United States Postal Service: Strategy Needed to Address Aging Delivery Fleet
Released: 2011-05-17T00:00:00

Letter

Background

USPS’s mission is to provide reliable, affordable, and universal mail delivery and postal retail services to the entire U.S. population as nearly as practicable, regardless of where people live. In the past 5 years, USPS’s delivery workload has increased on average by about 1 million delivery points, or addresses, per year—from 126 million in fiscal year 2006 to about 131 million in fiscal year 2010. USPS organizes its delivery points into city and rural routes. Most city routes fall into one of three main types, as shown in table 1.

In its two most recent contracts with the National Rural Letter Carriers Association, USPS agreed to provide about 40,000 right-hand-drive vehicles for many of its rural routes from 2004 to 2013. As of December 31, 2010, USPS had provided rural letter carriers with 33,060 of the contractually required vehicles. According to USPS officials, USPS expects to provide the remaining vehicles by the end of December 2013. According to USPS officials, USPS provides the vehicles to rural carriers with low mileage routes and based on other considerations, such as the vehicle’s proximity to fuel and a USPS vehicle maintenance facility and the adequacy of security for the vehicle. While these agreements significantly expanded the number of rural letter carriers who operated USPS vehicles, as of March 11, 2011, 41,026 rural letter carriers still used their personal vehicles for USPS mail deliveries.

USPS is an independent establishment of the federal government, with a Board of Governors, which has responsibilities similar to a corporation’s board of directors, that oversees its operations and expenditures, including those for major capital investments. Over the past 4 years, capital investments declined from $2.7 billion in fiscal year 2007 to $1.4 billion in fiscal year 2010. According to USPS officials, most capital expenditures since fiscal year 2008 have been for investments that are expected to provide cost savings, such as automated mail sorting equipment, and none of these expenditures have been for delivery vehicles. However, as a result of appropriations to GSA under the American Recovery and Reinvestment Act of 2009, USPS received about 6,500 new, more fuel-efficient vehicles from GSA in 2009 and 2010 in a one- for-one exchange for older, less fuel-efficient USPS vehicles.

To help address its financial challenges, in March 2010, USPS issued a 10- year action plan, or strategy, in which it proposed, among other things, reducing mail delivery from 6 days to 5 days a week and enhancing its ability to close underutilized postal offices. The plan did not include a strategy for addressing the agency’s delivery fleet needs. USPS also has made operational changes to reduce costs, such as deploying a new system that automatically sorts and sequences large envelopes and magazines into the order in which they are to be delivered. According to USPS, this system reduces the time letter carriers must spend preparing mail for delivery and allows for consolidation of delivery routes into fewer, but longer, routes. USPS is also working to enhance its revenues through initiatives such as the introduction of flat-rate boxes for Priority Mail and volume-based rate incentives to stimulate additional mail use. Operational changes will affect USPS’s future fleet needs.

USPS is subject to certain provisions of EPAct 1992 related to federal agency vehicle fleets. The act—designed to improve energy efficiency— requires that 75 percent of light-duty vehicles acquired for federal fleets in major metropolitan areas be capable of using alternative fuels. Alternative fuel vehicles must be capable of using one of a variety of fuel types, such as ethanol, natural gas, propane, biodiesel, electricity, or hydrogen. Legislation subsequently expanded the definition of alternative fuel vehicles to include hybrid vehicles and any other type of vehicle that can achieve a significant reduction in petroleum consumption, as demonstrated by the Administrator of the U.S. Environmental Protection Agency. Legislation also subsequently required that all dual-fuel vehicles use alternative fuel unless they have received a waiver from DOE. DOE grants waivers to agencies that operate vehicles in areas where alternative fuel is unavailable, not available within 5 miles or 15 minutes of travel, or more expensive per gallon than gasoline at the same fuel station.

In February 2011, USPS had 306 vehicle maintenance facilities distributed among its seven area offices. According to USPS officials, the agency also uses contractors at private maintenance facilities, such as garages, to perform some of its vehicle maintenance, and their use has increased in recent years, partly because the number of USPS technicians has declined under a hiring freeze. USPS tracks its vehicles’ performance and costs, including maintenance work and costs, through VMAS, according to USPS officials. Field and headquarters offices get periodic VMAS reports on various vehicle performance indicators, and data on vehicle accidents are kept in a separate database.

USPS’s Office of Vehicle Programs, which is under the Vice President of Delivery and Post Office Operations, is responsible for fleet management, leasing, maintenance policies and procedures, parts, vehicle research, development and testing, and new vehicle acquisitions. In addition, USPS’s Office of Sustainability coordinates and establishes energy and environmental goals for the fleet. Consistent with legislative requirements, by fiscal year 2015 (compared with a fiscal year 2005 baseline), USPS’s goals are to reduce petroleum fuel use by 20 percent and increase alternative fuel use by 10 percent annually (for an overall increase of 100 percent over the 10-year period).

In its fiscal year 2010 Strategic Sustainability Performance Plan, USPS reported that it did not expect to meet its 2015 petroleum reduction goal. Specifically, USPS reported that from fiscal years 2005 through 2009, its delivery fleet’s use of petroleum increased because of growth in the number of its delivery addresses. According to USPS, its proposal to reduce delivery from 6 days to 5 days a week has the largest petroleum reduction potential, but even if Congress approves the proposal, it would not be likely to meet its fiscal year 2015 goal. In contrast, USPS reported that it had already met its second goal because, from fiscal years 2005 through 2009, its use of alternative fuel increased by 114 percent.

USPS’s Delivery Fleet Primarily Consists of LLVs That Are Approaching the End of Their 24-Year Expected Operational Lives

LLVs, Flex-Fuel Vehicles, and Minivans Are the Principal Components of USPS’s Delivery Fleet

The number of half ton and smaller vehicles in USPS’s delivery fleet— mostly LLVs, flex-fuel vehicles (FFV), and minivans—has remained relatively constant over the past 5 fiscal years, ranging from 182,517 to 189,712 vehicles, despite about 13,400 fewer delivery routes. The number of delivery vehicles peaked in fiscal year 2008, before falling slightly, and grew overall by 3,487 vehicles, or about 2 percent, over the 5-year period.

Despite some recent vehicle purchases, the majority of USPS’s fleet consists of LLVs, which are approaching the end of their 24-year expected operational lives. Produced by Grumman, the LLVs were acquired from 1987 through 1994, before EPAct 1992’s light-duty vehicle acquisition percentage requirements went into effect in fiscal year 1996. The LLVs have light-weight and long-lasting aluminum bodies mounted on a General Motors chassis and are powered by a 4-cylinder gasoline engine. USPS acquired the second major segment of the delivery fleet, FFVs, in 2000 and 2001, after EPAct 1992’s acquisition requirements went into effect. The FFVs have an aluminum body that is similar to that of the LLV. According to USPS officials, FFVs are mounted on a Ford Explorer platform and are powered by a 6-cylinder engine that is “flex-fuel” capable, meaning that it can use gasoline or E85, a mixture of gasoline and ethanol (85 percent).

LLVs and FFVs, which together make up about 84 percent of USPS’s delivery fleet, are easily identifiable as mail delivery vehicles (see fig. 2). These vehicles are built on a light truck chassis (light-duty vehicles) and have a cargo capacity of 1,000 pounds with 108 cubic feet of cargo space. Key features of both include right-hand drive, an open interior for storing mail, and sliding doors. According to USPS, right-hand-drive vehicles are necessary for curbline delivery so that letter carriers can safely deliver mail directly to mail boxes without leaving their vehicles. Because right- hand-drive vehicles can be used for all routes, they also provide operational flexibility, allowing managers to move them to any route when, for example, another right-hand-drive vehicle is out of service for maintenance. In addition, Vehicle Programs officials told us that a standardized design minimizes training requirements and facilitates the establishment of partnerships with part suppliers.

The LLVs’ and FFVs’ bodies were made to withstand harsh operating conditions. USPS officials explained that the typical delivery operating cycle is extremely hard on vehicles because of the large number of stops and starts each day (an average of about 500 stops and starts per delivery route). In addition, when the letter carrier frequently exits and re-enters the vehicle, doors are opened and closed, and keys are turned in the door locks and ignition far more often than in a typical personal vehicle.

The third major segment of the delivery fleet, shown in figure 3, consists of commercially available minivans. While USPS modified these minivans for use as delivery vehicles, according to USPS officials, they do not have right-hand drive and therefore cannot be used on all routes, reducing operational flexibility. In addition, commercially available vehicles are not built to withstand the harsh operating conditions of mail delivery and, consequently, the minivans have an expected operating life of 10 years. Most of USPS’s minivans are E85-capable, meaning that they can operate on either E85 or gasoline.

