USPS Network Consolidation: A Tale of 3 Pictures

A lot of ink has been spilled discussing and cussing the U.S. Postal Service's plan to close 82 mail processing centers next year. But the three images below tell the story in a nutshell.

David Williams, USPS' vice president of networks, showed these slides in a recent presentation to mailers about the "Phase II" consolidations scheduled to begin in January.

The first slide demonstrates why: The volume of highly profitable single-piece First Class letters is barely half of what it was seven years ago.
 
















The reduced volume is a major reason the Postal Service needs fewer sortation centers -- and the $750 million annual savings it estimates the consolidations will generate. ("AMP" refers to Area Mail Processing studies, USPS's process for evaluating the expected impact and savings from potential plant consolidations.)

The second slide demonstrates that the plants to be closed are spread throughout the country and are primarily Processing & Distribution Centers. Williams said the closings will be part of another "methodical, measured transition" and that, as usual, affected employees will be offered "options for staying with the Postal Service" rather than being laid off.



















The third slide shows the end result: By next October, the Postal Service plans to have only 239 processing centers, down 64% since 2007.

Other articles about USPS plant closings:  

• Postal Service 'AMPs' Up Facility Consolidations
• Printer Praises Postal Plant Consolidations 
• USPS 'Honors' Sen. Byrd With Plant Consolidations
• Has USPS Targeted the Wrong Plants for Closure? 
• Is the APWU Eating Its Young?

USPS Steps Up Mail-Processing Consolidation

The U.S. Postal Service has announced the possible closing or downsizing of 15 processing and distribution centers in the past two weeks, part of a newly aggressive effort to rationalize its mail-processing network.

While proposed post-office closings get most of the media attention, 32 of the much larger processing and distribution centers are the subject of Area Mail Processing studies (AMPS) that could result in some or all of their work going to other P&DCs. USPS has approved at least partial consolidation of 11 other P&DCs this quarter, as shown by its AMPS Web site. The site links to reports detailing the proposed and recently approved consolidations.

Those reports suggest the proposed consolidations would together yield well over $100 million in annual savings and result in elimination of more than 1,000 positions. Declining mail volume and increased automation have left the Postal Service with far more mail-processing capacity and locations than it needs.

In many cases, the consolidations help mailers by eliminating some of the 400 or so P&DCs to which they must transport mail to receive Sectional Center Facility (SCF) dropship discounts. But in other cases, the consolidations affect only the processing of outgoing mail (such as mail pieces postmarked for delivery to other regions) and leave the handling of dropshipped mail intact.

The consolidations typically move work to larger P&DCs that are 20 to 80 miles away. Temporary employees lose their jobs, while career employees must often make the longer commute to the larger P&DC to remain employed by the Postal Service.

Concerned about their towns losing jobs and their postmark, local officials often join postal unions in opposing AMPS consolidations. But USPS’ Office of Inspector General just released a report defending one of those challenged consolidations, a shift of outgoing mail processing from Canton, Ohio to Akron. Counter to claims from opponents of consolidation, the study found that service improved and that USPS expenses were reduced by more than $2.2 million annually.

Here is USPS's current list of P&DCs being considered for consolidation:

• Binghamton, NY (partial consolidation approved, according to local press reports).
• Bloomington, IN
  
• Bowling Green, KY
  
• Bristol, VA
  
• Cape Cod (Wareham), MA
  
• Charlottesville, VA
  
• Dallas, TX
  
• Dulles, VA
  
• Frederick, MD
  
• Green Bay, WI
  
• Hickory, NC
  
• Industry, CA
  
• Kalamazoo, MI
  
• Kilmer (Edison), NJ
  
• Kinston, NC
  
• Lima, OH
  
• London, KY
  
• Marysville, CA
  
• North Reading, MA
  
• Mojave, CA
  
• Newark, NJ
  
• New Castle, PA
  
• North Bay (Petaluma), CA
  
• Oxnard, CA
  
• Palatine, IL
  
• Rocky Mount, NC
  
• Saginaw, MI
  
• Salinas, CA
  
• Southeastern, PA
  
• Stockton, CA
  
• West Jersey (Whippany), NJ
  
• Wheeling, WV
  

Related articles:

• Postal Service Pursues Hassle-Free Consolidations
• What the Postal Service Left Out of the Early-Retirement Deal
• Death of the SCF -- Exclusive Analysis

What the Postal Service Left Out of the Early-Retirement Deal

The U.S. Postal Service took a small step toward intelligent downsizing yesterday with a buy-out package for up to 30,000 employees, but it needs to do two more things -- quickly:

1) Reveal as much as possible about the planned consolidation of its 400 or so processing and distribution centers.

