Why General Motors Is Like the Postal Service

No one should have been surprised that members of Congress are stymieing General Motors' cost-cutting efforts to close thousands of dealerships. All they had to do was watch how Congress has micro-managed the supposedly independent U.S. Postal Service.

The Government Accountability Office, an arm of Congress, has been saying for years that USPS has too many post offices and too many processing and distribution centers. (See, for example, "Why USPS Must Consolidate Its Mail Processing Network".)

But any time the money-losing Postal Service actually tries to consolidate facilities, the local Congressman stirs up a hornet's nest, demanding an investigation and trying various tactics to slow the process. When USPS revealed recently that it is studying possible closure of more than 3,000 post offices nationwide, Rep. Albio Sires of New Jersey launched a preemptive strike, introducing the Access to Postal Services Act to "give communities the ability to fight back against these closings."

Now General Motors, AKA Government Motors, is getting the Postal Service Treatment: A bill to "restore the economic rights" of GM dealers got 111 co-sponsors within a week of being introduced. Like Chrysler before it, GM leaders have been grilled at Congressional hearings regarding their plans to consolidate their dealership network.

President Obama has said the federal government will not manage GM despite its majority ownership stake. But he also vetoed the possibility of it moving its headquarters out of Detroit to save money. Influential Congressman Barney Frank got into the We're Not Managing GM Spirit when he called the company's CEO and persuaded him to delay the closing of a parts depot in Frank's district.

Postal officials learned long ago that you move jobs into, not out of, the districts or states of committee chairmen.It's a lesson they haven't completely un-learned now that Congress has allegedly made the Postal Service more independent. (See "USPS: Clean Up the Byrd Droppings!")

The typical member of Congress doesn't oppose the idea of postal consolidation or car-dealer consolidation in general -- as long as it's not in his district. Unfortunately, believe it or not, every USPS facility and every GM dealership in the U.S. is in some Congress member's district.

Don't be surprised to see a Congressional investigation, rally, or public hearing for every dealership GM tries to close. And don't be surprised to see those former watchdogs known as local newspaper reporters become lapdogs for the Chamber of Commerce, quoting all the people who oppose the closings but never bothering to explore why GM needs to get rid of underperforming dealerships.

Just one question: Now that Congress is treating GM like the Postal Service, does that mean the Postal Service can cancel its debt by filing for Chapter 11?

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.

USPS: Clean Up the Byrd Droppings!

A West Virginia Congressman whose district benefits from U.S. Postal Service pork is trying to prevent the Postal Service from delivering only five days per week.

Rep. Nick Rahall and the other co-sponsors of the legislation have not suggested other ways for USPS to close its billion-dollar budget deficit. But here's one for you, Congressman: Shut down some of the Postal Service's superfluous mail-handling facilities in West Virginia, including the four in your district.

Having the small state fragmented among 11 Sectional Center Facilities (SCFs) is inefficient for the Postal Service, costly for mailers, and leads to slow delivery for West Virginians.

USPS has about 450 SCFs (an average of one per Congressional district), each of which handles mail for one or more 3-digit ZIP code areas. About one-fourth of those SCFs are also Area Distribution Centers, meaning they can handle mail for several nearby SCFs. Commercial mailers generally try to create SCF pallets of at least 500 pounds and dropship to the SCFs when postal discounts make that worthwhile. Periodicals mailers can also obtain somewhat smaller discounts for ADC pallets and for dropshipping to ADCs instead of SCFs.

A Dead Tree Edition analysis indicates that the Lewisburg, WV SCF in Rahall's district has less than one-tenth the mail volume of the average SCF. For nationwide mailings, that means only the largest -- those with at least 2 million pounds -- have enough volume to create a Lewisburg SCF pallet. The other three SCFs in Rahall's southern West Virginia district (home of the Hatfields, McCoys, and Martha Stewart's prison cell) are also much smaller than average.

Mailstreams of less than 200,000 pounds even have trouble creating ADC pallets for the state's two ADCs, which together serve about half the population of an average ADC. That means much of the mail going to West Virginia is packaged in sacks instead of on pallets, which is expensive for both mailers and the Postal Service, as well as delaying delivery. Having the mail fragmented among so many facilities prevents any one location from having the critical mass needed to use the most efficient automated mail-sorting equipment.

Adding to the costs and the delivery delays are the fact that even the largest mailers tend to avoid dropshipping to any West Virginia postal facility. The volumes for each facility are so small that the dropship discounts are not enough to cover the freight costs. Standard-class mail for West Virginia tends to be dropped at Bulk Mail Centers (BMCs) outside the state, gaining the mailers at least some dropship discount.

But Periodicals mailers, lacking a meaningful BMC discount, simply enter the mail at the printing plant, often a thousand or more miles away from West Virginia. They lose any dropship discounts, and the Postal Service has to ship the publications to West Virginia itself. That typically delays delivery by at least several days.

West Virginia's rugged terrain is no excuse for having so many processing centers. Consider that mountainous Idaho has more than three times West Virginia's land area and nearly the same population yet only one ADC and three other SCFs. New Mexico and Colorado are each four times larger and have more people than West Virginia, yet each has only one ADC.

Why does West Virginia have far more Postal Service facilities handling mail than is justified by its population or land area? Could it possibly have anything to do with the state being represented by the Prince of Pork, Sen. Robert C. Byrd, who has the most seniority in the Senate as well as being its only ex-Klansman?

Before postal reform gave USPS more independence from Congressional control, powerful Congressmen could get key postal facilities placed in their districts rather than where the Postal Service needed them. That's probably why Winchester, Virginia, home of another powerful Senator Byrd, has its own superfluous SCF.

There hasn't been a Virginia Byrd in the Senate for more than two decades, but only this year did postal officials start the process of closing the Winchester Byrd dropping. (Dead Tree Edition predicted last year the shutdown of the Winchester SCF because of the new Flats Sequencing System.)

Let's hope it doesn't take the Postal Service so long to slaughter some of its pork in West Virginia.

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.