Table 2 provides a profile of the three main types of delivery vehicles that collectively account for about 96 percent of USPS’s 192,305 delivery vehicles. Other types of vehicles are used to deliver mail in certain areas. These vehicles include sport utility vehicles and larger 2-ton trucks, which typically are used for mail collection, not deliveries.

According to Vehicle Programs officials, USPS leased some delivery vehicles (minivans) in the past, but it now owns all of its delivery vehicles. In part, this is because USPS’s custom-built LLVs and FFVs are not commercially available through leasing programs. However, even when vehicles are commercially available, Vehicle Programs officials stated that, according to USPS’s lease-versus-buy analyses for recent purchases, such as its fiscal year 2008 acquisition of minivans, purchasing these vehicles has been more cost-effective than leasing them because USPS intends to own the vehicles for a long time.

Some of USPS’s Delivery Vehicles Are Capable of Using Alternative Fuels

About 78 percent of USPS’s delivery vehicles use gasoline or diesel exclusively, while the other 22 percent are capable of operating with an alternative fuel. As shown in table 3, E85-capable vehicles (FFVs and minivans) make up about 20 percent of the delivery fleet while, collectively, the other alternative fuel vehicles—typically, converted LLVs—account for about 2 percent of the delivery fleet. According to Vehicle Programs officials, a typical LLV uses an equivalent of about two gasoline gallons of fuel a day. According to USPS officials, while USPS has a variety of pilot programs underway to explore other alternative fuel vehicle technologies (other than E85-capable vehicles), almost all of its other alternative fuel vehicles are capable of using compressed natural gas in addition to gasoline.

USPS Has Acquired Alternative Fuel Vehicles in Response to Requirements, but Has Experienced Challenges

USPS Has Acquired E85- Capable Vehicles and Increased E85 Use, but Has Not Always Used E85 because of Logistical and Cost Issues

Since 2000, USPS has consistently purchased E85-capable delivery vehicles to satisfy the legislative requirement that at least 75 percent of its vehicle acquisitions be alternative fuel vehicles, and it had a total of 39,149 E85-capable vehicles in its delivery fleet as of September 30, 2010. According to Vehicle Programs officials, USPS purchased E85-capable vehicles because even though prior to 2004 each vehicle cost about $300 to $500 more than a comparable gasoline-only vehicle when they were acquired, purchasing E85-capable vehicles allowed USPS to meet the requirements of EPAct 1992 for less than it would have had to spend to acquire other types of alternative fuel vehicles. In addition, according to Vehicle Programs officials, the agency expected that E85 eventually would be widely available throughout the United States. However, according to DOE data, E85 suppliers are concentrated in a few regions of the country (see fig. 4.) and, as of December 2009, E85 was not available at 99 percent of U.S. fueling stations.

USPS increased its use of E85 from about 324,000 gasoline gallon equivalents in fiscal year 2005 to about 822,000 gasoline gallon equivalents in fiscal year 2009—an increase of about 154 percent—but the limited availability of E85 nationwide has hindered its greater use of this fuel. For example, according to USPS officials, letter carriers who drive the 720 E85-capable vehicles USPS deployed around Minneapolis and St. Paul, Minnesota, face few problems because E85 is widely available there (see fig. 5). However, because of operational requirements, many E85-capable delivery vehicles are used in other areas, such as New England, that currently have very limited E85 availability. According to Vehicle Programs officials, to increase E85 use, USPS has redeployed some E85- capable vehicles within local areas so that they could be fueled with E85. However, Vehicle Programs officials said that USPS has not undertaken large-scale redeployments of these vehicles because a cross-country move costs about $1,500 to $2,500 per vehicle.

Because of E85’s limited availability, USPS has sought annual waivers from DOE and, according to USPS data for fiscal year 2010, obtained waivers that permit it to operate 21,495 of its 40,072 E85-capable vehicles—or about 54 percent—exclusively on gasoline. The remaining 18,577 E85-capable vehicles operate without waivers (unwaived vehicles) and, thus, are expected to operate exclusively on E85. However, as described below, because operational costs are higher for using E85 than for using gasoline, even when E85-capable vehicles are located in areas where E85 is available, USPS does not always use E85, as acknowledged by Vehicle Programs officials. According to DOE officials, apart from cost considerations, DOE will not grant a waiver to the requirement to use alternative fuel when E85 is available within 5 miles or 15 minutes of travel. In January 2009, USPS issued a policy stating that vehicles should be fueled with E85 when (1) E85 is available either to an entire delivery unit or on a specific route when no deviation from the route or no additional travel time is required to acquire E85 and (2) E85 costs the same or less than gasoline. In July 2009, based on DOE’s draft guidance on E85 waivers, USPS issued a related memo requesting delivery programs managers to determine where E85 was located within 15 minutes or 5 miles of E85-capable vehicles and priced equal to or less than regular unleaded gas. The memo advised the managers that E85 must be used if these conditions were met. However, Vehicle Programs officials acknowledged that, due to operational requirements and cost issues, this latter requirement is not always followed. Instead, according to a USPS official, managers are expected to take into account the language in both the January 2009 policy and July 2009 memo while considering operational requirements, such as additional labor costs, that may be incurred by letter carriers who must deviate from their routes to fuel with E85.

DOE officials are aware that USPS’s E85 policy varies from DOE’s criteria for approving waivers and that USPS is not fully complying with legislative requirements to fuel unwaived E85-capable vehicles with E85. However, they acknowledged that, unlike other agencies that receive appropriations for fuel expenditures, USPS must pay for its fuel costs through income earned from its operations.

USPS’s Use of E85-Capable Vehicles Has Resulted in Higher Fuel Costs

USPS’s use of E85-capable vehicles has resulted in higher operating costs regardless of whether the vehicles are fueled with E85 or gasoline. First, when USPS contracted to purchase its FFVs in 2000, E85 capability was available only in vehicles with 6-cylinder engines. According to USPS officials, the FFVs’ 6-cylinder engines are heavier and less fuel efficient than the LLVs’ 4-cylinder engines, resulting in higher fuel consumption and costs—regardless of the type of fuel used. Second, because of E85’s lower energy density, USPS’s FFVs are about 27 to 30 percent less fuel efficient when fueled with E85 than when fueled with gasoline, according to Vehicle Programs officials. Thus, it takes more gallons of E85 than gasoline to drive the same number of miles. Furthermore, although E85 generally costs less per gallon than gasoline, the difference in cost generally has not been sufficient to offset the higher costs associated with E85’s lower fuel efficiency (see fig. 6). Based on USPS’s information that it consumed about 587,000 gallons of E85 in fiscal year 2010, we estimate that USPS incurred about $135,700 more in costs in fiscal year 2010 by using E85, instead of gasoline.

The reasons that USPS decided to purchase E85-capable vehicles to meet legislative requirements and the challenges it faces in fueling these vehicles with E85 are similar to those of many other federal agencies. For example, according to DOE data, 87 percent of federal alternative fuel vehicles acquired to meet EPAct 1992 requirements in fiscal year 2009 were E85-capable vehicles. Furthermore, in fiscal year 2010, approximately 55 percent of E85-capable vehicles acquired to meet EPAct 1992 requirements in all federal fleets received a waiver, allowing them to operate exclusively on gasoline, according to DOE. In addition, according to DOE officials, a recent DOE analysis—currently in draft—has found that the majority of federal agencies are not in compliance with the requirement to fuel unwaived E85-capable vehicles with E85.

Officials from UPS and FedEx Express—companies with missions similar to USPS’s—told us that they see few benefits to owning and operating E85- capable vehicles and, as a result, they have not purchased any E85-capable vehicles. Instead, they said that despite higher acquisition costs, their companies have purchased small numbers of other alternative fuel vehicles—electric, hybrid, and compressed-natural-gas-capable vehicles— to lower their companies’ fuel costs, reduce their emissions, and enhance their corporate image.

USPS’s Experiences with Other Types of Alternative Fuel Vehicles Demonstrate Cost and Infrastructure Challenges

Apart from its experiences with E85-capable vehicles, USPS has a variety of limited experiences with other types of alternative fuel delivery vehicles. Collectively, these vehicles accounted for about 2 percent (3,490 vehicles) of its delivery fleet as of September 30, 2010. These vehicles include 3,401 LLVs and 2-ton trucks converted to run on compressed natural gas, 34 LLVs converted to run on propane, 11 conventional hybrid electric vehicles, 42 plug-in electric vehicles, and 2 hydrogen fuel cell vehicles.

