Consolidation of Mail for Dallas and New Jersey Network Distribution Centers
Background
Highway Contract Routes (HCR) are competitive fixed-price contracts the U.S. Postal Service awards to contractors to transport mail between post offices, network distribution centers (NDC), and other designated stops. In fiscal year (FY) 2016, the Postal Service spent about $3 billion for about 8,664 HCRs.
The Postal Service uses 21 NDCs to increase operational efficiency by consolidating mail processing and dispatch. There are 19 consolidation deconsolidation facilities (CDF) associated with the NDCs. CDFs originated from a FY 2010 pilot program that used contractors to combine the contents of two or more NDC trailers into one when the combined mail contents of the trailers exceed the floor space of one trailer.
CDF contractors remove mail from containers and re-load it onto one trailer in a process known as bedloading. When bedloaded mail is received from another CDF, contractors load it into containers for transport to NDCs. This is known as recontainerizing. The goal is to maximize cubic capacity, reduce transportation costs, and increase operational efficiency. During the CDF pilot in 2010, the Postal Service intended to save about 30 percent of HCR costs by using these facilities. In FY 2016, the Postal Service spent about $20 million for 19 CDFs.
Its CDF Standard Operating Procedures (SOP) allows for periodic onsite inspections to assess contractor performance and determine if modifications are necessary. The SOP also allows the Postal Service to change the frequency of trips with seven days’ notice to the contractor.
We judgmentally selected the Dallas and New Jersey NDCs based on low outbound trailer utilization percentages and the cost of consolidating and deconsolidating trailers at CDF locations.
Our objective was to assess the efficiency of the Postal Service’s transportation consolidations of mail (loading, unloading, and trailer utilization) for long-haul HCRs for the Dallas and New Jersey NDCs.
What the OIG Found
We determined the Postal Service’s consolidation of long-haul HCR trips for the Dallas and New Jersey CDFs was inefficient.
Specifically, we found during our observations that trips were automatically sent to the CDFs based on the contract schedule even though they did not require bedloading or recontainerization. We found that four of six NDC shuttle trips used for long-haul transportation originating from the Dallas CDF and all 43 NDC shuttle trips for long-haul transportation originating from the New Jersey CDF were unnecessarily sent for bedloading. Additionally, we found that all six trips to the Dallas CDF and six of the nine trips to the New Jersey CDF originating from another CDF were unnecessarily sent for recontainerization. Further, our analysis of calendar year (CY) 2015 and CY 2016 trip utilization data for Dallas and New Jersey showed an increase of trips not needing bed-loading and recontainerization.
This occurred because Postal Service SOP do not stipulate the frequency of the inspections or whether onsite inspections are mandatory and do not provide performance assessment measures. The Postal Service last reviewed Dallas CDF operations in March 2015, and last reviewed New Jersey CDF operations in October 2016 – the only review since the New Jersey CDF began operating in September 2010. Neither inspection resulted in trip modifications to the contracts.
Based on our review of trailer utilization data for calendar years 2015 and 2016, we estimated the Postal Service unnecessarily incurred contractor costs of about $1.1 million at the Dallas CDF and $2.9 million at the New Jersey CDF by sending trips that did not need bedloading or recontainerization.
Additionally, the Postal Service should evaluate the Dallas and New Jersey CDFs to determine transportation needs and modify the contracts as necessary. If the Postal Service consolidates trips that do not need bedloading or recontainerization, it could save about $619,000 in costs at the Dallas CDF and $5.8 million in costs at the New Jersey CDF in calendar years 2017 and 2018.
What the OIG Recommended
We recommended management update the SOP to clarify the frequency of inspections and establish standards to assess the need for CDF trips and evaluate the Dallas and New Jersey CDFs to determine transportation needs and modify their contracts as necessary.