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As non-package mail volumes steadily call, the Postal Service has had trouble adjusting its processing costs to keep pace. That’s according to the USPS Office of Inspector General. Now the pandemic has deepened the mail volume falloff. And the IG has a series of new recommendations for achieving good services levels and costs commensurate with volumes. Audit director Todd Watson joined Federal Drive with Tom Temin with details.

Interview transcript:

Tom Temin: Mr. Watson, good to have you on.

Todd Watson: Hi Tom, thank you for having me.

Tom Temin: Let’s begin at the beginning here. This is something you look at regularly, and what should the relationship be between costs and mail volumes? I guess what I’m asking is how much of the costs of all this mail processing are labor and how much is like fixed costs of machinery and rent and heat and light, that kind of thing?

Todd Watson: Well for the Postal Service’s operating expense, they estimate about 80% of their operating costs are associated with labor.

Tom Temin: So therefore, the lower the volume, the less hands you need on processing?

Todd Watson: Correct. If there was a decrease in the workload, there should be an associated decrease in cost as well.

Tom Temin: And I guess that’s a little different metric or a little different dynamic than you might have with delivery because a truck still has to go to bring one flyer or ten Christmas cards to the same address, it’s still the same truck and the same driver, the same route.

Todd Watson: Correct. On a delivery route they have to go to those stops whether they’re bringing one piece or several pieces.

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Tom Temin: So in this latest study what did you find with respect to — we’re talking about the processing centers throughout the postal infrastructure — what did you find with respect to how efficiently they’re operating?

Todd Watson: We found that the Postal Service’s processing network is not operating as efficiently as it should, and they have not been able to meet service standards. So to give you a little bit of a background, the Postal Service has standards that specify how long it should take for delivering a piece of mail after receiving it from a customer. For example, first class mail the delivery standard is between two and five days depending on how far that mail piece is traveling. And in order for the Postal Service to get the mail from point A to point B, they generally have to sort or process the mail, transport it and deliver it. Now each of these functions has set timeframes for moving mail to the next function, and they all have to work together for the Postal Service to be efficient and meet service standards. Well what we found during our audit was that management kind of prioritized achieving high quality service above the financial health of the Postal Service, and is making decisions daily in attempt to meet those service standards that are increasing costs. So we observed processing facilities nationwide, and we found that mail processing operations were not completed on time. This caused mail to miss that scheduled transportation trip to take it to its next destination. So in response, management would use overtime to finish processing the mail and either delayed or canceled the transportation trip and created an extra trip. That all increases the cost associated with transporting the mail.

Tom Temin: Well I guess the question is then what are they doing wrong such that standard staffing is insufficient to meet the standards?

Todd Watson: We found that the main causes associated with the decrease in efficiency and the service performance was management oversight and employee availability. So management was short staffed at the frontline position where they would observe these processing operations by about 5%. In addition, there were 4600 employees that acted in a supervisory role during the last year, and they don’t have the same training as a full time supervisor has to be able to help out with these operations. In addition, some of the more senior levels of plant operations have really only been in their jobs for about three years, that’s the average — and 23% of those have only been in a position for a year or less — so there’s a lot of learning that’s going on. Then in regards to employee availability, processing operations was actually short staffed by about 1200 people. In addition, there was 1000 people that went an entire year without working, whether it be due to sick leave, leave without pay or workman’s compensation. But these people stay on the rolls and kind of take up those spots that would be available to offer to someone to hire full time. On average, we’re looking at about 7% of all processing employees being unavailable each day either due to sick leave or leave without pay. So that’s kind of a substantial amount of people you think will be there to be able to help that are actually not.

Tom Temin: So that leads to the recommendations, which when I looked at them struck me they were all workforce related, training related. That is to say you didn’t say move processing bin A closer to sorting robot B and therefore everything would happen more efficiently. This is entirely a human capital problem it sounds like.

Todd Watson: Yes, it is. Out in our site visits we did identify some best practices that some of the local management was using to increase efficiency and reduce costs. And some of those best practices were just communicating what their goals are, we expect to process this many pieces of mail today, we expect to use this many hours, process this many pieces per hour, and hold those discussions with management and clarify the expectations for everybody. There is also a very strong coordination between processing and transportation managers to make sure that those functions are working together to get the mail out efficiently. So we do want the full service to kind of implement those best practices that we identified nationwide. We also recommend that the pollsters develop a program to develop emerging leaders into potential managers. We also had a recommendation for the Postal Service to try and identify ways once the COVID pandemic subsides to increase the staff availability, they have to get more people process in the mail.

Tom Temin: Now that we have the pandemic, mail volumes have gone down substantially. I mean some days in my house, they drive right by, we don’t even get any mail, not even advertising handout. So how do you think this is affecting the situation of operational efficiency and is the Postal Service in your view equipped to deal with it?

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Todd Watson: Our audit was actually completed before the pandemic, but we did review the past five years and found that work hours have not decreased at a rate consistent with the decline in mail volume. Now not all mail volume is decreasing — letters, flats and manually sorted mail — all that volume has decreased, but their costs have not decreased at a rate consistent with that decline. Whereas package volume is actually increasing in the postal service, so the cost associated with processing those products have actually increased as well.

Tom Temin: And that’s different facilities and crews.

Todd Watson: Well, that was something we kind of noted in our report that each postal facility is almost unique, they’re very individualized. So you can have a facility that processes all those types of mail or a facility that only processes one, so there are facilities that are just dedicated to processing packages.

Tom Temin: Got it. So it sounds like long term maybe Oostal Service or look at maybe the whole infrastructure and rethinking it in terms of the packages they actually deliver, which is going up, and the rest of the mail, which they actually deliver, which is going down.

Todd Watson: Correct. These processing facilities vary in the type and amount of mail they process, how big they are and the number of machines that they use — so it makes it very difficult to analyze the performance of the network as a whole.

Tom Temin: Yeah, I guess a package of pairs of socks from Amazon is different than someone that orders a new air conditioner that has to be delivered.

Todd Watson: Correct.

Tom Temin: And quickly the reaction of the Postal Service officials to the latest findings and recommendations?

Todd Watson: Management agreed with all of our findings and recommendations and they are developing some action plans to address these recommendations, and they hope to have those completed by September.

Tom Temin: Todd Watson is audit director with the US Postal Service’s Office of Inspector General. Thanks so much for joining me.

Todd Watson: Thank you Tom.

Read the report here.

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