According to Vehicle Programs officials, while USPS has integrated these alternative fuel vehicles into its delivery fleet, it has not invested more heavily in alternative technologies for several reasons. First, the officials stated that USPS is the only U.S. agency that requires right-hand-drive vehicles to fulfill its mission and, because these vehicles are not available commercially, the requirement limits vehicle choices, regardless of how the vehicles are fueled. Second, USPS officials and other experts explained that purchasing alternative fuel vehicles instead of gasoline- powered vehicles likely would result in higher estimated lifecycle costs, largely because their acquisition costs would be significantly higher. While purchasing some types of alternative fuel vehicles could reduce USPS’s fuel costs, they said, the fuel savings would be unlikely to offset the higher acquisition costs of the vehicles over their operating lives because, on average, USPS’s delivery vehicles travel only about 17 miles a day. Third, Vehicle Programs officials told us that the limited availability of alternative fuels and the high costs of installing fueling infrastructure for them—such as on-site charging stations for electric vehicles—have made it difficult to elect to invest in or operate these vehicles. Finally, they noted that USPS has experienced problems obtaining technological support and parts for alternative fuel vehicles. For example: High acquisition costs have prohibited larger purchases of hybrid vehicles. When we conducted our site visits, USPS had 12 hybrid vehicles in its delivery fleet: two 2-ton hybrid trucks in New York state that were converted to a hybrid power train that USPS received in 2009, and 10 Ford Escape hybrids in California that were purchased in 2005. The 2-ton vehicles were converted to hybrid vehicles through partnerships with manufacturers at no cost to USPS, and it was able to purchase the 10 Ford Escape hybrids at a cost of about $27,700 in 2010 dollars. According to USPS officials, all of these vehicles have significantly better fuel economy than similar nonhybrid vehicles in its delivery fleet. However, Vehicle Programs officials stated that because hybrid vehicles typically cost more to acquire—$9,000 more in the case of a 2011 Ford Escape hybrid compared to the nonhyrid version of the same vehicle—USPS has not invested heavily in these vehicles.

Limited fueling infrastructure and difficulty obtaining parts have caused USPS to scale back its use of compressed natural gas in delivery vehicles. In the 1990s, USPS converted about 7,300 LLVs to operate on compressed natural gas. However, because of fueling infrastructure issues and parts supply challenges, as of September 30, 2010, USPS had removed this capability from all but 3,372 of these vehicles. At the conclusion of our review, 42 of these vehicles were being operated in Corpus Christi, Texas, where the city, to increase the use of this fuel, helped install needed fueling infrastructure and provided $400 of fuel for each of these 42 compressed-natural-gas-capable vehicles (about 200 days of fuel per vehicle, according to Vehicle Programs officials). The manager of the local vehicle maintenance facility told us that operating these vehicles on compressed natural gas has reduced USPS’s fuel costs and, consequently, in January 2011, he was in the process of obtaining 37 additional compressed-natural-gas-capable vehicles from other locations in Texas. In contrast, USPS’s experience in Huntington, New York, illustrates what Vehicle Programs officials described as more typical challenges related to USPS’s use of compressed natural gas. Specifically, in the mid-1990s, all of the LLVs at the Huntington post office were converted to run on compressed natural gas. USPS officials said the vehicles were run on this fuel for only about 6 months because—almost immediately—the vehicles had reliability issues and they faced challenges obtaining replacement parts.

Parts supply issues caused Ford to recall 500 electric vehicles soon after their deployment as USPS delivery vehicles. In 1999, USPS, through a partnership with DOE and several regional and local agencies in California and New York state, acquired 500 plug-in electric vehicles from Ford. However, Ford recalled the vehicles soon afterwards because the vehicle battery manufacturer stopped making the needed batteries. Ford replaced them with gasoline-powered minivans.

For additional information on USPS’s experiences with various types of alternative fuel vehicles, see appendix II.

USPS’s Approach for Addressing Its Delivery Fleet Needs Has Financial, Operational, and Environmental Trade- offs

USPS’s Approach Is to Maintain Its Current Vehicles While Planning How to Address Its Longer Term Delivery Fleet Needs

USPS’s current approach is to sustain operations of its delivery fleet— through continued maintenance—for the next several years, while planning how to address its longer term delivery fleet needs. The current approach also anticipates purchasing limited numbers of new, commercially available minivans, as necessary, to meet its operational requirements. According to Vehicle Programs officials, USPS adopted its current approach in December 2005 after senior management and a Board of Governors subcommittee decided not to initiate a major replacement or refurbishment of the delivery fleet. At that time, USPS estimated that fleet replacement—one of the five options considered—would cost $5 billion for about 175,000 vehicles. Planning and executing a custom-built vehicle acquisition would take 5 to 6 years from initially identifying the vehicles’ specifications and negotiating with manufacturers through testing and deploying the vehicles, according to Vehicle Programs officials. USPS also elected not to refurbish its fleet, another option considered. According to a USPS contractor, the agency could have delayed purchasing new vehicles for at least 15 years if it refurbished its existing LLVs and FFVs (i.e., replaced nearly all vehicle parts subject to the effects of wear and aging) over a 10-year period. In 2005, the contractor estimated that refurbishing these vehicles would cost $20,000 per vehicle—a total cost of about $3.5 billion, assuming that 175,000 vehicles were refurbished. According to Vehicle Programs officials, USPS chose to sustain its operations through continued vehicle maintenance pending operational and financial developments and evolving advancements in vehicle technologies. Several senior USPS officials told us the agency does not intend to begin a major vehicle acquisition until 2018 at the earliest, largely because of financial constraints.

As discussed earlier, USPS’s financial condition has since declined substantially and although USPS issued a 10-year action plan in March 2010 for improving its financial viability, the plan did not describe a strategy for addressing its delivery vehicle needs. Federal capital planning principles emphasize the importance of strategically linking agency goals and objectives, such as those outlined in USPS’s action plan, to an agency’s capital investment needs; evaluating the capacity of existing agency assets; and identifying alternatives to bridge gaps between current and needed capabilities.

USPS has not analyzed how operational changes proposed in its 10-year plan, including a potential shift in delivery from 6 days a week to 5 days, would affect its fleet needs or the consequences of its decision to delay the fleet’s replacement or refurbishment. In addition, it has not developed a plan for financing the strategy it eventually chooses. However, without the inclusion of this major capital investment need in its action plan or other documented analysis, USPS’s future fleet needs are unclear, as is USPS’s assessment of how urgently it should replace, or refurbish, much of its aging delivery fleet and how it can finance such a major capital investment.

According to Vehicle Programs and senior USPS officials, the Vehicle Programs office is in the early stages of developing a new proposal for addressing the agency’s delivery fleet needs. These officials stated that the proposal will likely explore several alternatives, including continuing to maintain the current fleet, refurbishing the LLVs and FFVs, or, possibly, undertaking a major acquisition of new vehicles. The proposal also is expected to address a June 2010 USPS Office of Inspector General recommendation that USPS replace about 20,000 delivery vehicles whose maintenance costs exceeded $5,600 during each of 2 consecutive fiscal years. Furthermore, Vehicle Programs officials stated that the proposal will discuss strategies for incorporating alternative fuel capabilities into USPS’s next major fleet acquisition. According to Vehicle Programs officials, USPS expects to present its proposal for consideration by the USPS Capital Investment Committee later this fiscal year.

USPS Is Uncertain How Best to Incorporate Alternative Fuel Vehicles into Its Next Major Delivery Fleet Acquisition

While USPS intends to examine ways to comply with EPAct 1992’s acquisition requirements in its next large-scale acquisition of vehicles, according to Vehicle Programs officials, life-cycle costs are significantly higher for nearly all currently available alternative fuel vehicles than for gasoline-powered vehicles. This is largely because, given the delivery fleet’s low annual mileage, the savings on fuel associated with alternative fuel vehicles would not be sufficient to offset the vehicles’ higher acquisition costs. Consequently, these officials told us a large-scale acquisition of alternative fuel vehicles (other than E85-capable vehicles) is not likely to be financially viable for USPS. In addition, as discussed earlier, USPS has concerns about undertaking a large-scale acquisition of most alternative fuel vehicles because of their potentially higher infrastructure and operating costs and uncertainties about the availability of parts and long-term support for rapidly evolving alternative vehicle technologies. For example, USPS expressed concern about two recent bills introduced in Congress. One of these bills would have authorized about $2 billion for, among other purposes, the purchase of at least 20,000 electric delivery vehicles and the installation of 24,000 charging stations, while the other bill would have required USPS to ensure that within 5 years at least 75 percent of its fleet would consist of electric vehicles but did not authorize funding. USPS stated that it is concerned about operating a large portion of its fleet exclusively on electricity because of the potential for mail delivery disruptions if local electric grids fail. In addition, USPS expressed concerns about the availability of parts and potentially high vehicle acquisition, infrastructure, and battery- replacement costs. Because of these concerns, USPS commented that if legislation related to the electrification of its fleet is enacted, it would prefer funding for a pilot program of roughly 1,000 electric vehicles that it would conduct in consultation with DOE.

