Service Standard Changes

SUPPLEMENTARY INFORMATION:

Table of Contents

I. Introduction

II. Pre-Filing Issues

III. The Request

IV. Initial Administrative Actions

V. Ordering Paragraphs

I. Introduction

On October 4, 2024, the Postal Service filed a request for an advisory opinion from the Commission regarding planned changes to its processing and transportation networks. In particular, the Postal Service plans to create a nationwide network of Regional Processing and Distribution Centers (RPDCs) and Local Processing Centers (LPCs). Id. at 3. The Postal Service states that this initiative will “increase throughput, gain productivity, and increase asset utilization across the country.” Id. Additionally, the Postal Service intends to implement its Regional Transportation Optimization (RTO) initiative on a nationwide basis. Id. The Postal Service states that the RTO initiative will “improve the efficiency and velocity of the processing network.” Id. The Postal Service estimates that these two initiatives will allow it “to achieve estimated cost savings of between $3.6 billion and $3.7 billion on an annual basis once fully implemented.” Id.

The Postal Service also proposes to revise its service standards “to align with these operational initiatives. . . .” Id. Specifically, the Postal Service will “transition to 5-Digit to 5-Digit ZIP Code service standards” that reflect “the three operational legs applicable to the movement of mail and packages: collection to origin processing (Leg 1), origin processing to destination processing (Leg 2), and destination processing to delivery (Leg 3).” Id. at 4. The Postal Service asserts that despite these changes, it will preserve the existing day ranges for First-Class Mail, which is currently 1-5 days, and USPS Ground Advantage, which is 2-5 days. Id. Additionally, the Postal Service intends to “transition the service standards for end-to-end USPS Marketing Mail and USPS Package Services so that they are based on the standards for First-Class Mail and USPS Ground Advantage,” which will shorten the day ranges for those products as compared to current standards. Id. The Postal Service states that “[s]ome mail and packages will . . . have a service expectation that is longer than the current expectation (although still within the current day-ranges)” if its originating 5-Digit ZIP Code is subject to RTO. Id. at 5. Finally, the Postal Service states that it will also exclude Sundays and holidays as transit days in these new service standards. Id.

The intended effective date of the Postal Service's planned changes is no earlier than 90 days after the filing of the Request. Id. at 48. The Request was filed pursuant to 39 U.S.C. 3661 and 39 CFR part 3020. Before issuing its advisory opinion, the Commission shall accord an opportunity for a formal, on-the-record hearing pursuant to 5 U.S.C. 556 and 557. 39 U.S.C. 3661(c). This Order provides information on the Postal Service's planned changes, explains and establishes the process for the on-the-record hearing, and lays out the procedural schedule to be followed in this case.

II. Pre-Filing Issues

On August 22, 2024, the Postal Service filed a notice of its intent to conduct a pre-filing conference regarding its plans to transform its processing and transportation networks and to revise service standards to align with these changes.

On August 26, 2024, the Commission issued Order No. 7414, which established Docket No. N2024-1 to consider the Postal Service's proposed changes, notified the public concerning the Postal Service's pre-filing conference, and appointed a Public Representative. The Postal Service held its pre-filing conference virtually on September 5, 2024, at 1:00 p.m. Eastern Time (ET). See Request at 49. The Postal Service certifies that it has made a good faith effort to address concerns of interested persons about the Postal Service's proposal raised at the pre-filing conference. See id.

III. The Request

A. The Postal Service's Planned Changes

1. Processing and Transportation Networks

Currently, the Postal Service's legacy processing network consists of a mix of Processing and Distribution Centers (P&DCs) and Network Distribution Centers (NDCs), combined with “numerous ancillary facilities . . . .” Id. at 13. As a result of the current processing network facilities' conditions and age, their number and the piecemeal and ad hoc nature of their implementation, and the lack of operational standardization necessary to address the processing of mail and packages, the Postal Service determined that it must redesign the legacy network and “construct a network that enables [it] to handle mail and packages in a precise, efficient, and integrated manner. . . .” Id. at 13-14. The proposed processing network will be designed using a “regional concept,” and consist of two standardized facility types: (1) Regional Processing and Distribution Centers (RPDCs) and (2) Local Processing Centers (LPCs). Id. at 14.