2) Overhaul the process of communicating projected retirement benefits for those who take early retirement.

The deal worked out with two employee unions offers a $15,000 early-retirement package to selected employees, mostly retail clerks, mail handlers, and vehicle technicians. For details, see the USPS announcement, the American Postal Workers Union memo, and the Washington Post's coverage. Also, see the 600-plus comments on yesterday's articles at such sites as PostalNews.com, PostalReporter.com, and PostalMag.com, where some folks are saying they will take the package while others say it's not enough.

Employees have only 30 days to decide whether to take the package, which presents a dilemma for eligible employees at the "P&DCs".

USPS has made no secret of its intent to consolidate its processing network. In just the past 30 days, it has announced eight such consolidations and the potential for five more, according to the APWU. Plans for the Flats Sequencing System suggest many more consolidations of flats sortation if not of entire plants (as discussed in Death of the SCF, Part 3: Flats Sequencing and, more recently, Declining Volumes Lead to FSS Expansion.)

When P&DCs are consolidated, affected employees typically have to commute or relocate to a P&DC in another city. What a shame, and lost opportunity, if some employees decide in September not to take the early-retirement offer and then discover a month or two later that the only way they can avoid being laid off is to take a job more than 100 miles from home.

As for the second thing USPS needs to do quickly, "The Postal Service's Early-Retirement Snafu" has already spelled out how USPS often understates the benefits for prospective early retirees, leading to abysmally low responses to early-retirement offers. If it's worth $15,000 to get people to retire early, it's certainly worth spending a few bucks on employee communication to ensure those people have accurate information about their retirement benefits.

Why USPS Must Consolidate Its Mail-Processing Network

Some have questioned my assertion yesterday that consolidation of the U.S. Postal Service’s mail-handling network is much needed.

But I’m backed up by no less an authority than the Government Accountability Office, which last week reiterated its long-standing advocacy of such downsizing. Its latest report on the subject is titled “Network Rightsizing Needed to Help Keep USPS Financially Viable”. Some highlights:

• “It is important for USPS to make significant progress in consolidating its networks and reducing excess capacity or it may face more drastic cost-cutting options and have less time to achieve necessary cost reductions.” With 160,000 employees eligible for retirement this year and another 130,000 in the next four years, the Postal Service can accomplish much of its downsizing via attrition rather than layoffs, the report indicates.

• “We reported in 2005 that USPS had substantial excess capacity in its mail processing network. Long-term trends have further increased excess capacity in the processing network such as continuing automation, declining volume of single-piece First-Class Mail (e.g., bill payments, personal correspondence), and destination entry of Standard Mail . . . that reduces the need for USPS mail processing and long-distance transportation of mail."

• “New automation equipment enables USPS to sort mail faster and more efficiently, a development that, with declining mail volumes, has resulted in more equipment downtime. In addition, new equipment, referred to as the Flats Sequencing System, will sort flat-sized mail (e.g., large envelopes, catalogs, and magazines) into delivery order, which is expected to reduce the need for space-intensive manual sorting at delivery units. Because delivery units are often co-located with post offices, branches, and stations, eliminating the excess space could involve relocating or consolidating retail activities.”

• “However, USPS has closed only 1 of its approximately 400 major mail processing facilities. USPS has often faced resistance from employees, affected communities, and Members of Congress when it has attempted to consolidate its operations and networks. In enacting PAEA [postal reform], Congress recognized USPS had more facilities than it needs and strongly encouraged streamlining its networks, noting this can pave the way for eliminating excess costs. Continued congressional support for necessary closures would be helpful to facilitate progress in this area."

Postal Service Pursues Hassle-Free Consolidations

By shifting some mail handling from the Bronx to Manhattan recently, the U.S. Postal Service did an end run around union opposition and Congressional interference. Postal officials are increasingly using similar tactics around the country to bring about much-needed consolidation of their dropship network without stirring up local opposition.

