USPS-APWU arbitration decision puts moratorium on plant consolidations and outsourcing retail

SteveStory

The Postal Service and the American Postal Workers Union have a new contract.  Last week, the arbitrator on the case, Stephen Goldberg, issued his decision and award, thus ending a two-year dispute.

The new contract provides protections against layoffs for all career employees (who were on the rolls as of July 8), puts limits on more subcontracting, and converts many noncareer employees in maintenance and motor vehicle crafts to career status.  Employees will have to pay higher health insurance premiums, and career employees will receive a 3.8 percent wage increase over the life of the contract.

APWU members will be interested in the entire contract, with its provisions on wages, hours, and conditions of employment, but there are also two sections in the decision that directly affect postal customers.  One provision puts a one-year moratorium on creating new private retail outlets for postal services, and the other section prevents the Postal Service from closing more processing plants until April 2017, which should help with delivery-time performance.

A summary of the contract provisions is on the APWU website here. The full text of the arbitration decision is here.

 

Moratorium on outsourcing to private retailers

For a minimum of the first year of the contract, the arbitration decision puts a moratorium on creating new contract postal units, Village Post Offices (VPOs), and approved shipper outlets. The new union contract, however, does not prevent further protests over the approve shipper counters in over a thousand Staples stores.

The arbitrator notes that “during the term of the 2010 Agreement, Postal Service efforts to outsource retail operations led to widespread conflict. Placing a temporary moratorium on these initiatives will create a climate more likely to lead to a mutually satisfactory resolution than will be present if new disputes are constantly arising.”  During the moratorium, the Postal Service and the APWU will have discussions over the “future of retail” in the Postal Service.  

The moratorium means that, at least for the next twelve months, the Postal Service will not be able to expand its network of alternative retail access points in private businesses.  That is significant in its own right and it will clearly prevent any new initiatives on the scale of the Staples deal, but most customers will probably not notice the moratorium because, Staples aside, the number of private retailers offering postal services has not been increasing very dramatically anyway.

Charlotte-Hall-VPOAccording to the PRC’s Annual Compliance Determination report, during FY 2015 the number of VPOs increased from 767 to 874 — an increase of only 107.  That’s in contrast to FY 2014, during which the number of VPOs increased by 409.  The expansion of the VPO program has thus slowed considerably.  The program is just not turning out to be the “next big thing” in postal retail.

The Annual Compliance Determination also indicates that the number of contract post offices — Contract Postal Units (CPUs) and Community Post Offices (CPOs) — has actually been decreasing in recent years.  There were 3,347 CPUs and CPOs in FY 2013; 3,320 in 2014, and 3,040 in 2015.  While new CPUs open every year, more of them close.

The number of approved shippers has been increasing over the past few years — from 4,200 in 2010 to 5,700 in 2013, then 6,400 in 2014 — but the biggest increase was due to the addition of a thousand approved shipper counters in Staples stores in 2014.

Overall, the main impact of the moratorium will probably be to prevent another major initiative like the Staples deal from happening.  If the Postal Service has plans to locate thousands of contract units or approved shipper outlets in other big box chains, the plans will have to wait.

During the moratorium, the APWU is not supposed “to engage in any acts intended to prevent the Postal Service from successfully establishing or maintaining business relationships with potential or existing Approved Shippers, VPO or CPU program customers.”  That restriction may not, however, apply to the controversy over Staples, however.

In a footnote to this provision in the agreement, the arbitrator adds, “I understand that the parties have a long-running dispute regarding Staples as a Postal Service retail partner. In light of that dispute, I am referring this part of this Award to the parties to assess how it will apply to Staples.”

 

Moratorium on plant closings and consolidations

According to the new contract, there will be no further plant closings and consolidations until April 2017 at the earliest.  As the arbitration decision explains, Phase Two of the consolidation plan began in January 2015 — when service standards were relaxed for the second time and all overnight delivery came to an end — but implementation was put on hold a few months later.  The Postal Service has stated that before resuming the consolidations, it would conduct new feasibility studies updated with current data.

Dayton P&DCGiven how long it would take to do these studies, it was unlikely that the Postal Service would have been able to resume the consolidations anytime soon. The moratorium, says the arbitrator, thus does “little more than formalize a delay in plant consolidations already put in place by the Postal Service’s indefinite hold on further consolidations.”

It’s possible that the feasibility studies will show that the consolidations shouldn’t resume at all. The arbitrator suggests as much in this passage (italics added):

“As acknowledged by postal witnesses during the hearings, the negative operational and service effects of the earlier consolidations are still being felt and managed by the Postal Service. The significant staffing changes and potential cost-savings from the 2015 National Agreement, as well as likely changes in the contracts for the other three major postal unions, are certain to lead to further and new effects on costs and operations. A measured approach to consolidations that is responsive to significant unanticipated changes occurring since those consolidations were first planned offers the greatest assurance that future consolidations, if any, have minimal impact….