RPDCs will manage “the flow of mail and packages that originate or destinate in that region.” Id. at 15. They will “perform originating sortation operations for letters, flats, and packages to the 3-digit ZIP Code level, for dispatch to the rest of the country.” Id. They will also “engage in cross-docking and sortation operations for destinating letters, flats, and parcels for dispatch to a LPC.” Id. Finally, they will “serve as intermediate consolidation points for volume that is traveling across the country (known as Regional Transfer Hub (RTH) operations).” Id.

LPCs will be designed to “handle destinating letter, flat, and package sortation operations for designated 3-Digit ZIP Codes within a region, for dispatch to Sorting and Delivery Centers (S&DCs) and delivery units.” Id. at 16. Some LPCs might “sort and/or cross-dock carrier route bundles of flats to S&DCs and delivery units” or perform “certain originating operations” as designated by the Postal Service. Id. They will also act as a consolidation point “for all volume types coming from the delivery network on the way to the RPDC.” Id.

Some LPCs might be co-located with RPDCs and some RPDC operations might be located “in a single building or a campus of two or more buildings” based on what the Postal Service determines is most efficient and cost-effective. Id. at 15-16. The Postal Service notes that each of the functions these new facility categories “are not rigid, and may be subject to varying adjustments and configurations based on local operational considerations . . . .” Id. at 16. The Postal Service intends to make these network changes on a region-by-region basis over the course of multiple years. Id.

In conjunction with these new facilities, the Postal Service also intends to implement its Regional Transportation Optimization (RTO) initiative on a nationwide basis. Id. at 21. While, according to the Postal Service, “[t]he volume of mail collected through [its] rental facilities (including mail collected on carrier routes and entered at Post Offices) has declined substantially in recent decades[,]” it has not “fundamentally adjusted” its associated collection processes and transportation network to account for the decline. Id. at 19. This has resulted in numerous transportation and processing inefficiencies as the Postal Service has continued its process of transporting destinating mail and packages from the processing network to collection or delivery facilities in the morning and transporting originating mail from collection or delivery facilities to the processing network in the afternoon. Id. at 19-20.

Instead, under RTO, “certain collection/delivery facilities will have their destinating mail dropped off, and their originating mail picked up, on the same transportation route.” Id. at 22. The Postal Service indicates that it will designate 5-Digit ZIP Codes for RTO “when the facility from which the collection mail and packages are dispatched is more than 50 miles from the RPDC campus.” Id. According to the Postal Service, RTO will enable it to redesign its transportation routes to reduce the number of trips and layovers and eliminate unnecessary or underutilized trips. Id. at 23.

2. Service Standards

Currently, the Postal Service's First-Class Mail and USPS Ground Advantage service standards “are predicated on plant-to-plant ( i.e., on a 3-Digit to 3-Digit ZIP Code) driving distances.” Id. at 27. They do not consider the variations in transportation operations that are required to move volume from the collection point to the processing network. Id. The Postal Service proposes to “transition to 5-Digit to 5-Digit ZIP Code ( i.e. Post Office to Post Office) service standards that maintain the existing delivery day ranges for both First-Class Mail and USPS Ground Advantage . . . .” Id. at 28. The Postal Service also proposes to “transition the service standards for end-to-end USPS Marketing Mail and Package Services so that they are based on the standards for First-Class Mail and USPS Ground Advantage, respectively, which will result in a shorter day range for these products when compared to the current service standards.” Id.

Under its proposed approach for inter-RPDC First-Class Mail and USPS Ground Advantage, the Postal Service would segment volume into three legs: collection to origin processing (Leg 1); origin processing facility to destination processing facility (Leg 2); and destination processing facility to delivery (Leg 3). Id. at 30. The proposed service standards “will be based on how many days cumulatively apply to a particular mailpiece across the three operational legs.” Id. For Leg 1, the Postal Service will “align our standards with RTO” and apply 1 day to pieces that “originate in a 5-Digit ZIP Code more than 50 miles from the RPDC, meaning RTO is being applied, and 0 days will apply to pieces originating in other 5-Digit ZIP Codes.” Id.

