USPS ready to replace aging delivery fleet

Friday - 5/22/2015, 9:50am EDT

By Michael O'Connell

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The Postal Service is facing a predicament many owners of older automobiles should be familiar with — whether to keep its aging vehicle fleet and incur rising maintenance costs to keep them running, or to purchase a whole new fleet of vehicles.

"Replacing the aging delivery fleet, which is, on average, over 23-years-old, will not only help to reduce operating and repair costs, it will also improve delivery operations efficiencies," Joseph Corbett, USPS' chief financial officer, told the House Committee on Oversight and Government Reform's subcommittee on government operations Thursday.

In January, USPS released a Request for Information (RFI), asking postal employees and prospective suppliers in the vehicle industry to help come up with specifications for the next generation of delivery vehicles (NGDV).

"The goal of this acquisition program is to secure a new purpose-built, right- hand-drive, delivery vehicle that will accommodate a diverse mail mix, enhance safety, improve service, reduce emissions and produce savings," Corbett said.

USPS has known for a while that it needed to replace its fleet. In 2011, the Government Accountability Office reported the agency's delivery vehicles were aging well beyond their expected operational life.

"The Post Office elected not to replace its fleet, as that would cost about $5 billion," Lori Rectanus, GAO's director of physical infrastructure issues, said at the hearing. "It also chose not to refurbish the vehicles, which would've cost about $3.5 billion, although that may have extended vehicle life by 15 years. Instead, the agency chose to focus on maintenance, while planning on how to address its longer- term needs."

Short-term decision has long-term impact

While this decision may have saved money in the short-term, it did have its downside.

"There have been high, yearly maintenance costs, about $750 million at the time of our review, and it's about a billion today," Rectanus said. "There have also been operational costs, such as overtime costs when vehicles broke down and needed to be repaired."

Through the RFI process, USPS came up with general specifications for a vehicle that would meet the delivery demands on 99 percent of the agency's existing routes.Corbett told the subcommittee the average per vehicle cost for maintenance is $4,200 annually. Considering the age and condition of the vehicle fleet, that number would continue to rise.

"Prospective suppliers were required to submit their qualifications and capabilities to develop vehicle prototypes and to produce, deliver and provide for national deployment of up to 180,000 vehicles," he said.

USPS pre-qualified the suppliers, including alternative fuel manufacturers, who will be able to bid on the Request for Proposal, which will be released in the near future.

"It is important to note that this RFP is not for production vehicles; rather it will require each responding offeror to deliver prototype vehicles for testing and review," Corbett said, in his written testimony. "The design and build of the purpose-built vehicle prototypes, followed by Postal Service testing, will take over two years to complete. A second competitive RFP, planned for 2017, will solicit our NGDV production requirements and explore financing options."

Corbett estimated it would cost between $4.5 billion and $6.5 billion to replace the fleet, depending on the nature of the vehicles that would be developed. He told the subcommittee the Postal Service had about $6 billion in available cash right now, some of which could be used for purchasing new vehicles.

"It's gotten to the point where the replacement of the vehicles has got to start now," Corbett said. "I believe there is almost universal agreement on that. We've got to move as quickly as we possibly can to do that. We've got to make it a priority to fund that from the cash that's available and operating cash in the future."

Subcommittee members question 'one-size-fits-all' prototype

Subcommittee Chairman Mark Meadows (R-N.C.) questioned whether the "one-size-fits- all" approach of building a single prototype would meet the agency's diverse needs, especially if it was going to expend the funding to purchase up to 180,000 vehicles.

Corbett said he was open to a variety of prototypes where different transmissions or fuel systems could be applied. This would create a more adaptive fleet. For example, USPS could assign 4-wheel-drive versions of the prototype vehicle to routes with more mountainous terrains or electric-powered models where they made the most sense. This would also allow the Postal Service to realize savings from a bulk purchase, while meeting its diverse needs.

Meadows and subcommittee Ranking Member Gerry Connolly (D-Va.) said they were willing to expend some political capital in helping USPS update the delivery vehicle fleet, but they had some reservations.

They wanted to see USPS adopt some of the best practices in fleet management GAO mentioned in its 2011 report, including using telematics to monitor how vehicles are being used.

For planning purposes, they also wanted to stagger the purchase of replacement vehicles in the future, so USPS wouldn't be forced to replace the entire fleet all at once.

Corbett said USPS was forced into its current all-at-once purchase because that's what happened 24 years ago. But, he planned to spread the current replacement process over an eight-year period to give the agency more flexibility in the future.

Connolly also would like to see more of an emphasis being put on developing alternative fuels for the new vehicles. Although many of the current vehicles are designed to operate on flex fuels, a large number of them use gasoline primarily.

USPS obtained waivers from the Energy Department to use gasoline because flex fuel filling stations were unavailable in many of the localities to which the agency delivered.