USPS directed mailers of Standard class flats (mostly catalogs) and Periodicals (magazines and newspapers) to stop dropshipping mail to a Bronx facility as of May 22; mailers of Standard letters (direct mail) received the same directions last month. Those who want an SCF (Sectional Center Facility) discount for mail addressed to the Bronx can now get it by delivering to the Manhattan SCF instead.

The Postal Service stirred up a hornet's nest of opposition when it began an "area mail processing" study in 2005 to consider whether to move mail-handling duties from the Bronx to the Morgan facility in Manhattan. In December 2007, Congressman Jose E. Serrano inserted a provision into an appropriations bill that blocked any such move. The Bronx Congressman chairs a subcommittee that oversees some appropriations to the Postal Service.

It's not clear how many jobs were affected by the recent redirection from one New York borough to another. There have been reports of the Postal Service taking flat mail that is dropshipped to some SCFs and shifting it to Area Distribution Centers (ADCs) like Morgan for actual sorting. That has apparently become more common with the introduction of faster flat-sorting machines coupled with the recent declines in magazine and catalog volumes.

AMP studies often generate significant opposition among postal workers, the local media and politicians because of the many jobs involved and the potential loss of a town's postmark. Wilkes-Barre, PA; Staten Island, NY; and Winchester, VA are among the communities currently battling AMP studies.

By contrast, "redirections" of certain dropshipped mail typically fly beneath the radar because they are not publicly announced and do not involve the hot button known as First Class mail. Lakeland and Manasota Florida vehemently protested the formal consolidation of their processing and distribution centers earlier this year into a Tampa facility, but hardly a word was spoken when Standard and Periodicals flats were redirected last month from Fort Lauderdale to a facility near Miami (apparently in preparation for the Flats Sequencing System).

So far this year, flat mail has been redirected from six towns in Oklahoma, four in Pennsylvania, and facilities in New Hampshire, Connecticut, Tennessee, Mississippi, Arizona, and California -- in addition to the Bronx. The pace of new AMP studies has also accelerated, according to a listing maintained by the American Postal Workers Union, as the Postal Service tries to adjust to lower mail volumes.

Flats Sequencing Hits Some Bumps

Declining mail volume, budget cuts, and equipment problems are forcing the U.S. Postal Service to rework its plans for the Flats Sequencing System.

The deployment schedule for Phase I of the system has been pushed back a couple of months, while the coverage area for the 100 machines has been expanded. Some of the 32 original Phase I facilities will get fewer of the enormous machines than originally planned as postal officials adjust to declining volume for catalogs, magazines, and other flat mail.

Those machines will go instead to about a dozen locations that will be added to Phase I, according to one source. And one of the original 32 locations -- the controversial proposed new building in Aliso Viejo, CA -- has been canceled along with other capital projects because of the Postal Service's dire financial condition.

(See "The Unofficial Guide to Flats Sequencing" for more information about the multimillion-dollar FSS program, which postal officials hope will revolutionize its delivery of flat mail.)

Postal officials revealed in February that they would be redeploying some of the machines and that some FSS facilities, contrary to original plans, would get only one machine. But the Postal Service's "FSS Deployment Information" Web site still shows the 100 machines going to only 32 facilities, including Aliso Viejo.

Plans for FSS developed during a time of growing flats volume. But the number of flats handled by the Postal Service declined more than 13% in the past two years, and postal officials now assume that the volume will continue shrinking. As a result, the first 100 machines are now slated to serve more than 2,000 ZIP codes instead of the 1,300 in the original Phase I plan.

FSS machines have been operating in Dulles, VA for a few months but failed an acceptance test recently because they were missing "throughput targets," William Galligan, USPS's senior vice president of operations, told a Mailers Technical Advisory Committee in February. Postal officials are working with the contractor, Northrop Grumman, to correct the problems and hope to resume testing later this month.

There is some good news on the FSS front: Dead Tree Edition's prediction four months ago that FSS would lead to money-saving consolidations of the Postal Service's dropship network is starting to come true. One dropship location on the list of predicted consolidations, in Kansas City, KS, has already been slated for closing, while the one in Winchester, VA is the subject of a consolidation study.

