USPS has a vast mail processing network consisting of multiple facilities with different functions, as shown in figure 2. In fiscal year 2011, according to USPS, it had a nationwide mail processing network that included 461 facilities, 154,325 full-time employees, and about 8,000 pieces of mail processing equipment. This network transports mail from where it is entered into USPS’s network, sorts it for carriers to deliver, and distributes it to a location near its destination in accordance with specific delivery standards. USPS receives mail into its processing network from different sources such as mail carriers, post offices, and commercial entities. Once USPS receives mail from the public and commercial entities, it uses automated equipment to sort and prepare mail for distribution. The mail is then transported between processing facilities where it will be further processed for mail carriers to pick up for delivery. Trends in mail use underscore the need for fundamental changes to USPS’s business model. First-Class Mail volume peaked in fiscal year 2001 at nearly 104 billion pieces and has fallen about 29 percent, or 30 billion pieces, as of fiscal year 2011. Although First-Class Mail volume accounted for 44 percent of total mail volume in fiscal year 2011, it generated about 49 percent of USPS’s revenue. In comparison, Standard Mail (primarily advertising) accounted for 51 percent of total mail volume but generated only about 27 percent of USPS’s revenue. Further, it takes about three pieces of Standard Mail, on average, to equal the financial contribution from one piece of First-Class Mail. Looking forward, USPS projects that First-Class Mail will decline significantly between now and 2020. For the first time, in 2010, less than 50 percent of all bills were paid by mail as consumers continue to switch to electronic alternatives. USPS projects that Standard Mail volume will remain roughly flat between now and 2020, thereby increasing its share of revenues generated. Almost 60 percent of mail received by households in 2010 was advertising. USPS has said that its mail processing network is configured primarily so that it can meet the First-Class Mail delivery standards within a 1- to 5-day window, depending on where the mail is entered into the postal system and where it will be delivered. Most First-Class Mail is to be delivered in 1 day when it is sent within the local area served by the destinating mail processing center; 2 days when it is sent within reasonable driving distance, which USPS considers within a 12-hour drive time; 3 days for other mail, such as mail transported over long distances by air; and 4 to 5 days if delivery is from the 48 contiguous states to the noncontiguous states, Puerto Rico, the U.S. Virgin Islands, or Guam. Delivery service standards within the contiguous 48 states generally range from 1 to 10 days for other types of mail. Delivery service standards help USPS, mailers, and customers set realistic expectations for the number of days mail takes to be delivered, and to plan their activities accordingly. USPS requires a certain level of facilities, staff, equipment, and transportation resources to consistently meet First-Class Mail and other delivery service standards as expected by its customers. The USPS processing and transportation networks were developed during a time of growing mail volume, largely to achieve service standards for First-Class Mail and Periodicals, particularly the overnight service standards. To revise service standards, USPS can propose changes, such as elimination of overnight delivery for First-Class Mail, through a regulatory proceeding that includes the consideration of public comments. Further, whenever USPS proposes a change in the nature of postal services that affects service on a nationwide basis, USPS must request an advisory opinion on the change from PRC. In addition, USPS annual appropriations have mandated 6-day delivery and rural mail delivery at certain levels. USPS has asked Congress to allow it to change the delivery standard from 6- to 5-day-a-week delivery. USPS and other stakeholders have long recognized the need for USPS to reduce excess capacity in its mail processing network. In 2002, USPS released a Transformation Plan that provided a comprehensive strategy to adapt the mail processing and delivery networks to changing customer demands, eroding mail volumes, and rising costs. One key goal cited in the plan was for USPS to become more efficient by standardizing operations and reducing excess capacity in its mail processing and distribution infrastructure. In 2003, a presidential commission examining USPS’s future issued a report recommending several actions that would facilitate USPS efforts to consolidate its mail processing network. The commission determined that USPS had far more facilities than it needed and those facilities that it did require often were not used in the most efficient manner. The commission recommended that Congress create a Postal Network Optimization Commission modeled in part on the Department of Defense’s Base Realignment and Closure (BRAC) Commission, to make recommendations relating to the consolidation and rationalization of USPS’s mail processing and distribution infrastructure. We reported in 2010 that Congress has considered BRAC-type