hour, according to USPS data.

Large-scale mandatory conversions have the potential to achieve large savings, but USPS faces impediments, such as customer inconvenience and safety and security concerns. USPS officials and several mailing industry stakeholders we spoke with told us that many postal customers are resistant to service changes, especially changes that might inconvenience them. USPS officials told us that some of the concerns could be addressed though hardship exceptions to continue door delivery.Stakeholders also said that service changes would articularly affect city letter carriers, by reducing the total number of carrier work hours and associated routes.

Among the impediments to increased use of less costly modes were concerns raised about personal safety and mail security. Several mailing industry stakeholders we met with identified the placement of CBUs in convenient, well lit and secure areas as a means to ensure customer safety when accessing mail, especially in higher crime areas. USPS officials said they take placement of centralized delivery locations into consideration, as both carriers and customers are affected when a CBU is placed in an improper or unsafe location. For example, in Chicago, USPS officials said they converted existing door delivery in some areas of the city to centralized delivery to address the personal safety concerns of residents and mail carriers generated from increased crime rates in those areas of the city. Some stakeholders also noted mail security issues, such as the potential for increases in theft of mail from people picking up their mail or break-ins to centralized mail receptacles. Others indicated that there are opportunities to increase mail security by converting the mode of delivery from unlocked mailboxes, like those affixed near doors or many curbline mail boxes, to CBUs with locked receptacles for mail and parcels. USPS officials told us that the new model CBUs are more secure than the old model NDCBUs, which are considered legacy equipment.The materials used to construct CBUs combined with design changes have improved the security of mail delivered to them. However, USPS officials stated some customer concerns could diminish as they become accustomed to the new service.

To improve information needed for USPS and congressional decision making as well as transparency for all stakeholders, we recommend that the Postmaster General and USPS’s executive leaders collect and analyze updated data on delivery mode costs and the potential savings from converting delivery points to less costly modes of delivery and establish a time frame for publicly reporting the results.

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