Galligan also told Postcom.org recently that FSS, along with changes to the dropship network, would correct much of the Periodicals class's problem with cost coverage. The Postal Service says its Periodicals revenue covers barely 85% of the cost of delivering newspapers and magazines, leading some to advocate higher rate increases for the class.

Postal costs to go up less than 4% -- maybe

So now it’s official: If you use Periodicals, Standard, or First Class postage, your mailing costs will rise by just under 4% in May, right?

That’s not a safe bet. It’s true that the average change in rates for those “market-dominant” classes will be 3.976% for Periodicals, 3. 862% for Standard, and 3.814% for First Class. That’s based on the announcement today that the average monthly Consumer Price Index in 2008 rose by 3.8% over 2007, plus a smidgen of “unused rate authority” from last year’s rate increases. (See “Who’s it gonna be, me or the PRC” for a further discussion of how the rate cap is determined -- and Dead Tree Edition’s prediction that the rate cap would be below 4%. Nyah, nyah, told you so!)

With last year’s rate increases, all mailers in the market-dominant classes got virtually identical increases in costs. But don’t count on that happening this time around. Here are factors that could cause some mailers to get large increases and perhaps help others decrease their postage costs:

• A little gift from the Postal Service: USPS is undertaking a massive consolidation of carrier-route boundaries early this year, though it's unclear how many fewer routes there will be. Here’s how these consolidations will help mailers: Suppose your Periodicals-class publication has five copies going to one carrier route and four going to another and that the two routes are merged: Now those copies will move from a 5-digit bundle to a carrier-route bundle, saving you at least 10 cents per copy. The biggest benefit will probably go to Periodicals mailers that already have 25% to 75% of their pieces in carrier-route bundles. For those mailers, a 10% decrease in the number of carrier routes could boost their carrier-route sortation by 5 percentage points, yielding savings of about a half-cent per piece -- typically 1% to 2% of total postage. The savings would be lower for Standard mailers because their carrier-route incentives are smaller.
  


• What the Postal Service giveth, the Postal Service can taketh away: Here’s a scary thought for Periodicals mailers, especially for those benefiting the most from the consolidation of carrier routes: There is apparently nothing in the new postal law preventing the Postal Service from increasing the minimum number of pieces in a carrier-route bundle. To get the money-losing Periodicals class closer to breaking even, USPS might increase the minimum size of a carrier-route bundle from six pieces to 10 to bring it into line with Standard flats, one industry expert speculated. That would increase some mailers’ costs by two cents per copy.
  


• Be careful what you wish for: Efficient Periodicals mailers, led by Time Inc., tried for years to have the Postal Service’s transportation costs fully reflected in Periodicals rates, instead of having dropshipped publications subsidizing non-dropshipped publications. The Postal Service resisted that approach as unfair to small publications. (Not true. It only hurts the small publications that mail nationwide on their own rather than in freight pools.) The resulting Periodicals rates are a patched-together Frankenstein’s monster that no one likes – and that decreased many publishers incentives to dropship. Time Inc. advocated BMC discounts, which would have especially helped small publications, but the BMC discount that ended up in Periodicals rates is virtually meaningless. USPS officials reportedly recognize that the lack of dropship incentives for publishers has caused them to scale back dropshipping, thereby increasing the Postal Service’s costs.
  


• Sacks suck: Also in the category of the Postal Service being careful what it asks for is the matter of Periodicals sacks. Time Inc. and the other advocates of cost-based Periodicals rates proposed that USPS’s full costs of handling sacks be reflected in Periodicals rates, rather than having palletized publications subsidizing sacked publications. Again, USPS resisted, so the resulting rates have publishers bearing only a small portion of the Periodicals sack-handling costs. With the Postal Service in the red and realizing more than ever what a pain in the P&DC sacks are, cost-based rates are looking much more attractive to postal officials. Look for the new rates to be less accommodating to inefficient Periodicals mail. And don’t be surprised if Standard mailers start getting charged for sacks as well.
  


• Squishing the flats: Postal officials reportedly realize that the huge 2006 rate increases for Standard flats (which are mostly catalogs) have contributed to a rapid decline in volume. Especially hard hit were the kind of lightweight catalogs typically used for prospecting. (Dead Tree Edition pointed out a cheaper alternative for catalog prospecting, but Google Analytics tells me the article wasn’t exactly a big hit – even though L.L Bean continues to use the method.) The Postal Service may charge Standard letters (direct mail) a larger-than-average increase so that it can give lightweight Standard flats a break.
  


