Links to the resources mentioned in the podcast.
Welcome to the podcast, everyone! Well, we finally have it after months of waiting – the USPS 10-year strategic plan entitled Delivering for America. None of the 58 pages of the plan contain really anything unexpected, but it is something every person in the mailing industry should read. If fully enacted, this plan will have a significant impact on the mailing industry and could possibly accelerate mail volume declines. So, let us start unpacking this ten-year plan.
The plan starts with a letter from PMG DeJoy and Board of Governors Chairman Ron Bloom. It acknowledges the critical service the USPS provides to the nation and recognizes the 644,000 dedicated women and men that deliver the mail as part of a universal service obligation; an obligation that is still somewhat nebulous under Title 39, but that is a different topic and issue for Congress to consider.
The letter goes on to paint the bleak picture of the current situation for the USPS; chiefly that it has lost $87B in the last 14 years, was significantly impacted by the Great Recession and more recently the COVID pandemic, and that without some type of strategic plan would result in a $160B loss over the next ten years. In short, the opening letter accurately reflects the dire situation of the USPS, which is a good place to start. But how they tackle that challenge is where things get concerning.
Let’s start with some positive points. The Plan acknowledges a new business model is needed for the USPS to provide universal service at an affordable rate. The Plan also acknowledges that the mix of mail continues to change, and that package delivery is a critical part of their strategy. And the Plan commits to a universal six-day delivery of mail and seven-day package delivery, both of which are supportive of the industry.
The Plan also relies heavily on Congress to enact legislation that would remove the prefunded retiree healthcare obligation and enable the USPS to rely on an integrated Medicare strategy for their employees. According to the Plan, the USPS and its employees have paid $35 billion in combined Medicare payments since 1983 and yet are not permitted to make Medicare enrollment mandatory for their retirees who receive retiree health benefits. If resolved by Congress, these two key strategies would provide $58 billion.
The next three strategies are where the industry should be concerned as each of these would have a significant impact on mail volumes, service performance, and postage pricing. The first is the USPS fully leveraging the recent PRC-approved price increases that if enacted could see 6.5% or more increases in postage on top of CPI. The industry is continuing to challenge the PRC decision on this expanded pricing arguing that it violated Title 39 section 3622 in several ways, which I agree with if you read the language of that part of the law. Yes, the PRC does have the authority under that section to do a review of the pricing methodology as part of their 10-year review, but it does not necessarily eliminate the CPI price cap that is referenced in several areas of that part of the law. Now, to be candid, I am a full twelve years short of a law degree so I can only comment on what appears to me to be an overreach. So, we will need to wait until the courts sort this out later this summer with the various scheduled briefings. If the USPS is allowed to raise prices with this expanded authority, it would generate $44 billion as part of their overall strategy.
The next strategic initiative is improving mail processing, transportation, retail, delivery, and administrative efficiency. This strategy, if fully enacted, would yield $34 billion. However, the price increase would have a significant impact on the mailing industry. This is the strategy that would enable the USPS to change service standards to several days longer than the targets they had initially set when PAEA was passed. It effectively lowers the bar enough to where the USPS can meet their self-defined delivery standards, and while I can appreciate the USPS wanting to meet service standards since it has not been able to do so since 2012, this approach seems backward to me. They should ask their customers, the mail owners, and service providers, what standard they require and then build a network and logistic strategy to meet those market-driven demands. Setting their own delivery standard and basically telling the industry to deal with it comes across as a tactic from a monopoly.
The one significant change to the network that the USPS is proposing under this strategy is shifting from air transportation to purely a ground system. While this is understandable given the detailed rationale in their plan, I think we need to pause and consider that perhaps the reason air transportation has been such a challenge this past year is because of the COVID pandemic. With fewer flights due to people staying home, it makes sense that the air transportation would be impacted and with it service performance primarily for First-Class Mail. However, as we come out of the pandemic and people begin traveling again, this may resolve itself. Once the USPS moves to a ground-only transportation for First-Class Mail, it is doubtful they will return to air, and thus the extended service delays would become the new normal and that would exacerbate the consumers and mailer owners switching to electronic bill payment. There have been numerous stories of consumers receiving late fees due to delayed mail and it only takes one or two of those before someone switches to electronic payment.
The final strategy focuses on parcels. This strategy would yield $24 billion, but would dramatically change the distribution network and shift the primary focus from mail delivery to package. On a positive note, this strategy includes rolling out the new delivery vehicles specifically designed to carry packages and with a number of safety and comfort features that far exceed the prior LTVs. With 50,000 to 165,000 of these Next Generation Delivery Vehicles, the USPS would be able to service the 160 million delivery points that grow by a million each year, delivering over 142 billion pieces of mail and packages to homes and businesses. The numbers are impressive, as are the new vehicles and the technology that surrounds them.
The concern, however, with this strategy is the shift in focus. While package volume is indeed growing and is a key part of the overall strategy for the USPS, what we really need is a strategy regarding First-Class and Marketing Mail. These are the largest classes of mail by volume and are essential components for multichannel marketing and can actually help drive the package volumes.
These are just a few of the components of this 58-page plan and I highly recommend everyone in the industry download and read this plan. Over the course of the coming days and weeks, I would expect the industry associations will also publish their views on this plan; the good and the concerning. And there is also an industry and public meeting with PMG DeJoy planned for April 6 from 1 to 3 pm. The purpose of the meeting is for the Postal Service to educate the public on its proposal, and for interested persons to give feedback, which the Postal Service may use to modify or refine its proposal before it is filed at the Postal Regulatory Commission. This offer of the USPS for the industry to provide feedback is essential, so please make sure to read the plan and stay tuned for more viewpoints of it in the coming days.
With another MTAC meeting coming up, a meeting to discuss the USPS 10-year strategic plan, and an attempt to prevent implementation of price increases via the courts, there will be plenty to discuss in the coming days and weeks ahead. In the meantime, I would like to thank you again for listening to today’s podcast. If you have any questions or would like to contact us, please visit bccsoftware.com or give us a call. As always, we would like to know How Can We Help? Have a great day and hope to hear from you soon!