Postal Service Rolls Out Big Changes for Highway Mail Haulers

May 20, 2019 by Cyndia Zwahlen

The U.S. Postal Service is making significant changes to a $6.6 billion contract program that pays private trucking companies to haul mail between post offices and distribution facilities.

It wants to cut costs and boost efficiencies by awarding fewer but bigger contracts. And it is experimenting with a new autonomous-truck pilot program.

The changes are shaking up a traditionally stable industry marked by the number of smaller, family-owned businesses that have long operated in it.

USPS AUTONOMOUS TRUCK PILOT

TuSimple, a San Diego company developing autonomous trucks, said Tuesday it has a contract from the Postal Service for a test pilot of its self-driving truck.

The pilot will last for two weeks this month. During that time, the TuSimple trucks will haul Postal Service trailers on five round trips between mail distribution facilities in Phoenix and Dallas.

A driver and safety engineer will be in the truck. The 22-hour trips will include overnight driving.

TuSimple called the news an “important milestone” in its efforts to scale its autonomous truck operations.

The Postal Service is considering “new technology to accommodate a diverse mail mix, enhance safety, improve service, reduce emissions and produce operational savings,” said Kim Frum, an agency spokesperson, in an email.

The agency also has asked vehicle makers for information on developing a semi-autonomous daily mail truck.

DYNAMIC ROUTE OPTIMIZATION

The Postal Service has started a nationwide launch of its other cost-savings program, Dynamic Route Optimization, after a pilot phase.

In addition to larger contracts for fewer companies, the new program will abandon the decades-old practice of awarding fixed-price contracts for set routes. The agency will pay trucking companies on a per-mile basis. Route frequency will vary and be posted weekly in some cases. The frequency will be based on mail volume, according to the agency and industry executives.

Trucking companies see challenges as well as opportunities in the turmoil caused by the new initiative.

“We are definitely going to lose some good, longtime, loyal suppliers,” said Dick Salanger, owner and president of Syracuse, N.Y.-based Salanger Trucking LLC, which his father founded in 1957.

The Postal Service declined to comment on how its new strategy will shrink the number of motor carriers hauling mail for its Highway Contract Route program. It also did not provide savings goals.

“Dynamic Route Optimization (DRO) is a Postal Service initiative designed to improve surface transportation efficiency and reduce costs at the same time by creating location-specific transportation routes and schedules based on mail volume and mail processing and required delivery times,” Frum said.

PILOT PROGRAM

The DRO initiative began as a pilot program at the Dulles Processing and Distribution Center in Virginia in January 2016, she said. It expanded to El Paso, Texas, and San Diego in September 2016, she said.

“It is now in the process of being rolled out systematically to the remaining 192 processing centers nationwide with full implementation expected in fiscal year 2020,” which begins Sept. 1, 2019, Frum said.

As of March 31, 2018, the Highway Contract Route program comprised 13,603 contracts worth $6.6 billion, according to the agency’s Office of Inspector General.

Some of those contracts are agreements first awarded years ago and renewed as the Postal Service rewarded consistent good performance. Salanger said his company, which has 45 USPS contracts and 68 trucks, operates under the original contract awarded decades ago.

That mutual loyalty may suffer under the DRO efficiency program.

SUBCONTRACTORS

Some smaller suppliers will become subcontractors to medium-size and large trucking companies, said Salanger. He started his first contract under the new system May 5 and is subcontracting some work.

Salanger, who also is the Northeast Region vice president of the National Star Route Mail Contractors Association, said others could lose their contracts altogether.

“There are some that are not going to want to work for somebody else,” he said.

Other facets of subcontracting also may turn off some mail haulers.

“There are some that are not going to want to take a pay cut or sit down and negotiate with somebody other than the person at the postal office they have negotiated with for years,” Salanger said.

Existing trucking companies with large contracts to haul mail for the Postal Service are likely candidates for acquiring smaller suppliers. Some of the largest include Hoovestol Inc. of Eagan, Minn., and its affiliate, Eagle Express Lines. Their revenue from the Postal Service was $480 million in 2018, according to the top 150 postal suppliers list compiled annually by David Hendel, a partner at the law firm of Husch Blackwell in Kansas City, Mo.

NEWCOMERS

Meanwhile, new entrants are eyeing the steady source of revenue a Postal Service contract can provide and looking to profit from the industry changes.

A Peoria, Ariz., company with no background in hauling freight is one example. The company now known as EVO Transportation & Energy Services Inc. bought mail hauler Thunder Ridge Transport of Springfield, Mo., in June 2018. A few months later it agreed to buy Sheehy Mail Contractors of Waterloo, Wis. In December it announced two more acquisitions: a cash- and debt-financed deal for Ursa Logistics of Oak Creek, Wis., and a deal to buy W.E. Graham,, a trucking company based in Memphis, Tenn., for an undisclosed sum.

“We started down a path of acquiring other companies that are contractors to the U.S. post office,” said John P. Yeros, chief executive at EVO. The company is “trying to tie up” several other opportunities, he said, and is fielding calls from other interested highway mail contractor companies.

Yeros seeks to wring efficiencies out of a system that he and others say has not kept up with the times and which the Postal Service is pushing to change.

CHANGES

“The mom-and-pop (contractor) is used to driving their truck to the local post office and talking to the postmaster general to that location for 20 minutes and high-fiving … it’s more of a hands-on relation, collegial-type of relation,” he said. Times have changed with pressure from e-commerce giants to operate more efficiently, and the highway contract route system has to change with it, he said.

But all contractors – small and large, new and existing – face potential risks. So does the Postal Service. One example cited by industry executives is the occasional need for a contractor to take over routes of a business that has defaulted. Fewer contractors in the pool could make that harder. And the DRO requires contractors not only to fulfill potentially fluctuating route and schedule requests but also to cover its fixed costs. And for companies looking to consolidate in the space, there are risks and costs are associated with merging smaller companies and successfully centralizing operations.

But the potential will be worth the risk to some contractors.

“The post office created this DRO process to basically consolidate the space,” Yeros said. “So what we are doing is helping the post office consolidate.”

Veteran mail hauler Salanger also sees an opportunity to grow and continue his family business by bidding on the new DRO contracts.

“I wanted to preserve our company,” he said. “I have the third generation coming up, and I’d like to think of this being in our family and that the fourth generation could come about.”

Cyndia Zwahlen May 13, 2019
The ongoing incidents of mail trucks erupting into flames while being driven through neighborhoods endangers the public and mail carriers, say consumer safety advocates.

2 Responses

  1. Jim

    They will be driving Tesla Electric Semi trucks in the next few years. Self driving, zero pollution, 80% less maintenance, and 1/4 th the fuel cost.
    Het email works at the speed of light too on fiber optics made at Corning Glass South of snowy syracuse. Go orangemen

    Reply

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