• Death of the SCF: The Postal Service’s efforts to consolidate its dropship network has been quiet for a few months, but roll-out of the Flats Sequencing System and cost pressures will ensure that more locations get consolidated. Such consolidations make it easier for mailers to increase their dropship discounts without spending more on freight.
  
  Here’s a little suggestion for postal officials trying to tweak the Periodicals rate structure. (I know they’re reading Dead Tree Edition at L’Enfant Plaza because sources tell me that postal officials have been complaining about my recent Intelligent Mail barcode post, though none have had the cahones to issue a written rebuttal.) Create meaningful BMC discounts for Periodicals to entice small mailers to start dropshipping and large mailers to do more dropshipping. There are reasons not to put Periodicals into bulk mail centers, but there is a way around that: Designate certain large ADCs as “Periodicals BMCs.” For example, make the Pittsburgh P&DC a Periodicals BMC and assign it the ZIP codes served by the Pittsburgh Bulk Mail Center; then watch as Periodicals mailers ship publications for the tiny, hard-to-reach Clarksburg, WV ADC to Pittsburgh (as Standard mailers already do) instead of mailing them from printing plants halfway across the country.

Death of the SCF, Part 3: Flats Sequencing

The U.S. Postal Service may have tipped its hand regarding significant consolidations of its dropship network that in some cases will move work 100 miles from the current location.

Information that USPS has released regarding the Flats Sequencing System indicates that, within two years, the handling of flats (catalogs, magazines, and newspapers) may no longer be performed in such major cities as Boston, Hartford, San Bernardino, and Fort Lauderdale. USPS officials have indicated that roll-out of FSS would result in some consolidation of dropship locations but have revealed few specifics.

To understand what is likely to happen, consider the case of the Norfolk-Virginia Beach area in southeastern Virginia. In 2010, the processing of flats for 28 ZIP codes in that area is scheduled to be shifted from the Norfolk Processing and Distribution Center to the new Richmond, VA FSS facility. Currently, Periodicals mailers can get ADC discounts by dropping Norfolk-Virginia Beach mail in Richmond and SCF discounts by dropping it in Norfolk.

(Here is a full listing of Phase I ZIP codes, but be forewarned that the Postal Service seems likely to amend this list and shift some machines to additional locations because of declining flats volumes.)

Part of the Postal Service’s FSS plan is to “induct mail where it is processed” – in this case Richmond. It seems unlikely that USPS would want mailers to drop FSS copies in Richmond while dropping non-FSS copies from the same three-digit ZIP codes in Norfolk. The most likely scenario is that USPS is planning to move the SCF location for all Norfolk-Virginia Beach area flats from Norfolk to Richmond.

That may lead to some Norfolk (pronounced NOR-fuk) postal workers amending the infamous Chant of the Norfolk Virgins to “We don’t smoke, we don’t drink, nor sort, nor sort! (The original chant is, “We don’t smoke, we don’t drink, Norfolk, Norfolk!” which is doubly ironic considering that prostitution used to be a major industry in that Navy town and that the first test-tube baby in the U.S. was conceived there. But I digress.)

Such subtle consolidation of the flats-dropship network is consistent with other moves the Postal Service is making, which Dead Tree Edition is calling “The Death of the SCF” as we know it. (See Parts 1 and 2 of our series.) Such “network realignment” is generally good news for mailers, who have to ship to fewer locations to obtain dropship discounts, but of course not so good for some postal employees whose work is being relocated.

The Postal Service has said for years that it could gain efficiencies by consolidating dropship locations but has been stymied by members of Congress trying to protect jobs in their districts. The huge FSS machines, which are supposed to reduce the Postal Service’s costs of delivering flats (supposedly by at least 5 cents per piece, based on what little USPS has revealed), also seem more suited to a consolidated network rather than the current arrangement of more than 250 processing and distribution centers.

