USPS Admits FSS Is Losing Money

The U.S. Postal Service acknowledged this week that the Flats Sequencing System has increased the agency's operating costs.

On the same day it very publicly announced the planned cessation of most Saturday delivery, USPS released data confirming what Dead Tree Edition speculated about two weeks ago. (See So Far, FSS Is A Step Backward, USPS Data Indicate.) The data show that two of the three major types of mail processed on FSS machines – Standard (non-carrier-route) Flats and Periodicals – had experienced larger increases in processing costs the past two years than they had gained in delivery savings.

As in the case of the other major category, Standard carrier-route flats, FSS apparently caused the spikes in mail-processing costs, USPS documents added.

 “It appears that in FY 2012, FSS raised costs for these three products as compared with FY 2010 costs,” the agency said in responding to a Postal Regulatory Commission question. But the results don’t mean that the
$1.3-billion investment in the 100 FSS machines was not worthwhile, USPS indicated.

“FSS is a long-term initiative and FY 2012 is only the first fiscal year of full FSS operation,” the Postal Service's response said. “Long-term initiatives often mean additional costs (capital and additional operating costs) have been incurred while the associated savings take longer to realize.”

“Second, the large decline in flats volume has impacted FSS operations, as the lower FSS volume per 5-digit zip code has caused lower FSS productivities than anticipated. Work is underway with Engineering to accommodate the lower volumes, to thereby boost FSS productivity.”

FSS has managed to decrease delivery costs, as intended, by automating “in office” work that used to be done manually by letter carriers. But mail-processing costs have risen far more than the delivery savings have declined for all three types of mail. The USPS answers indicate that FSS is the main culprit.

What USPS officials have not indicated is whether FSS’s negative contribution is primarily from it not yielding as much delivery savings as expected or from it increasing processing costs more than anticipated – or whether they knew all along that FSS would still be a money loser at this point.

In another response to the PRC, the Postal Service also revealed that it processed 3.16 billion pieces, 58% of all flat mail, during calendar year 2012 on FSS machines. Also, the proportion of flat mail not processed on any machine dropped from 45% in 2011 to 27% in 2012.