USPS may be able to meet EPAct 1992’s light-duty vehicle acquisition requirements in future vehicle acquisitions by purchasing E85-capable vehicles without incurring the additional costs that it faced in its previous acquisitions of these vehicles. According to DOE officials, more E85- capable vehicles are now available with 4-cylinder engines, and these engines now can be acquired commercially for little to no additional cost. However, as discussed earlier, USPS and other federal agencies often have faced challenges fueling vehicles with E85.

Other federal agencies also face challenges complying with fleet requirements. As we recently reported, conflicting statutes limit federal fleet managers’ flexibility to reduce their fleets’ petroleum use and greenhouse gas emissions. For example, we reported that federal requirements to purchase alternative fuel vehicles can undermine the requirement to reduce petroleum consumption because the fuels’ limited availability results in agencies using gasoline to fuel alternative fuel vehicles. In other work, we reported that federal fleet requirements do not provide agencies with a means to set priorities between conflicting requirements. As a result, we recommended that the Secretary of Energy, in consultation with other federal agencies, propose legislative changes to resolve the conflicts and set priorities for complying with the multiple federal fleet requirements and goals for reducing petroleum consumption, reducing emissions, managing costs, and acquiring advanced technology vehicles. DOE and GSA are working with other federal agencies to create a broader, performance-based approach to improve fuel efficiency and thereby reduce petroleum consumption and greenhouse gas emissions. The new performance-based approach is intended to provide federal managers with greater flexibility in improving the fuel efficiency of their agencies’ vehicle fleets.

Vehicle Programs officials stated that, in their view, the best way for USPS to meet national sustainability requirements for reduced emissions without incurring significant costs may be to invest in highly fuel-efficient gasoline-powered vehicles. Such an outcome could be possible for future USPS delivery fleet acquisitions given increased legislative flexibility in the definition of what constitutes an alternative fuel vehicle. Specifically, the National Defense Authorization Act of 2008 expanded this definition by permitting federal agencies to meet EPAct 1992’s fleet acquisition requirements for light-duty-alternative-fuel vehicles by purchasing vehicles that the Environmental Protection Agency has demonstrated would achieve a significant reduction in petroleum consumption. Based on the agency’s demonstration, any low-greenhouse-gas-emitting vehicle in locations that qualify for a DOE waiver would be considered an alternative fuel vehicle.

According to manufacturers, environmental organizations, and other experts we interviewed, gasoline-powered vehicles are becoming more fuel efficient and producing fewer emissions. As a result, newer gasoline- powered vehicles are likely to be more fuel-efficient than USPS’s LLVs and FFVs. In addition, purchasing highly efficient gasoline vehicles would eliminate the fueling infrastructure and parts supply challenges USPS has faced with some alternative fuel vehicles. However, because the Environmental Protection Agency evaluates only commercially available vehicles, at present, there are no low-greenhouse-gas-emitting right-hand- drive vehicles available that have been determined to meet EPAct 1992’s fleet acquisition requirements for light-duty vehicles. Consequently, if USPS decides to pursue such a vehicle in its next acquisition of custom- built delivery vehicles, it would need to work with the manufacturer and the Environmental Protection Agency to determine if such a vehicle could meet its operational needs while being considered a low-greenhouse-gas- emitting vehicle.

Recognizing that vehicles have become more fuel efficient, in February 2011, USPS issued two solicitations to “repower” two existing LLVs by installing new fuel efficient engines; new transmissions; and all related equipment, such as new cooling and exhaust systems. One of the solicitations is for the repowerment of an existing LLV with a fuel-efficient gasoline engine, while the other is to replace another LLV’s existing gasoline engine with a fuel-efficient diesel engine. According to the solicitations, each of the two repowered vehicles must have (1) one of the best fuel economy ratings possible compared to similar commercially available vehicles and (2) operate on commercially available fuel. A Vehicle Programs official told us that USPS expects to award these contracts in April 2011 and to receive the vehicles in late 2011. According to a Vehicle Programs official, through operating these vehicles, USPS hopes to gain experience on how new, more fuel efficient engines would affect the agency’s fuel efficiency and delivery operations.

Current Approach Allows USPS to Defer a Major Capital Investment but Entails Some High Maintenance Costs, Operational Challenges, and Delayed Improvements

USPS’s Maintenance Program and Parts Supply Have Enabled USPS to Meet Its Delivery Mission While Avoiding Capital Costs

USPS’s well-established maintenance program has allowed it to continue to meet its delivery mission with its current fleet of delivery vehicles. The program requires a minimum of two preventive maintenance inspections annually for each of USPS’s delivery vehicles. Parts that are determined to be sufficiently worn or are not expected to last until the next inspection are expected to be replaced. In addition to regularly scheduled maintenance, unscheduled maintenance occurs on the vehicles when needed to (1) resolve problems discovered when letter carriers perform daily inspections of vehicles prior to beginning their routes or (2) fix vehicles that break down while carriers are delivering mail. So that letter carriers have vehicles available to use while their vehicle is being serviced, about 3 percent of USPS’s delivery vehicles are held in a maintenance reserve. According to USPS Finance officials, USPS incurred about $1.05 billion in maintenance and fuel costs for its delivery fleet in fiscal year 2010—which comes to about $18 per vehicle per day. This estimate includes about $750 million in maintenance costs and about $300 million in fuel costs.

The USPS Office of Inspector General, which frequently reports on the vehicle maintenance program, recently reported that USPS’s approach of continuing to maintain its current delivery fleet is operationally viable and generally cost-effective, given USPS’s financial circumstances. Similarly, our custom query of USPS’s VMAS found that delivery vehicles’ direct maintenance costs (costs that can be directly attributed to work on a particular vehicle) have risen only slightly over the past 5 fiscal years, from a low of about $2,453 per vehicle in fiscal year 2007 to a high of $2,587 per vehicle in fiscal year 2010 (see fig. 7). These direct maintenance costs are somewhat understated because, according to USPS data, about 6 percent of USPS’s total maintenance costs—all due to maintenance performed by contractors—are not entered into VMAS.

USPS’s success in keeping its aging delivery fleet operational is also due to a steady supply of parts for its LLVs and FFVs, according to Vehicle Programs officials. Since USPS owns more than 160,000 of these vehicles, it has worked with suppliers to ensure that parts for these vehicles continue to be available. During our site visits, USPS’s vehicle maintenance managers and technicians routinely informed us that this steady parts supply will enable them to maintain both types of vehicles well into the future. According to Vehicle Programs officials, because of the age of the vehicles, nearly all the LLVs have had their engines and transmissions replaced at least once, and often twice, and some of the LLVs have had nearly all their parts replaced, including their frames. USPS officials stated that it is more cost-effective to replace delivery vehicle parts as they are needed than to undertake a general vehicle refurbishment, in which all major parts are replaced at one time, because replacing parts as needed avoids costs resulting from premature replacements. While none of the other fleet operators we spoke with keep their vehicles as long as USPS plans to keep its LLVs and FFVs, most agreed that replacing parts as needed can keep vehicles operational at less cost than purchasing new vehicles.

According to numerous USPS headquarters and field officials at vehicle maintenance facilities and post offices, as well as letter carriers, USPS’s vehicle maintenance program has thus far supported USPS’s requirements to deliver mail 6 days a week. In part this is because, according to officials at a number of vehicle maintenance facilities, the LLV is a well-designed, highly functional vehicle that is easy for mechanics to work on, and its long-lived aluminum body has held up well. While some vehicle maintenance facility officials noted problems with the FFVs—such as engine issues that led to the early replacement of some engines—in general, they stated that the FFVs also continue to be reliable and operational. USPS employees at a majority of the eight vehicle maintenance facilities and some post offices we visited told us that the delivery vehicles in their locations are in good condition and that, in their view, the vehicles can continue to deliver mail without major operational interruptions for at least several more years. Vehicle maintenance facility managers, technicians, and letter carriers routinely stressed that they had no safety concerns about the vehicles despite their advanced age.

One Trade-off of Current Approach Is High Maintenance Costs for Some Vehicles

The primary advantage of USPS’s current approach for addressing its delivery fleet needs is that it has allowed USPS to avoid a near-term, major capital expenditure that it cannot afford. However, this approach has a number of trade-offs. One trade-off is that USPS has incurred high costs to maintain some of its delivery vehicles. Our custom query of VMAS showed that, while most delivery vehicles (about 77 percent) incurred less than $3,500 in annual maintenance costs in fiscal year 2010, about 3 percent (or 5,349) of these vehicles had more than $7,000 in maintenance costs. In addition, 662 vehicles had more than $10,500 in maintenance costs in fiscal year 2010—more than one-third the $31,000 per vehicle replacement cost USPS currently estimates (see fig. 8). According to USPS officials, in most cases, they repair an LLV or FFV rather than replace it with a commercially available minivan because of the continuing need for right- hand-drive vehicles, which are not commercially available.