Listed below are other P&DCs indicated for consolidation in the Phase I listings, along with the locations to which the work would apparently go:

• Boston to NW Boston (Waltham, MA)
• Hartford, CT and Southern Connecticut (Wallingford) to a facility in Massachusetts, apparently Springield
• Central Mass. (Shrewsbury) to Middlesex-Essex (North Reading, MA)
  
• Fort Lauderdale to Miami
  
• D.V. Daniels (Kearny, NJ) and West Jersey (Whippany, NJ) to Jersey City
  
• Kansas City, KS to Kansas City, MO
  
• Monmouth and Kilmer (Edison), NJ to Trenton, NJ
  
• Brockton, MA to Providence, RI
  
• Pasadena, CA to Van Nuys (Santa Clarita), CA
  
• San Bernardino (Redlands), CA to Moreno Valley, CA
  
• Santa Ana, CA to Aliso Viejo, CA
  
• Flagstaff and Globe, AZ to Phoenix
  
• Culpeper and Winchester, VA to Dulles, VA
  
• Athens, OH to Columbus, OH
  
• Columbus, IN to Indianapolis
  

Footnote: Based on the response to my post "Postal Service eyes mega-millions from FSS", there is huge interest in and many questions about FSS. That item has had more than 100 comments, most of them at such sites as Postalnews.com, Postalmag.com, and Postalreporter.com. That prompted me to create "The Unofficial Guide to Flats Sequencing", which has a video of the equipment, links to more information, and answers various questions about the system.

For the record, Dead Tree Edition is neither accepting nor refuting what the Postal Service says about FSS, just trying to interpret what little has come out of "Elephant Plaza" on this important subject.

Fuelish Surcharges

Rising crude-oil and freight prices have meant higher fuel surcharges for trucking, special freight charges for paper, and increased prices for ink this year. So what’s happening now that oil and freight prices are plummeting? In many cases, nothing.

Fuel-related price increases tend to be what economists call “sticky.” That means the suppliers "stick" it to you when they can, and you tend to be "stuck" with the surcharges for awhile even after their justification has disappeared (or something like that. Econ 101 was a long time ago.)

One paper executive recently told a group of customers that declining crude-oil prices were not showing up yet in diesel or freight costs. Don’t believe it. For the record, here is what federal agencies have to say:

The U.S.'s average on-highway diesel price has dropped 38% in the past three months. The producer price index for long-distance truckload freight dropped more than 2% from August to September and no doubt will be even lower when the October numbers come out.

Printing contracts that include significant freight services typically have a chart or formula stipulating what the fuel surcharge will be based on a Department of Energy index. Other freight providers have surcharges that tend to track market prices for diesel, though they can be a bit slow about decreasing them when fuel prices drop unless there is contract language governing such surcharges.

Ink companies make a big deal of announcing price increases when oil costs are rising. That sets the stage for printers to pass the price increases along to end users. The ink companies are much quieter when declining oil costs cause them to trim their prices.

The freight charges imposed by paper companies have an illogic of their own. Want to know how your supplier’s freight charges are being adjusted in light of declining freight costs? Sorry, it will take a couple of weeks to run the numbers; the Ouija board had to be sent out for repairs.

At least one paper manufacturer has been assessing surcharges on full-truckload orders to destinations in the same state as the mill. And plenty of folks have reported getting a price quote from a paper supplier and then having a surprise freight-surcharge show up on the invoice.

Fortunately, the U.S. Postal Service (the largest vendor for many publishers and cataloguers) is not tacking on fuel or freight surcharges. In fact, USPS is actually reducing its customers’ freight costs via informal consolidation of dropship facilities, as shown last month in our “Death of the SCF” and “Death of the SCF, Part 2” articles. (Look soon for “Death of the SCF, Part 3”, to be followed eventually by “Night of the Living SCF” and “Death of the SCF Meets Godzilla”.)

Big postage increases ahead for magazines?

Magazine publishers expecting a small increase in postage rates next year may be in for a double whammy, our contacts are indicating. Contrary to popular opinion in the industry, Periodicals rates could increase by more than the rate of inflation next year, especially for inefficient mailers.

The U.S. Postal Service seems likely to implement extra-high rate increases next year for Periodicals-class mailers who use sacks instead of pallets, especially if the sacks are not dropshipped, several contacts say. The thinking is that the Postal Service can no longer afford heavy subsidization of sacks and other practices that cost it so much money. Political pressure has prevented USPS from passing its full cost of handling sacks on to the customers.

