U.S. Postal Service spent too much on FedEx

[TrueBlueTerrier]

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WASHINGTON -- The United States Postal Service is routinely castigated for losing money, but in a series of internal audits it has identified $94 million in unnecessary expenses linked to its lack of diligence under its FedEx mail-hauling contract.

The Inspector General of the U.S. Postal Service audited all eight Postal Service regions across the country beginning in 2007 and ending earlier this year. It found the same problems in each region:

Mail that should have been shipped by surface transportation found its way onto expensive FedEx jets.

First-class mail that could have been sent on cheaper commercial airlines instead went on FedEx jets.

By failing to sort mail to specific locations into cargo crates, called bypass containers, it incurred FedEx sorting charges.

Nothing in the audits reflects badly on the Memphis logistics giant, but the implications of the findings, once the cost-savings opportunities identified are achieved, could affect the amount of money flowing to FedEx.

Asked about that possibility, FedEx spokesman Maury Lane declined to speculate. He did say: "FedEx values its alliance relationship with USPS, both as a supplier and a customer. FedEx Express provides outstanding transportation services to USPS, and FedEx SmartPost provides USPS with hundreds of millions of dollars in revenue each year. We both manage our networks carefully to maximize efficiency and reduce costs."

By implementing more rigorous compliance with the express terms of its FedEx contract, the audits suggest $112.7 million in "unnecessary questioned costs" could be saved over a 10-year period. They indicate $482.9 million could be put to a better use if corrective action is taken over that same period.

The independent Postal Regulatory Commission is seeking public comment through Dec. 2 on a rate increase for USPS's competitive products, such as those currently cheaper than similar services provided by FedEx or United Parcel Service. The rate for Express Mail is expected to jump 5.7 percent and for Priority Mail 3.9 percent in January. The rate for regular mail is set to rise again next May.

Earlier this month, USPS reported ending its fiscal year with a loss of $8.5 billion in part because a poor economy dropped mail volume precipitously. The loss nearly doubled the previous year's red ink. Americans sent 91.7 billion cards and letters first class in the year ending Sept. 30.

FedEx said earlier this month that it expects holiday shipping to increase 11 percent this year, driven by increased use of FedEx SmartPost. Its busiest day ever is expected to be Dec. 13, when 16 million packages will be sent.

FedEx has been hauling Express Mail, Priority Mail and first-class mail for the Postal Service since 2001. In July 2006, the parties entered into a new seven-year contract. Under its terms, the Postal Service is required to provide a minimum amount of mail to FedEx; if those minimums are not met, the Postal Service pays for unused capacity.

The audits identified large volumes of surface mail classes, including magazines, advertising and merchandise shipped by major retailers going onto FedEx planes.

"Because surface mail classes are not as time-sensitive as Express, Priority or FCM (first-class mail), the area transportation managers could have met the Postal Service's on-time standards by using less costly highway or rail transportation," a Sept. 29 audit says.

The six regional audits found that, over a one-year period, 6.6 million cubic feet of first-class mail was flown on FedEx planes "when less costly service-responsive capacity of passenger airlines was available."

By Postal Service policy, first-class mail is to be assigned to surface transportation when on-time service standards can be met. After that, passenger airlines are to be used when FedEx contract volumes have been reached. Finally, policy dictates it goes on FedEx planes when passenger airline capacity is not available.

The Postal Service is required to pay FedEx for mail sorted at its Memphis hub, but can avoid those costs by using bypass containers holding mail headed to the same destination city.

But because independent contractors have to get 75 percent of that mail to FedEx by 4 a.m. and the remainder an hour later, too much mail never makes it into bypass containers. In some areas, a huge volume of mail arrives at the outside contractors just before 4 a.m., the audits showed. The audits suggest that, when the FedEx planes won't be departing until 7 a.m. or later, that the time the containers must be delivered to the company be adjusted.

[DGP1]

If I'm right then this means that USPS uses Fed Ex to transport mail across the country that would be like RM using TNT to transport mail............it would never be allowed to happen here