Another reason that some vehicles are incurring high maintenance costs is that USPS is replacing the frames of LLVs that have significantly corroded, especially in locations with severe winter weather, such as the Midwest. In 2008, USPS began requiring that the frames of all LLVs in high-corrosion locations be visually inspected and measured annually, using an ultrasonic device that determines the thickness of the frames at certain points. Frames with holes through the metal were to be replaced immediately, while frames with less than a desired thickness at certain key points were expected to be replaced within 6 months. According to Vehicle Programs officials, at least 4,489 LLV frames have been replaced from fiscal years 2008 through 2010. Replacing a frame is relatively expensive, not only because of the cost of the frame but also because a replacement is labor- intensive, since every part of the vehicle must be removed and reinstalled (see fig. 9). According to Vehicle Programs officials, it typically costs about $5,000 to replace an LLV frame. None of the other nonpostal fleet managers we spoke with have replaced their vehicles’ frames, and some of these managers suggested that the need to do so is a key indication that it is time to replace—not repair—a vehicle.

In addition to its overall maintenance costs, USPS’s unscheduled maintenance costs have increased steadily, according to data from its VMAS reports. Unscheduled maintenance can result in delays in mail delivery and operational costs, such as overtime expenses. To reduce operational costs, USPS, like other fleet operators, attempts to minimize unscheduled maintenance. USPS’s goal is to ensure that no more than 20 percent of its total annual maintenance costs are for unscheduled maintenance. However, according to a September 30, 2010, VMAS report, about 31 percent of USPS’s annual maintenance costs were for unscheduled maintenance—11 percentage points more than USPS’s goal. Furthermore, USPS has not met its unscheduled maintenance goal in any of the last 6 fiscal years. USPS’s unscheduled maintenance costs also are likely to be higher than the amounts reflected in VMAS because, according to headquarters officials and some vehicle maintenance facility managers we spoke with, nearly all of the 6 percent of maintenance costs that are currently not captured in VMAS are for unscheduled maintenance. Thus, for fiscal year 2010, USPS’s unscheduled maintenance costs could have been as high as about 37 percent of its total maintenance costs. During our site visits, several local postal officials told us they are experiencing more operational issues due to vehicle breakdowns, which can lead to increased overtime costs. USPS could not provide us with the costs of these operational issues because USPS’s time-keeping systems do not link costs such as overtime incurred by postal supervisors and letter carriers to vehicle breakdowns. We discussed the feasibility of capturing these costs with Vehicle Programs officials. They said that VMAS performance indicator reports track unscheduled maintenance, and management is aware of the operational impacts and costs.

In addition to the increasing rate of unscheduled maintenance, we identified some instances of maintenance issues during our site visits. For example: We saw two rusted and partially missing body mounts on an LLV in Florida, which was on a lift when we visited in October 2010. While the frame bolts, which hold the frame to the vehicle, were intact, the lower half of the body mounts and retaining washers were missing. A maintenance assistant at the site indicated that, given the severity of the rust (see fig. 10), the problem could not have occurred in the 5 months since the LLV’s last scheduled inspection in May 2010. Additionally, while we did not observe this issue, this individual told us that nearly all 31 LLVs at his post office had bald tires when he assumed the maintenance assistant position in 2009.

When we visited a vehicle maintenance facility in New York state, technicians were replacing two severely corroded LLV frames with holes through the metal. The manager of this facility informed us that frames in this condition (see fig. 11) should have been replaced during a previous preventive maintenance inspection. According to the manager, this did not occur, possibly because the inspections were done by contractors who did not follow USPS’s requirements for inspecting frames. According to the manager, the vast majority of the 2,800 delivery vehicles at this vehicle maintenance facility are sent to contractors for maintenance because he has chosen to focus his facility’s limited resources on servicing USPS- owned tractor trailers used for hauling mail.

Similarly, officials at a Minnesota vehicle maintenance facility told us that they are not following USPS’s requirements for replacing frames whose thickness in key spots indicates weakness; instead, they said, facility personnel replace frames only when they have one or more holes through the metal. According to officials at this facility, given the state’s severe winter weather, the facility has a large number of vehicles with thin frames. While these vehicles meet USPS’s frame replacement requirements, officials at the maintenance facility told us that they do not have the resources (typically $5,000 per vehicle) to replace them all in the short term.

Minivan Purchases Have Provided USPS with Needed Vehicles, but Have Also Decreased Standardization, Resulting in Operational and Other Challenges

USPS’s current approach for dealing with its aging delivery fleet has significantly increased the number of left-hand-drive vehicles in the delivery fleet over time. Specifically, because USPS does not currently have the funds available to acquire new custom-built, right-hand-drive vehicles, it now has 22,100 left-hand-drive minivans in its delivery fleet. According to Vehicle Programs officials and officials at two post offices that had a mix of minivans and right-hand-drive vehicles, minivans can pose a problem because, since they cannot be effectively used on the more than 50,000 delivery routes that require right-hand drive, they reduce USPS’s operational flexibility. Furthermore, during our site visits, officials at several vehicle maintenance facilities stated that, unlike for LLVs and FFVs, USPS has encountered maintenance challenges for its minivans. According to these officials, maintaining the older minivans—some of which have met or exceeded their expected 10-year operating lives—has become increasingly difficult, and they are experiencing problems securing parts. According to Vehicle Programs officials, manufacturers typically produce parts for commercially available vehicles for 10 years, and officials told us that USPS does not have sufficient numbers of minivans to maintain its own market for parts for subsequent years, as it does for the LLVs and FFVs. Consequently, some of the older minivans are being used as salvage for parts for operational vehicles (see fig. 12).

While new USPS delivery vehicles could potentially provide environmental benefits such as reduced emissions and increased fuel efficiency, it is not possible to quantify these benefits because USPS has not decided when, what type of vehicles and how many it may acquire, or how many old vehicles it may replace. Furthermore, such an analysis would depend on other factors, such as the relative extent to which USPS uses these new vehicles compared to the retired vehicles. Nevertheless, it is likely that new delivery vehicles would (1) be more fuel efficient than the LLVs and FFVs, and thus to some extent produce lower greenhouse gas emissions, and (2) meet more stringent federal light-duty emissions standards for carbon monoxide and other particulate matter.

According to Vehicle Programs officials, USPS’s current fleet approach also makes it more challenging and costly to incorporate design improvements into its fleet that could provide operational benefits. Such improvements could include design features that could increase letter carriers’ comfort and safety, such as features designed to reduce blind spots when the carriers merge from the right side of the road.

Without Significant Improvement in USPS’s Financial Condition, There Are No Clear Options to Fund a Major Vehicle Replacement

USPS’s Financial Condition Poses a Significant Barrier to Funding a Delivery Fleet Replacement

USPS’s financial condition poses a significant barrier to its ability to fund a major acquisition of its delivery fleet—a cost USPS recently estimated would be about $5.8 billion to replace about 185,000 delivery vehicles with new gasoline-powered custom-built vehicles, at a cost of about $31,000 per vehicle (in 2011 dollars). As we have reported, continuing operational losses have constrained funding for USPS’s capital investments. USPS’s annual purchases for property and equipment have steadily declined over the past 4 years, from $2.7 billion in fiscal year 2007 to $1.4 billion in fiscal year 2010. For fiscal year 2011, USPS budgeted $1.3 billion for capital investments and reported that expenditures for these investments will continue to decline as USPS seeks to conserve its cash. USPS projects an end-of-year cash shortfall of $2.7 billion for fiscal year 2011, meaning that it does not expect to have sufficient cash to meet all of its financial obligations, jeopardizing its operations. At the same time, while federal capital planning principles emphasize the importance of, among other actions, evaluating the capacity of existing assets and identifying alternatives to bridge the gap between current and needed capacities, as discussed previously, USPS has not developed a strategy for how and when it will invest in a major acquisition of new delivery vehicles.

In the past, USPS funded major capital investments through a combination of (1) net income from its earnings from postage and other postal products and services, (2) rate increases designed to increase its income, or (3) debt financing. However, these methods are likely to be inadequate to finance a major delivery fleet replacement in the foreseeable future, for the following reasons: Net income. Although USPS can retain earnings that could be used to finance a major acquisition of delivery vehicles, such earnings appear unlikely because it projects a $6.4 billion loss for fiscal year 2011 and continuing large financial losses for the foreseeable future. USPS expects revenues to stagnate in the next decade with losses due to continued declines in mail volumes—particularly for profitable First-Class Mail, its core product. This means that USPS can no longer rely, as it once did, on growth in mail volumes to help cover its costs. Meanwhile, USPS’s progress in reducing its costs through rightsizing its operations and realigning its workforce is limited by a combination of stakeholder resistance and statutory requirements, as we have previously reported.