The big rate increases for sacks would be good news for publishers that mail their magazines mostly on dropshipped pallets, but they might also be in for a surprise. By law, the average rate increase for each class normally would not exceed the annual rate of inflation, currently just under 5%, so usually a large increase for some publishers would mean a small increase, or even a decrease, for others.

The second part of the whammy is that the Postal Service may soon issue a decision on whether it is at least breaking even on the Periodicals class. If Periodicals is a money loser, as some claim, then the Postal Service may be forced by law to implement large Periodicals rate increases.

USPS is slated to announce rate increases for all classes of mail in February, for implementation 90 days later, in May.

New Jersey Swallows Delaware (Death of the SCF, Part 2)

Contrary to what the U.S. Postal Service indicates, New Jersey has not gobbled up Delaware and St. Petersburg, FL has not been relocated to Tampa.

Perhaps as a precursor to more formal consolidation of dropship facilities ("network realignment" in postalspeak), USPS has been reshuffling its dropship map in recent months. Coupled with reduced dropship incentives for the Periodicals class and rising freight costs (see "Death of the SCF"), the result is that mail pools are delivering to fewer facilities. That has caused widespread confusion (and lost postal discounts) for publishers, other mailers, and their presort and freight vendors.

For example, USPS's official lists of dropship locations still show Wilmington, DE as a Sectional Center Facility (SCF) and Area Distribution Center (ADC) serving all of Delaware. But to get dropship discounts on Delaware copies, they have to be delivered to the South Jersey ADC in Bellmawr, NJ. St. Pete is still on the official list of SCFs (affectionately known as L005), but most Periodicals for St. Pete have to be dropshipped at the Tampa ADC to get SCF discounts.

In the mail-preparation process, the mailer still has to designate entries for St. Pete and Wilmington. But then USPS tells the logistics people to take those copies to Tampa and South Jersey. That has led to arguments between presort people and logistics people, sometimes in the same company.

When the Postal Service tries to change where incoming mail is handled, Congressmen and editorial writers get all up in arms about the loss of the local postmark -- and postal jobs. That happened in Wilmington, among other cities. But shifting where dropshipped mail is sorted rarely causes a media or political stir.

Some of the "redirections" apparently are in preparation for the Flats Sequencing System (FSS). For example, the Northern Virginia ADC and Dulles, VA SCF have both been redirected to the building in Sterling, VA where the first live runs of FSS are occurring. The North Metro, GA ADC and Atlanta SCF have been similarly redirected to a different Atlanta location.

The Postal Service's lists of ADCs and SCFs show no hint of these redirections. In fact, nowhere has USPS provided an explanation of redirections or a comprehensive list of these exceptions to the dropship list. The only way to find them is by navigating the USPS's clumsy FAST system (https://fast.usps.com/fast/). To make it even more confusing, some of the redirections apply only to certain sub-classes -- so that, for example, daily and weekly news Periodicals go to one facility and monthlies to another.

In hopes of clearing up the confusion, Dead Tree Edition is offering this exclusive (and, we hope, complete) list of redirections affecting at least some types of Periodicals flats. Listed first is the official ADC or SCF city, followed by the location of the dropship facility:

• Manchester, NH ADC: Nashua, NH


• Staten Island, NY SCF: Brooklyn, NY


• Glens Falls, NY SCF: Albany, NY


• Buffalo ADC, Jamestown, NY SCF, and Elmira, NY SCF: Rochester, NY


• DuBois, PA SCF: Johnstown, PA


• Oil City, PA SCF and Bradford. PA SCF: Erie, PA


• Wilmington, DE ADC: South Jersey


• Northern Virginia ADC and Dulles, VA SCF: Sterling, VA


• North Metro, GA ADC: Atlanta


• Lewisburg, WV SCF: Bluefield, WV


• Beckley, WV SCF: Charleston, WV


• Mid-Florida ADC: Orlando


• Manasota, FL ADC, St. Petersburg SCF, and Lakeland, FL SCF: Tampa


• McComb, MS and Columbus, MS SCFs: Jackson, MS


• Kalamazoo, Traverse City, and Gaylord, MI SCFs: Grand Rapids, MI


• St. Paul, MN ADC: Minneapolis


• Carol Stream, IL ADC and Palatine, IL SCF: Chicago


• Kankakee, IL SCF: Champaign, IL


• LaSalle, IL SCF: Bloomington, IL


• Galesburg, IL SCF: Peoria, IL


• New Orleans ADC, Baton Rouge ADC, and Mandeville, LA SCF: Port Allen, LA


• Greenville, TX SCF: North Texas (Coppell)