“The expiration date of the moratorium should not, however, be viewed as a start date for further consolidations. Although the Postal Service will be free at that time of any constraints in this Award on such consolidations, hopefully time and some of the other initiatives in this Award will lead the parties to agree on if and when further plant closings or consolidations should occur. If plant consolidations do resume, I shall also direct the Postal Service to perform new feasibility studies prior to implementation of such consolidations.”

At this point, it’s not certain what will happen when the moratorium ends next April. Perhaps the remaining plant consolidations will resume, or maybe the moratorium will be extended, or maybe the feasibility studies will show that more consolidations aren’t advisable.

It’s also possible that Congress will pass legislation putting a stop to further plant closings.   That possibility, however, has just become a little less likely.

 

Republicans block legislation to restore service standards

Last week House Republicans put the kibosh on a measure approved by the House Appropriations Committee that would have required the Postal Service to restore the service standards that were in place before January 5, 2015.  If the measure had been approved by Congress, it would have not only prevented further plant closures but also undone some of the consolidations that took place in early 2015.

The House measure would have restored the “interim” service standards that were implemented on July 1 2012, to make Phase One of the plant consolidations possible.  The “final” service standards went into effect on January 5, 2015, as part of Phase Two of the plan.

The APWU arbitration decision keeps the Phase Two consolidations on hold, but it does not affect the Phase Two service standards.  They will remain in place unless legislation orders the Postal Service to return to the interim standards.

One of the issues involved with restoring the service standards has been the cost.  Back in July 2015, the Congressional Budget Office (CBO), at the request of Senator Tom Carper, produced an estimate for how much it would cost to restore the interim service standards.  The CBO said it would cost over $1 billion.

In a previous post, we analyzed the CBO’s estimate and found that the only way it could make any sense was if the $1 billion included the loss of $750 million in projected annual savings.   There was no way the one-time costs could be anything like $1 billion, and in fact the Postal Service later said the one-time costs would be $500 million, as reported last week in a Government Executive article  about the House measure.

But even $500 million seems like a gross exaggeration.  Based on an analysis of how far along the consolidations had come as of July 2015 (they haven’t changed much since) and how much it had cost to do these consolidations in the first place (for moving equipment and the like), we figured the one-time costs at something on the order of $50 million.  It was just a ballpark estimate, but nothing like the Postal Service’s estimate of $500 million.

Another issue with restoring service standards involves confusion over the two phases of Network Rationalization.  The CBO may have gotten the two phases mixed up when it prepared its cost estimate for Sen. Carper, and the Government Executive article seems to do the same.  The article states, “The House late Wednesday blocked a measure to require the U.S. Postal Service to revert back to the delivery standards it maintained before 2012, which the mailing agency said would have cost it $1.5 billion annually.”

That statement gets two things wrong.  First, the measure would have returned to the interim service standards that went into effect when Phase One of Network Rationalization began on July 1, 2012 — not to the original service standards in effect “before 2012.”  The measure would have simply undone the change to the final service standards that occurred on January 5, 2015, as part of Phase Two.

The $1.5 billion figure is also incorrect because that’s the projected savings from both phases of the plan.   As the Government Executive article later explains, the Postal Service estimates that Phase One of the plan is saving $865 million annually, while the second round of cuts would generate an additional $750 million each year.

The proposed House measure would not have had any impact on the $865 million being saved from Phase One.   The most the restoration of the interim service standards would cost in lost revenue is the $750 million that might be saved from full implementation of Phase Two.

In any case, whatever the one-time costs and annual savings, Congressional efforts to restore the interim service standards have now stalled again.  The postal reform bills currently being reviewed in the House and Senate do not contain provisions for restoring these standards, so even if legislation actually gets passed this year, it probably won’t deal with the service standard issue.  (More on the proposed bills here.)

 

Excerpts from the decision

Here are the two sections in the arbitration decision that deal with retail services and plant consolidations.

Retail

The APWU also proposes that a moratorium be imposed on the Postal Service’s primary retail subcontracting initiatives – Approved Shipper Program, Contract Postal Units (CPU), and Village Post Offices (VPO) – for the term of the 2015 Agreement.11 During the moratorium, the Union further proposes that the parties be directed to engage in discussions over the future of retail in the Postal Service. The Postal Service is agreeable to engaging in such discussions but opposes the moratorium.

For reasons similar to those which led me to grant the Union’s request for a moratorium on the contracting out of PVS work, I grant the request for a moratorium on the specified retail contracting out initiatives.  During the term of the 2010 Agreement, Postal Service efforts to outsource retail operations led to widespread conflict. Placing a temporary moratorium on these initiatives will create a climate more likely to lead to a mutually satisfactory resolution than will be present if new disputes are constantly arising.

Furthermore, the conditions that I place on the moratorium address the Postal Service’s primary concerns about its imposition. Initially, I do not award the moratorium for the term on the 2015 Agreement, but limit it to one year from the date of this Award, unless extended by mutual agreement of the parties. Moreover, while the moratorium prohibits the Postal Service from entering into contractual agreements, the APWU is directed not to engage in any acts intended to prevent the Postal Service from successfully establishing or maintaining business relationships with potential or existing program customers for Approved Shipper, CPU or VPO programs. Specific Award language is contained in Attachment 4.