Rate increases. Rate increases also appear unlikely to generate sufficient revenues to fund a major delivery fleet replacement because under the Postal Accountability and Enhancement Act of 2006, such increases are now generally limited by an inflation-based price cap on USPS’s market- dominant products—products that generate close to 90 percent of its revenue. Moreover, even if the price cap did not constrain rate increases, large rate increases could be self-defeating because they could potentially trigger large, permanent declines in mail volumes.

Debt financing. USPS’s outstanding debt at the end of fiscal year 2010 was $12 billion, and it expects to use the remaining $3 billion of its $15 billion in borrowing authority in fiscal year 2011 to fund non-vehicle-related expenditures.

USPS and Others See Little Potential to Finance a Fleet Replacement through Grants or Partnerships, Including Joint Procurements

By statute, USPS is generally not subject to federal contracting and budgeting laws. As a result, USPS officials told us that USPS has the authority to accept grant funding and to enter into joint procurements and other partnerships to assist in a major delivery fleet replacement. However, USPS’s use of federal or state grants could have public policy implications, because USPS is supposed to be self-sustaining and to cover its operating costs with post-related revenues. In addition, fair competition issues or concerns about sharing sensitive procurement information could arise if USPS actively pursued a partnership or joint procurement.

USPS and DOE officials stated that there are few opportunities for USPS to receive federal grant funding to help it purchase vehicles, in part because federal grants are typically targeted to state, local, or city governments, or to nonprofit or educational organizations. In the past, USPS has obtained state or local grants for limited numbers of alternative fuel vehicles or related infrastructure, and in one case it received some financial assistance from DOE. Specifically, in 1999, USPS partnered with a number of entities, including the California South Coast Air Quality Management District, DOE, and others, on an agreement formed to reduce air pollution in California. This agreement included about $9 million in funding subsidies from these entities to purchase 500 electric vehicles from the Ford Motor Company (Ford) as well as to install charging stations for these vehicles. USPS paid an additional $11.6 million to Ford for these vehicles. According to USPS officials, the $9 million in outside funding—a small fraction of the estimated $5.8 billion to replace the largest portion of its delivery fleet—is the largest amount of outside funding USPS has received for vehicle acquisitions. The project was terminated after about 2 years because of battery problems, as discussed previously in this report.

Senior USPS officials also stated that there is little likelihood that a joint procurement arrangement could help finance a delivery fleet replacement. According to USPS, UPS, and FedEx Express officials, a primary barrier to a joint procurement is USPS’s need for customized, right-hand-drive delivery vehicles similar in size to the LLV and FFV (UPS and FedEx Express typically use larger vehicles and do not need right-hand-drive capability). Officials from DOE, private companies related to vehicle manufacturing and fuel, and an environmental organization that works on vehicle fleet issues confirmed USPS’s assessment, indicating that it is unlikely that USPS would be able to obtain financial help through existing mechanisms for acquiring new delivery vehicles. USPS officials also stated that they are not actively pursuing grants, joint acquisitions, or other partnership agreements.

Finally, according to a senior USPS attorney, it is unlikely that it would be feasible for USPS to enter into an energy savings performance contract to help finance a major delivery fleet acquisition. Such contracts are used to privately finance improvements in energy efficiency. Under an energy savings performance contract, federal agencies enter into a long-term contract (up to 25 years) with a private energy services company under which the company installs energy-efficiency improvements financed from private funds. The agency then repays the company out of the estimated annual savings expected to be generated from the improvements. USPS officials stated that the agency used this type of financing for building improvements and has considered their applicability to a major fleet acquisition. However, USPS officials said that USPS has largely stopped using these contracts. Furthermore, given the low annual mileage of USPS’s delivery fleet, USPS and DOE officials stated that it is unlikely that the fuel savings generated from a more efficient fleet (whether consisting of gasoline-only vehicles or alternative fuel vehicles) would be sufficient, compared with the acquisition cost of the vehicles, to interest a private investor.

Congressional Actions to Improve USPS’s Financial Condition Could Help USPS Fund a Delivery Fleet Replacement but Present Difficult Policy Issues and Trade-offs

In April 2010, we reported that Congress and USPS need to reach agreement on a package of actions so that USPS can become financially viable, and we recommended that in doing so, Congress consider providing financial relief, such as by revising its retiree health benefit funding and requiring any binding arbitration to take USPS’s financial condition into account, as well as consider all cost cutting options. Agreeing on a package of actions will involve difficult public policy issues and trade-offs. However, depending on the specific actions adopted, USPS’s follow-up, and the results, such an agreement could help enable the funding of a major acquisition of delivery vehicles.

Although USPS is authorized to request appropriations for costs related to “public service,” it has not received an appropriation for operational costs since fiscal year 1982. USPS receives annual appropriations to fund statutorily required mail services at free or reduced rates, such as free mail for the blind and overseas voting, but these funds represent a very small percentage of its revenues. However, USPS has benefited from taxpayer funding in special circumstances. For example, Congress appropriated $587 million in 2002 and $507 million in 2004 to help pay for safety measures after letters containing anthrax contaminated the mail in 2001.

Providing appropriations would be another alternative to fund the multi- billion-dollar replacement of USPS’s delivery fleet. Such appropriations could ensure the future viability of USPS’s delivery fleet, and—if alternative fuel vehicles are specified by legislation or chosen by USPS— could potentially yield additional benefits, particularly for manufacturers and suppliers of alternative fuel vehicles. In addition, regardless of the technology selected, new vehicles likely would be more fuel efficient and produce lower environmental emissions than USPS’s current vehicles. However, this option also has difficult public policy trade-offs and would raise questions about whether the economic benefits would be sufficient to justify the costs. For example, appropriations would raise the federal budget deficit, would reduce incentives for USPS to be self-supporting, and could further limit USPS’s flexibility in determining the best vehicles for its fleet.

Conclusions

USPS faces severe financial challenges and, for the foreseeable future, cannot afford to replace or refurbish a large portion of its aging fleet. USPS’s March 2010, 10-year action plan for addressing its financial challenges did not (1) describe a strategy for addressing its delivery fleet needs or (2) identify how the operational changes proposed in this plan would affect its future fleet needs.

The trade-offs of continuing to maintain USPS’s delivery fleet until USPS decides how to address its longer term delivery fleet needs are numerous and include somewhat higher maintenance costs overall. For each of 662 delivery vehicles in fiscal year 2010, USPS incurred maintenance costs of more than $10,500—more than one-third the $31,000 per-vehicle replacement cost USPS estimates as of 2011. Furthermore, these high vehicle costs were experienced in each of the four prior fiscal years that we analyzed. These costs largely arise from USPS’s need for right-hand-drive vehicles at a time when it cannot purchase these vehicles, yet remains contractually required to supply thousands of them to rural letter carriers. Related to this, delays in acquiring new delivery vehicles have caused USPS to replace about 4,500 thin and, in some cases, severely corroded LLV vehicle frames in fiscal years 2008 through 2010—at a cost of $5,000 per vehicle. If not for the critical need for right-hand-drive vehicles, the need to replace these frames may have caused USPS to replace—not repair—them. USPS’s approach also has resulted in increasing unscheduled maintenance costs, which create operational difficulties. Finally, delays in acquiring custom-built, right-hand-drive vehicles have increased the number of left- hand-drive vehicles in the delivery fleet by more than 19,000 since 2006, even though these vehicles cannot effectively operate on more than a quarter of USPS’s delivery routes.

Despite these operational impacts, USPS’s approach of continued maintenance has been reasonable given its pressing need to defer an estimated $5.8 billion capital outlay for a major vehicle replacement or a major refurbishment, estimated at $3.5 billion in 2005. However, the time soon will come when the cost and operational consequences of this approach will not allow further delays. When that time comes, USPS will need to know how it can best comply with federal requirements for acquiring alternative fuel vehicles while also meeting its operational requirements. Consequently, USPS must develop a comprehensive strategy for dealing with this inevitability.

As we have reported, Congress and USPS need to reach agreement on a package of actions to restore USPS’s financial viability, which will enable USPS to align its costs with revenues, manage its growing debt, and generate sufficient funding for capital investment, including the inevitable replacement or refurbishment, of its delivery fleet. However, until USPS defines its strategy for a major capital investment for its delivery vehicles, neither USPS nor Congress has sufficient information to fully consider its options.

Recommendation for Executive Action

Given USPS’s need to ensure that its delivery fleet remains operationally viable and maintain its legal mandate to purchase alternative fuel vehicles and use alternative fuel in them, we recommend that the Postmaster General develop a strategy and timeline for addressing USPS’s delivery fleet needs. This effort should address: the effects of USPS’s planned operational changes and continuing changes in customers’ use of the mail on future delivery fleet requirements; the range of strategic options available (including continuing to maintain, not replace, its fleet), as well as the costs and time frames for these options; an analysis of any safety consequences associated with extending the vehicles’ operational lives; and alternative ways to comply with federal fleet requirements, including an analysis of how USPS can best meet these requirements, given its budget constraints.