USPS Responds to "Death of the SCF"

Someone posted some questions about our "Death of the SCF -- Exclusive Analysis" item on the Postal Customer Council's blog. An anonymous "Blog Administrator1" from the U.S. Postal Service responded:

We don’t have data that supports a big decline in mail being deposited at ADCs vs.SCFs. However, as a result of the the current economic situation, and in particular the increased cost of fuel, some publishers may decide to change their current mail drop locations in order to shorten their travel distances. The United States Postal Service has published service standards that mailers may use in order to make informed decisions about where to drop mail based on the expected delivery timeframe.

There is no maybe; some publishers have definitely scaled back their dropship locations -- and started doing it before fuel prices began skyrocketing

A friend passed along this response to "Death of the SCF" from someone he describes as "an executive of a major publishing company who is very knowledgeable about postal issues":

I think that the author’s representation of the facts is correct but he’s not looking at the long term answer. Yes, they did water down the drop ship incentive but they also realize that they are now giving mailers the incentive to reduce entry points. I’m assuming that they will slowly turn up the burners on the bundle and container rates and gradually get us back to the point where the incentives are better.

Dead Tree Edition's view is that, while the Postal Service may indeed increase incentives to drop ship, it will continue to reduce gradually the number of facilities that accept dropshipped mail.

Death of the SCF -- Exclusive Analysis

We may be witnessing the slow death of the U.S. Postal Service's Sectional Center Facilities (SCFs). Exhibit A: Periodicals rates.

In early 2007, dropshipping magazines to an SCF rather than an ADC (Area Distribution Center) typically saved publishers several cents per pound. After Periodicals rates were overhauled last year, that changed to about a cent and a half. Meanwhile, rising freight costs have cut further into incentives to ship to SCFs.

(Some background for those who aren't postal geeks: Dropship programs for magazines, catalogs, and other mailed products have traditionally focused on the approximately 350 SCFs spread throughout the country. But in recent years, Periodicals mailers have also been able to obtain some dropship discounts by delivering to the approximately 100 ADCs, the vast majority of which do double duty as large SCFs.)

A logistics executive said it costs at least $75 to stop at a postal facility that is on a truck's route -- and of course more if the stop adds miles to the truck's run. That rules out all but a handful of non-ADC SCFs for even large mail pools.

Here's an example: Suppose a shipper has Periodicals SCF pallets averaging 1,000 pounds each and 40% advertising content and is wondering whether the postal savings from delivering them to the SCF would justify the cost. For each pallet going to an SCF instead of the ADC, there would be savings of $4 on advertising weight, $4.80 on editorial weight, and $5.66 for the pallet -- a total of $14.46. Even in the best case, the shipper would need more than 5,000 pounds just to break even on an SCF delivery.

For a mail pool of 1 million pounds (3 million copies averaging one-third of a pound or 2 million averaging half a pound), 5,000 pounds would represent 0.5% of the total mailing. An exclusive Dead Tree Edition analysis indicates that only six SCFs (Houston, Austin, West Palm Beach, Tampa, Raleigh, and Norfolk, VA) meet the 0.5% standard in a typical pool that is spread relatively evenly throughout the country. And some of those, such as Norfolk, are so far off the beaten path that serving them would cost far more than $75.

One solution is to ship Periodicals with Standard mail (catalogs and direct mail), which has a greater incentive per pound to deliver to SCFs. But that doesn't work for the small printers that produce only magazines and are trying to build economical mail pools for their customers. And truckers report that it's increasingly difficult to get unloaded quickly when dropping a mix of Periodicals and Standard as opposed to a pure Periodicals drop.

There are reports that Periodicals mailers have gradually backed off shipping to SCFs and instead are dropping larger loads at ADCs. That isn't necessarily bad for the Postal Service, which is burdened by having too many small SCFs (and a few ridiculously small ADCs, such as the two serving West Virginia). In fact, the Postal Service is taking other actions that are making some SCFs obsolete -- but more on that in a later post.