In social media circles, Friday is usually the day to feature rants of the week and Supply Chain Matters revisits a topic of previous rants. We apologize up-front for the length of this rant.
That topic involves the United States Postal Service (USPS), an entity that continues to lose billions of dollars and presents both U.S. Congressional leaders, U.S. taxpayers and USPS employees with a difficult dilemma.
This week, CNN Money reported on the Summer of discontent at Postal Service , noting the cascading financial, service and other related crisis that are building around the agency. In financial scope alone, the USPS is on the verge of defaulting on a $5.5 billion payment related to retiree health benefits which is due August 1st. The agency is moving forward with consolidation of 46 consolidation facilities over the next two months along with retirement incentive packages involving 7000 employees.
Supply Chain Matters has penned many previous commentaries related to the inefficiencies of the USPS dating back to 2009. It has been our view that solving the problems of this agency involves a number of structural changes as well as an infusion of modern supply chain management practices related to efficiency and productivity. We have been clear that the U.S. needs a vibrant and efficient postal service and that may not necessarily equate to wholesale privatization. This agency however is controlled by the U.S. Congress and subject to political maneuvering, and it has become no secret how dysfunctional and polarized the Congress has become. As we pen this commentary, the both the U.S. Senate and House remain at odds on current legislation directed at avoiding total default of this agency.
We noted in 2009 that objective re-thinking and structural re-organization, similar to what occurred with governmental actions related to the re-organization of General Motors and Chrysler are a good reference point. Our 2009 commentary noted: “The existing USPS logistics and transportation infrastructure was established to support much higher volumes that exist today or perhaps into the future. Yet, that same infrastructure has the ability to support, deliver and pickup mail and parcels from every U.S. residential address, urban and rural. The open question is what infrastructure should be maintained vs. what that can placed under a more variable vs. fixed-cost model. The USPS already contracts for certain backbone infrastructure air and surface delivery capacity from private carriers. What about other opportunities? Can a postal facility service both public and private needs?”
This week provides a small bit of encouragement that the USPS may be finally getting realistic on the some of the tasks at-hand which we outlined, but then again, in our view, more independent thinking and governance is needed.
This week came news that a report by the USPS Office of Inspector General indicated that moving services and products via intermodal rail could be highly advantageous and beneficial with the potential to save upwards of $100 million annually, if not more. More troubling is the statement that the USPS currently spends $3.3 billion on highway transportation contracts. Any experienced transportation and logistics executive would have viewed the latter expenditure as a prime motivator to consider available alternatives such as intermodal rail. Then again this network of contracts is a source of lucrative revenue for independent trucking contractors. UPS provides a prime example of how any large based logistics and transportation services provider can leverage inter-modal services into an efficient surface transportation network. The obvious question with this development is why has it taken all of this time, and a report from the USPS’s own internal audit agency, to wake-up the organization to realities?
Other related news indicates that FedEx, in a filing with the Securities and Exchange Commission (SEC) this week, has learned that the USPS plans to solicit additional proposals for the domestic air services that are currently provided by FedEx. The existing contract for services, estimated to be valued at over $1 billion, is due to expire in September 2013. An official statement from the USPS indicates that while no decision has been made, the agency is evaluating all of its options for delivering greater efficiencies. A Bloomberg article reporting on this development indicates that the current USPS agreement represents more than 3 percent of FedEx revenues and that rival UPS is definitely interested in bidding on the renewal contract.
Placing this lucrative contract into a competitive bidding process makes solid business sense, and we applaud USPS management for this decision. Pitting FedEx and UPS, or other providers into a competitive bid situation provides opportunities for greater efficiencies or additional cost savings. An open, green field perspective could yield many opportunities and broader partnerships with private providers. Both FedEx and UPS currently rely on the USPS for last mile deliveries to certain remote residential or business addresses because of their own needs for internal efficiencies and cost control. The current movements for online commerce are moving toward same-day delivery, and a joint network of the USPS and private carriers can be instrumental in enabling this effort.
Our skepticism however is that this competitive bidding process will be tainted by the same U.S. Congressional political influences that have tainted other large government contract awards. The mantra of “less government” should not necessarily apply to a governmental agency that physically touches nearly all U.S. households.
That brings us to the basis of our continued rant. What would seem obvious to many in private industry remains opaque in a politically motivated management ecosystem. Similar to what occurred in the bailout of both Chrysler and General Motors, there are symptoms of long standing structural issues that need to be tackled. Many viable jobs are also at stake along with a supply chain network that supports as aspects of the delivery of mail and goods.
In the view of Supply Chain Matters there is an obvious need for a non-partisan, independent commission to oversee the process of re-structuring the USPS. Instead of audit agencies reacting to the obvious and pointing to required management changes, an independent commission should be tasked with a comprehensive look at how the USPS can be transformed to a highly efficient agency that instills modernized physical distribution and information management practices. In the same vein, mandates that insure the financial liquidation of a vital services entity should instead be approached with a perspective of new thinking and rational alternatives.
We need to take the USPS out of the political process of vested interests and lobbying and into the practical process of modernized logistics and transportation management. The again, in the current political climate, rational takes on irrational dimensions.