For Leg 2, the Postal Service will “apply [2-5] days based on the travel distance between the originating and destinating processing plants” using the new network outlined above. Id. at 30-31. The transit paths will be updated to reflect the new network and “measure the distance between the Origin RPDC and the Destination RPDC and then the distance between the Destination RPDC and the Destination LPC.” Id. at 34. With regard to Leg 2, the Postal Service states that because RTO and the new and more efficient network will improve arrival profiles, “each of the existing service standard bands will expand by four hours for First-Class Mail.” Id. at 34-36. No additional days will be added for Leg 3, “which is the same as the current standards.” Id. at 30.

The Leg 1 rules will not apply to “any products entered at a RPDC, Presort First-Class Mail, or any destination-entered volume.” Id. at 32. The Postal Service proposes to add an “extra day for volume that is entered in a 5-Digit ZIP Code subject to RTO[ ]” for its Priority Mail and Priority Mail Express products but still “intends for Priority Mail to remain a 1-3 day product,” and anticipates that “Priority Mail Express will be a 1-3 day (guaranteed) product.” Id. at 33-34. Finally, for mail and packages that originate and destinate within the same RPDC region, “[t]he proposed service standards would expand the geographic scope of turnaround volume ( i.e., volume originating and destinating within a facility's service area).” Id. at 37. Currently, this “volume receives a two-day standard.” Id. Under the proposed standards, intra-LPC and intra-RPDC volume will either be subject to a 2 or 3-day standard depending on whether the originating volume is from a 5-digit ZIP Code beyond 50 miles of the cancellation location. Id. “The standards for end-to-end Marketing Mail, Periodicals, and Package Services within a region will also be based on these standards.” Id. The Postal Service outlines the proposed standards as follows:

Id. at 31.

Finally, the Postal Service intends to change how it measures performance under these standards. Id. at 40. “Specifically, the Postal Service will not count Sundays or holidays as transit days for volume entered on a Saturday or the day before a holiday.” Id. It will also “change the Service Performance Measurement system to enable measurement at the 5-Digit ZIP Code level . . . .” Id.

B. The Postal Service's Position

1. Processing and Transportation Networks

The Postal Service asserts that these network changes will “enable significant cost reductions in both processing operations and in [its] transportation network, while improving the work environment for [its] employees.” Id. at 18. It will enable the Postal Service to more efficiently balance its use of ground and air transportation and should result in a reduced number of surface and air nodes. Id. The Postal Service states that these modifications will eliminate “unnecessary trips” and increase utilization of the remaining trips. Id. It will also allow the Postal Service to further reduce costs through the elimination of “excess facilities.” Id.

Additionally, according to the Postal Service, the implementation of the RTO initiative on a nationwide basis will “result in significant improvements in transportation and processing operations.” Id. at 22. It will result in a reduced number of trips and layovers, which will in turn reduce carbon emissions and increase utilization of the Postal Service's transportation resources. Id. at 23. The Postal Service also states that the RTO initiative will improve “the efficiency and velocity of the processing network,” by creating efficient “operating windows in originating and processing facilities” because non-RTO volume may be processed and dispatched earlier than under its current transportation policy. Id.

Overall, the Postal Service estimates that it will save “between $3.6 and $3.7 billion annually in Leg 1 and Leg 2 transportation costs, mail and package processing costs, and facility costs[ ]” through the implementation of these two initiatives. Id. at 23. Table 1 below details the Postal Service's estimated annual cost savings, organized by category. The Postal Service cautions that because it intends to implement these initiatives “through a deliberate implementation plan over time,” that not all savings will be achieved immediately. Id. at 26. Thus, “[t]his approach reasonably estimates the expected future savings from these initiatives when fully implemented.” Id.