Agency Comments

USPS provided written comments on a draft of this report by letter dated April 13, 2011. These comments are summarized below and are reprinted in appendix III. USPS agreed with our findings and recommendation to develop a strategy and timeline for addressing its delivery fleet needs. In commenting on our recommendation, USPS stated that it is developing a strategy to address the immediate and long-term needs of its delivery fleet, and that it planned to complete the strategy and timeline by the end of December 2011. USPS also stated that, while many alternatives exist for future delivery vehicles, ultimately, operational requirements and the total cost of ownership—including investment costs, infrastructure, life cycle maintenance, and support costs—will be the drivers behind any technology selection decision. In addition, USPS emphasized that given its current financial condition, the availability of capital funds also will be a primary factor in any investment decision. USPS also provided minor technical comments via email, which we incorporated as appropriate.

As agreed with your offices, unless you publicly announce the contents of this report earlier, we plan no further distribution until 30 days from the report date. At that time, we will send copies to appropriate congressional committees and USPS. We will also make copies available to others on request. In addition, the report will be available at no charge on the GAO Web site at http://www.gao.gov.

If you or your staff have any questions about this report, please contact me at herrp@gao.gov or (202) 512-2834. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. Key contributors to this report are listed in appendix IV.

Appendix I: Objectives, Scope, and Methodology

In response to interest in issues related to the United States Postal Service’s (USPS) vehicle fleet, the objectives of this report were to answer the following key questions: (1) What is the profile of USPS’s delivery fleet? (2) How has USPS responded to requirements for alternative fuel vehicles, what experiences has it had with alternative fuel vehicles, and what has it learned from its experiences? (3) What, if any, approach has USPS adopted to address its delivery fleet needs, and what are the trade- offs of this approach? (4) What options exist to help USPS fund a major acquisition of delivery vehicles?

The following sections describe the procedures we undertook to answer these questions. In addition, we conducted background research to inform our review. We reviewed prior GAO reports, including our work on USPS’s financial condition and options Congress could consider to address USPS’s financial condition; federal vehicle fleets; alternative fuel vehicles; capital planning; internal controls; and energy savings performance contracts. We analyzed financial and operating information from USPS, including its annual reports, audited financial reports, 10-year action plan, strategic sustainability performance plan, contractual obligation to provide right-hand-drive vehicles to rural carriers, and fleet management handbook. We reviewed analyses of USPS’s fleet conducted by USPS officials, private consultants to USPS, and the USPS Office of Inspector General. In addition, we reviewed documents prepared by the Department of Energy (DOE) and the General Services Administration on issues related to federal vehicle fleets as well as presentations and reports provided at an annual federal fleet conference and at monthly meetings of federal fleet managers. We reviewed USPS and DOE data on the number of waivers USPS applied for and received exempting it from fueling its alternative fuel vehicles with alternative fuel. Furthermore, we reviewed federal legislation that establishes requirements related to federal fleets, including the Energy Policy Act of 1992, the Energy Policy Act of 2005, the Energy Independence and Security Act of 2007, and the National Defense Authorization Act of 2008. In addition, we reviewed executive orders related to federal vehicle fleets.

Analysis of Data from USPS on Its Vehicle Fleet

To determine the profile of USPS’s delivery fleet, the fleet’s maintenance costs, and the trade-offs of the agency’s approach for addressing its delivery fleet needs, we obtained and analyzed data from a custom query of USPS’s Vehicle Management Accounting System (VMAS), the database the agency uses to manage its vehicle fleet. We assessed the reliability of the data by performing electronic testing and visual review of data elements for obvious errors and inconsistencies, reviewing reports related to VMAS, and interviewing agency officials knowledgeable about VMAS system controls and vehicle data procedures.

Through discussions with knowledgeable USPS and USPS Office of Inspector General officials, we learned that USPS staff enter data manually into VMAS and, as a result, some contractor costs for maintenance are not entered into VMAS, which has the effect of understating USPS’s vehicle maintenance costs in VMAS. USPS and USPS Office of Inspector General officials agreed that manual data entry is a major limitation of VMAS.

To identify the contractor costs that were not reported in VMAS, and were therefore missing from our custom query of this database, we compared the total contractor costs reported in VMAS with the total contractor costs reported in another USPS data system, the Enterprise Data Warehouse system. According to USPS finance officials, the Enterprise Data Warehouse captures data from accounts payable, feeds into the general ledger, and is used to supply information to the financial reporting system USPS uses for its audited financial statements. Thus, according to these officials, it provides the most reliable information available on USPS’s costs. To assess the reliability of the Electronic Data Warehouse’s data, we (1) interviewed officials knowledgeable about the data and (2) compared our results to those of the USPS Office of Inspector General, which had previously reported on discrepancies between data in the Electronic Data Warehouse and VMAS. Based on this assessment, we determined that the VMAS data were sufficiently reliable for the purposes of this report, as long as we clearly noted the percentage of maintenance costs missing from VMAS as determined by comparing the total maintenance costs recorded in VMAS with the total maintenance costs recorded in the Electronic Data Warehouse.

Using a custom query, we obtained VMAS data for all USPS vehicles for fiscal years 2006 through 2010, including the vehicles’ annual maintenance costs. To analyze information on the delivery fleet, we defined this fleet as all vehicles with one of eight function codes based on the advice of knowledgeable USPS officials. USPS officials agreed that the universe established through this process resulted in an accurate representation of its delivery fleet.

In addition to analyzing the VMAS data we obtained through a custom query, we reviewed reports generated by VMAS (VMAS reports) and other USPS documentation, including information on the number of alternative fuel vehicles in USPS’s delivery fleet. USPS officials stated that they typically use VMAS reports to manage the fleet. Because these reports categorize vehicles by make and model rather than by function, the total universe of delivery vehicles represented in these reports is slightly different from the universe we obtained through our analysis of the custom query and, thus, the numbers cannot be directly compared. USPS officials recommended that we use the information from the agency’s VMAS reports, rather than our custom query, to determine the number of delivery vehicles in past fiscal years, because the accuracy of the VMAS reports has been tested over time whereas the custom query was a new capability. Consequently, we used data from the VMAS reports to analyze changes in the numbers of delivery vehicles for fiscal years 2006 through 2010. On the other hand, Vehicle Programs officials agreed that the information we obtained through the custom query was sufficiently reliable to develop average per vehicle maintenance costs over the past 5 fiscal years and to analyze the number and maintenance costs of delivery vehicles in fiscal year 2010.

Using both the data obtained through our custom query and the data provided by USPS from its VMAS reports, we developed a profile of USPS’s delivery fleet from fiscal years 2006 through 2010, including maintenance costs. To analyze maintenance costs, we excluded costs related to fuel and accidents. To exclude costs related to accidents, we obtained information on the number and causes of vehicle accidents from USPS’s accident reporting database for fiscal years 2006 through 2010. We assessed the reliability of these data by (1) performing electronic testing and visual review of data elements for errors, (2) reviewing existing USPS information about the accident reporting database, and (3) interviewing agency officials knowledgeable about the data. We determined that these data were sufficiently reliable for the purposes of this report. Because USPS’s accident reporting database and VMAS use unique vehicle identification numbers to identify each vehicle, we were able to cross match these numbers in the two databases to identify vehicle maintenance costs due to accidents. We subtracted these costs from USPS’s total maintenance costs to obtain the total maintenance costs not related to accidents, as reported in VMAS.

Finally, we worked with USPS Finance and Vehicle Programs officials to get an agency estimate of the total costs attributable to delivery fleet maintenance and fuel in fiscal year 2010. USPS officials used a combination of VMAS reports and data in the Enterprise Data Warehouse to develop this estimate, which includes all direct costs and some indirect costs related to the delivery fleet’s maintenance and fuel use in fiscal year 2010. We compared this estimate with cost summaries provided by USPS Finance officials and other USPS documentation supporting amounts reported in the agency’s audited financial statements for fiscal year 2010 and determined that the agency’s estimate of $1.05 billion in total maintenance and fuel costs for its delivery fleet in fiscal year 2010 was reasonable.