approaches to assist in restructuring organizations that are facing key financial challenges. These commissions have gained consensus and developed proposed legislative or other changes to address difficult public policy issues. The 2003 presidential commission also recommended that USPS exercise discipline in its hiring practices to “rightsize” and realign its workforce with minimal displacement. The Postal Accountability and Enhancement Act (PAEA), enacted in 2006, encouraged USPS to expeditiously move forward in its streamlining efforts and required USPS to develop a network plan describing its long-term vision for rationalizing its infrastructure and workforce. The plan was to include a strategy to consolidate its mail processing network by eliminating excess capacity and identifying cost savings.Congress, which we describe in more detail later in the report. In June 2008, USPS provided its Network Plan to In 2009, GAO added USPS to its list of high-risk areas needing attention by Congress and the executive branch to achieve broad- based transformation. Given the decline in mail volume and revenue, we suggested that USPS develop and implement a broad restructuring plan—with input from PRC and other stakeholders and approval by Congress and the administration. We added that this plan should address how USPS plans to realign postal services (such as delivery frequency and delivery standards); better align its costs and revenues; optimize its operations, network, and workforce; increase mail volume and revenue; and retain earnings so that it can finance needed capital investments and repay its growing debt. In 2009, we testified that maintaining USPS’s financial viability as the provider of affordable, high-quality universal postal services would require actions in a number of areas, such as rightsizing its retail and mail processing networks by consolidating operations and closing unnecessary facilities. Furthermore, in 2010 we provided strategies and options that Congress could consider to better align USPS costs with revenues and address constraints and legal restrictions that limit USPS’s ability to reduce costs and improve efficiency. We reported that USPS could close major mail processing facilities and relax delivery standards to facilitate consolidations and closures of mail processing facilities as options for reducing network costs. From fiscal years 2006 through 2011, USPS data showed that it reduced mail processing and transportation costs by $2.4 billion—or 16 percent— by reducing the number of mail processing work hours, facilities, and employees as shown in table 1. Specifically, USPS data show that it eliminated about 35 percent of its total mail processing work hours, 32 percent of its mail processing facilities, and 20 percent of its full-time mail processing employees. USPS’s OIG report determined that a valid business case existed for 31 of the 32 implemented AMP studies (97 percent) reviewed, and that those cases were supported by adequate capacity, increased efficiency, reduced work hours, and mail processing costs, and improved service standards. United States Postal Service, Office of Inspector General, U.S. Postal Service Past Network Optimization Initiatives, CI-AR-12-003 (Arlington, VA: Jan. 9, 2012). not to approve the AMP study.savings of $167 million from AMP consolidations in fiscal years 2010 and 2011. According to USPS data, it achieved Transformed the Bulk Mail Center network: In the past, mailers dropped their bulk mail at a network of 21 Bulk Mail Centers. USPS would then process and transport the bulk mail to its final destinations. By 2007, however, a significant portion of this mail bypassed the Bulk Mail Center network and was dropped at a processing plant closer to its final delivery point. In fiscal year 2009, USPS reported that it had begun transforming its 21 Bulk Mail Centers into Network Distribution Centers and completed the transformation in fiscal year 2010. According to USPS, this was designed to better align work hours with workload and improve transportation utilization, resulting in cost savings of $129 million. Even after taking these actions to reduce excess capacity, USPS stated that excess capacity continues and structural changes are necessary to eliminate it. Three major reasons for continued excess capacity include the following: Accelerating declines in mail volume: Since 2006, declines in mail volume have continued to worsen. For example, single-piece First- Class Mail has dropped by almost 19 billion pieces. Furthermore, USPS’s volume forecasts to 2020 indicate that the decline in First- Class Mail volume will not abate going forward but instead will continue—from 73 billion pieces in 2011 to 39 billion pieces in 2020— further exacerbating the problem of costly excess capacity (see fig. 3). Declining First-Class Mail volume is primarily attributed to the increasing number of electronic communications and transactions. The recent recession and other economic difficulties have further accelerated mail volume decline. Continuing automation improvements: These improvements have enabled USPS to sort mail faster and more efficiently. For example, USPS’s Flats Sequencing System machines automatically sort larger mail pieces (e.g., magazines and catalogs) into the order that they will be delivered.