USPS Market Research on Consolidations:
Revenue Losses Could Wipe Out Savings
APWU News Bulletin 09-2012, March 22, 2012 | PDF
In testimony before the Postal Regulatory Commission (PRC) on March 21, a USPS witness made a startling admission: The Postal Service’s initial research on the network consolidation plan indicated that it could result in revenue losses of $5.3 billion, with net revenue losses as high as $1.9 billion.
Revenue losses of that magnitude would virtually wipe out any cost savings derived from the plan, which the USPS initially estimated would be $2.1 billion. Recently completed Area Mail Processing (AMP) feasibility studies indicate far smaller savings.
The testimony [PDF], which was elicited during cross-examination by APWU attorney Jenn Wood, undermines the rationale for the Postal Service’s plan to close or consolidate half of the nation’s mail processing facilities.
“Congress must act immediately to prevent the Postal Service from going forward with this destructive program,” APWU President Cliff Guffey said. “It is now clear that massive consolidations will do much more harm than good.”
The network consolidation plan would close or consolidate 223 mail processing centers, slow mail delivery, degrade service standards, and eliminate 35,000 jobs. The USPS intends to begin implementing the program on May 15, when a six-month moratorium expires.
New Study, New Results
The witness, USPS Manager of Market Research Gregory Whiteman, revealed that the survey suggested that first-class mail volume would fall by 10.3% and that total mail volume would fall by 7.7% if the consolidation plan were implemented.
But Whiteman rejected the findings. The survey was unreliable, he said, because customers were reacting to other factors mentioned in an introductory statement, such as the Postal Service’s large deficit, post office closings, five-day delivery and legislative reform.
The USPS abandoned the study and conducted a new survey that estimated net revenue losses would total $500 million.
Prior to the March 21 hearing, the Postal Service had never publicly acknowledged the earlier study that showed the potential for net revenue losses of $1.9 billion; the USPS disclosed only the $500 million figure.
The earlier research first came to light March 9, 2012, in response to an APWU motion that sought data about the combined effect of several cost-saving plans.
The Postal Service’s admission that it had conducted the earlier, unreported study prompted speculation that the USPS was attempting to manipulate the results. But Whiteman denied that the USPS cancelled the earlier study because of the negative results.
Rebecca Elmore-Yalch, an employee of Opinion Research Corporation, the firm that conducted both studies for the Postal Service, supported Whiteman’s explanation, but also described the initial research as “solid.”
Data from the original research, which was previously classified as “non-public,” was introduced into the public record during the cross-examination. The Postal Service submitted the material to the commission on March 9, but requested the “non-public” designation, which meant that participants in the proceedings who were granted access to the material were prohibited from discussing its contents.
The results of the second study, which predicted $500 million in lost revenue and net savings of $2.1 billion, have been called into question. The Postal Service has said that most of the savings will come from reducing work-hours and eliminating 35,000 jobs. However, recently released AMP feasibility studies show a loss of 15,000 positions. Where the other 20,000 positions will come from is unclear.
The USPS is facing a financial crisis as the result of a 2006 law that requires it to pre-fund healthcare benefits for future retirees — a burden no other government agency or private company bears. The mandate forces the Postal Service to fund a 75-year liability in just 10 years, and costs the agency approximately $5.5 billion annually.