 

Attachment 4, Re: Retail

1. For a twelve month period of time commencing on the effective date of the 2015 National Agreement, the parties will enter into discussions over the “future of retail” in the Postal Service. Each party shall appoint its respective representatives for discussion meetings. The twelve month period of time referenced in this paragraph may be extended upon mutual agreement of the parties.

2. A twelve month moratorium, commencing on the effective date of the 2015 National Agreement, wiII be imposed on the “Approved Shipper Program”, Contract Postal Units (CPUs) and Village Post Offices (VPOs). While the moratorium is in effect, the Postal Service may not enter into contractual agreements on any of these three programs.

3. The APWU shall not engage in any acts intended to prevent the Postal Service from successfully establishing or maintaining business relationships with potential or existing Approved Shippers, VPO or CPU program customers for a twelve month period of time commencing with the effective date of the 2015 National Agreement.

4. If either side believes the other party is not in compliance with this MOU, a complaint may be brought through the ADRP process for resolution.

5. Nothing in this MOU alters the Postal Service’s responsibilities regarding the MOU re: Contract Postal Units.

 

Plant consolidations

Faced with a declining volume of First Class mail and little hope of a return to previous levels, the Postal Service began planning for widespread plant consolidations in 2011. After completing Area Mail Processing (AMP) feasibility studies in 2012, implementation of the first phase of the Postal Service consolidation plan began in the summer of 2012 and continued through February 2014. Phase Two of the consolidation plan began in January 2015, but was put on an indefinite hold by the Postal Service in May 2015. This hold was to be in place until at least April 2016. The Postal Service has publicly stated that prior to the resumption of plant consolidations, feasibility studies will be updated with current data.

It is undisputed that Postal Service plant consolidations have led to many employees being excessed and involuntarily reassigned. It is similarly undisputed that the Union has responded to these plant consolidations with sharp criticisms of their scope, justification, and impact on mail delivery.

The Union here proposes a moratorium for the term of the 2015 Agreement on further plant closings and consolidations. It also asks the Panel to direct the Postal Service to perform new feasibility studies prior to implementation of any additional consolidations. It states:

. . . As acknowledged by postal witnesses during the hearings, the negative operational and service effects of the earlier consolidations are still being felt and managed by the Postal Service. The significant staffing changes and potential cost-savings from the 2015 National Agreement, as well as likely changes in the contracts for the other three major postal unions, are certain to lead to further and new effects on costs and operations. The Postal Service should manage one set of effects at a time – first improve service from the original consolidations and then apply the new labor contracts and reassess its operations in the existing plants. A measured approach to consolidations that is responsive to significant unanticipated changes occurring since those consolidations were first planned offers the greatest assurance that future consolidations, if any, have minimal impact. Accordingly, an extension of the Postal Service’s own moratorium is reasonable.

An interest arbitration panel needs to tread carefully in interjecting itself into operational matters, particularly on matters as central to management rights as deciding what kind and how much work is to be accomplished at particular locations. This situation, however, genuinely seems to be unique. The pause in consolidation activity was announced by the Postal Service in May 2015, and was to last until at least April 2016. That date that has already passed without management having announced a date on which it wishes to begin updated feasibility studies, much less recommence consolidation activity. Indeed, in view of the time needed to complete such feasibility studies, it is unclear whether, even absent a moratorium, the Postal Service could reasonably anticipate resuming plant consolidation activity in the near future.

As a result, awarding a limited moratorium for a period less than requested by the Union, but sufficient to enable the parties to engage in meaningful discussion of future plant consolidations, would serve the interest of both parties in a carefully considered approach to this important issue. It would also do little more than formalize a delay in plant consolidations already put in place by the Postal Service’s indefinite hold on further consolidations. Similarly, granting the Union’s request that the Postal Service conduct updated feasibility studies before proceeding with further consolidations is essentially a restatement of what the Postal Service has already announced that it will do.

Under these circumstances, I shall award that the existing moratorium on further plant consolidations be extended to April 2017, one year from the expiration of the Postal Service’s self-imposed moratorium, nine months from the issue of this Award. The expiration date of the moratorium should not, however, be viewed as a start date for further consolidations. Although the Postal Service will be free at that time of any constraints in this Award on such consolidations, hopefully time and some of the other initiatives in this Award will lead the parties to agree on if and when further plant closings or consolidations should occur. If plant consolidations do resume, I shall also direct the Postal Service to perform new feasibility studies prior to implementation of such consolidations. Specific Award language appears in Attachment 6.

Attachment 6, Re: Plant Consolidations

The Postal Service will extend its moratorium on plant consolidations to April 2017. The Postal Service will conduct AMP studies prior to implementing any of the plant consolidations associated with completing Phase II of its consolidation strategy.

(Photo credits: Contract postal unit; Grand openings of VPOs in Simsons Corner Store in Charlotte Hall, MDDayton Ohio Processing and Distribution Facility, partially consolidated)

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