USPS’s estimate of $1.05 billion includes about $750 million in identifiable direct and indirect maintenance costs, or a total of about $3,900 in maintenance-related costs per vehicle. Our custom query of VMAS showed about $497 million in direct maintenance costs in fiscal year 2010, or about $2,600 per vehicle. Several factors account for the difference in costs between the agency’s estimate and the results of our custom query. First, VMAS does not capture indirect maintenance costs and, instead, tracks only costs that can be directly associated with the vehicles’ maintenance. Thus, the lower maintenance cost figure produced from our analysis does not include costs that can not be specifically allocated to maintenance on a delivery vehicle. For example, VMAS includes costs for parts and direct labor to inspect a vehicle and replace brakes and other equipment, but does not include supervisory and management labor costs, or the benefits it pays to these employees. Second, while VMAS includes a large portion of its direct labor costs for technicians who service delivery vehicles, unlike USPS’s estimate, VMAS does not account for these employees’ full labor costs. Third, according to USPS data, about 6 percent of USPS’s total maintenance costs—all due to maintenance performed by contractors—are not entered into VMAS, but are included in the agency’s $750 million estimate of total maintenance costs for fiscal year 2010. Finally, while costs related to accidents are contained in USPS’s total cost estimate, we removed these costs from our analysis of maintenance costs.

Site Visits

To inform our understanding of USPS’s delivery fleet profile, its experiences with alternative fuel vehicles, and its approach to its aging fleet, we conducted site visits to three regions: Minneapolis and St. Paul, Minnesota; New York City, New York; and southern Florida. We judgmentally selected these regions because they are geographically diverse and their climates vary—two of the three regions experience severe winter weather. In addition, the three regions use different types of alternative fuel vehicles and a variety of gasoline-fueled delivery vehicles. During each site visit, we visited a combination of vehicle maintenance facilities and post offices. We toured facilities, observed the maintenance activities occurring on vehicles at the facilities, and interviewed managers, supervisors, mechanical technicians, and carriers about their experiences with the delivery fleet. Finally, while we did not visit the vehicle maintenance facility in Corpus Christi, Texas, we selected this site for a telephone interview because, according to Vehicle Programs officials, it is one of the few areas where compressed natural gas is still being used in delivery vehicles that have been converted to use this fuel.

Interviews

To inform all of our objectives, we interviewed a wide range of USPS officials as well as officials from DOE, General Services Administration, and the Postal Regulatory Commission. In addition, we interviewed representatives from 22 nonfederal entities, including alternative fuel associations, automobile manufacturers and associations, environmental groups, companies that operate large delivery fleets, and consulting firms with experience evaluating vehicle fleets. To identify appropriate parties to interview, we spoke with knowledgeable GAO staff, USPS officials, and others about which entities would have information most relevant to our objectives. Table 4 identifies the nonfederal organizations whose representatives we interviewed.

We conducted this performance audit from February 2010 to May 2011 in accordance with generally accepted government auditing standards. Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives.

Appendix II: USPS’s Experiences with Non- E85-Capable Alternative Fuel Vehicles

USPS has had the following experiences with alternative fuel vehicles (other then E85-capable vehicles).

Compressed Natural Gas Vehicles

USPS currently has more compressed-natural-gas-capable vehicles than any other kind of alternative fuel vehicle (except E85-capable vehicles), but its use of these vehicles has greatly diminished in recent years. Beginning in 1990, USPS began converting long-life vehicles (LLV) in selected locations to run on both compressed natural gas and gasoline. USPS converted about 7,300 LLVs over 6 years at a cost of about $2,000 each in the 1990s. Local utility companies, DOE’s Clean Cities program, and others installed the fueling infrastructure. According to a Vehicle Programs official, only in limited instances did USPS actually fund any portion of these costs. However, because of parts supply challenges, limited fuel availability, and expiring compressed natural gas fuel tanks, USPS removed this capability from all but about 3,400 of these LLVs. About 1,000 of these LLVs are currently running on compressed natural gas.

According to USPS, 42 of the approximately 1,000 compressed-natural-gas- capable vehicles are being operated in Corpus Christi, Texas, because the city created the necessary fueling infrastructure and helped pay USPS’s fuel costs. For example, according to a local vehicle maintenance facility official, the city built a gas line connecting a nearby compressed natural gas station to the city’s post office and provided the post office with $400 worth of free compressed natural gas (about 200 days of fuel, according to a Vehicle Programs official) for each of the vehicles there. According to an official at the local vehicle maintenance facility, these vehicles have been reliable and have reduced USPS’s fuel costs because (1) the city provided free fuel and (2) compressed natural is cheaper than gasoline for those vehicles that have already used their supply of free fuel. According to this official, because of USPS’s fuel cost savings, as of January 2011, the official was in the process of swapping 37 of the facility’s gasoline-only LLVs for compressed-natural-gas-capable LLVs (from other USPS locations) increasing the number of LLVs operating on this fuel to a total of 79 vehicles at two post offices in Corpus Christi, Texas. In contrast, USPS’s experience with compressed natural gas in Huntington, New York, highlighted challenges that led USPS to abandon its use of compressed natural gas in this area. In the mid-1990s, USPS converted all of the LLVs at the Huntington post office to run on compressed natural gas and installed associated fueling infrastructure (one pump per vehicle). However, within 6 months of using these vehicles, USPS experienced vehicle reliability problems, two of the three manufacturers of vehicle conversion kits went out of business, and USPS experienced difficulties in obtaining parts needed for maintenance and repairs. As a result the fueling infrastructure is unused (see fig. 13). While Vehicle Programs officials recognize that the use of compressed natural gas has been successful in some parts of Texas, they stated that they see limited potential for USPS’s future use of this fuel in delivery vehicles, largely because the natural gas infrastructure is not available in much of the United States and parts supplies remain uncertain.

Propane Vehicles

As of September 30, 2010, USPS operated 34 LLVs in Key West, Florida, that are capable of running on propane in addition to gasoline. According to USPS local officials, these vehicles have been well received by the community because of their reduced emissions and USPS has faced few challenges operating and fueling the vehicles. However, according to USPS officials, USPS did not expand its use of propane because of the lack of propane infrastructure.

Plug-in Electric Vehicles

USPS has been using limited numbers of plug-in electric vehicles for many years. In 1999, for example, USPS entered into a partnership with DOE and several state, regional, and local agencies in California and New York state and invested $11.6 million to purchase 500 plug-in electric vehicles from Ford. However, Ford recalled the vehicles about 2 years later because the vehicle battery company stopped manufacturing the batteries. As of September 30, 2010, USPS operated about 30 plug-in electric 2-ton vehicles in New York City, New York, as well as 12 T-3 plug-in electric personal mobility delivery vehicles that USPS purchased in 2008 at an average cost of about $11,200 in 2010 dollars (see fig. 14). While USPS reports that the T-3 vehicles cost less than 5 cents per mile to operate, operational challenges, such as letter carrier exposure to the elements, a tendency to stall in the rain, and low operating speed limit their applicability on USPS routes. Furthermore, USPS is currently testing four neighborhood electric vehicles and recently initiated a program called the Electric LLV Program under which five suppliers are converting gasoline LLVs to plug-in electric LLVs that USPS intends to use for deliveries.

Conventional Hybrid (Hybrid) Vehicles

When we conducted our site visits, USPS’s use of hybrid vehicles was limited to 12 vehicles, including two 2-ton hybrid trucks in New York state that it had received in 2008 and 2009 at no cost to USPS because the manufacturers agreed to provide these vehicles to USPS in order to obtain information on their use on the delivery cycle (see fig. 15). In addition, USPS had 10 Ford Escape hybrids in California that it purchased in 2005 at an average cost of about $27,700 in 2010 dollars. However, hybrid vehicles typically have much higher up-front costs than the nonhybrid version of the same vehicle—about $9,000 more in the case of a 2011 Ford Escape hybrid. As a result, USPS officials said that the increased costs that likely would be associated with acquiring a custom-built hybrid vehicle (compared with a comparable nonhybrid vehicle) would, in all likelihood, far outweigh the potential fuel cost savings given a delivery vehicle’s low annual mileage.

Hydrogen Fuel Cell Vehicles

USPS is currently piloting two hydrogen fuel cell Chevrolet Equinox vehicles on delivery routes. Both vehicles were provided by General Motors in 2008 with funding from DOE. As part of the pilot program, USPS is assessing the vehicles’ potential usefulness as delivery vehicles. According to USPS, the two vehicles are meeting the demands of USPS’s daily operational drive cycle as delivery vehicles. However, according to Vehicle Programs officials, hydrogen fuel cell technology is in the early stages of its development and, consequently, it likely will be a number of years before such vehicles are available in large quantities.

Appendix III: Comments from the United States Postal Service

Appendix IV: GAO Contact and Staff Acknowledgments

GAO Contact

Staff Acknowledgments

In addition to the contact above, Kathleen Turner (Assistant Director), Nicola Clifford, Bess Eisenstadt, Laura Erion, Tim Guinane, Kenneth John, Alexander Lawrence, Joshua Ormond, Robert Owens, Matthew Rosenberg, Kelly Rubin, Karla Springer, James Ungvarsky, Crystal Wesco, and Alwynne Wilbur made key contributions to this report.