Consultant Insight: USPS redo clears one hurdle

The U.S. Postal Service (USPS) cleared a significant hurdle with the March 8 passage of the Postal Service Reform Act. Pending U.S. President Joe Biden's signature, the bill, among other things, eliminates a 2006 mandate from the U.S. Congress to pre-fund retiree health benefits and will require all future postal retirees to enroll in Medicare. It forgives $57 billion in scheduled payments and will save the USPS $50 billion over the next 10 years. [caption id="attachment_69752" align="alignright" width="298"] Cathy Roberson, Cargo Facts Consulting senior consultant and Air Cargo World columnist[/caption] The USPS has defaulted on payments to the fund since 2012 but still was required to count those payments in its financial statements. In addition, the bill would also impose new transparency standards for the agency, requiring regular reports to Congress about the USPS' financial state and the publication of delivery data, which customers could search using a street address, a ZIP code, or a post office box. "With the legislative financial reforms achieved today, combined with our own self-led operational reforms, we will be able to self-fund our operations and continue to deliver to 161 million addresses six days per week for many decades to come," Postmaster General Louis DeJoy said in a statement. An ‘underwhelming bill’ The act is not without its critics. Some of the commentary regarding the bill describes it as "underwhelming" and accuses it of "dodging" the questions that needed to be addressed. "The pre-funding mandate prevented capital investments that would've put the agency [USPS] on a stronger financial footing, such as expanded investments in package sorting technology and a more efficient delivery fleet,” considering that vehicle maintenance costs in 2019 alone came to a staggering $1.7 billion, according to Sarah Anderson, Scott Klinger and Brian Wakamo of the Institute for Policy Studies. “Underinvestment in cutting-edge technologies and personnel are among the challenges USPS faces in handling surges in delivery demand, as occurred during the 2020 holiday season.” Meanwhile, Kevin Kosar of the American Enterprise Institute accused Congress of dodging "tough questions of what the Postal Service should be in the 21st century.” “One day the country will need to have the discussion, and hopefully, Congress will start it long before the next Postal Service crack-up ensues," Kosar said. Criticism has not been entirely negative, though. Mark Fallon of the Berkshire Company praised the decisions to remove the prefunding requirement and to move postal retirees to Medicare but found the bill otherwise “underwhelming.” “Congress has removed any urgency for substantially reforming the USPS by eliminating those issues,” Fallon said. “There's no strengthening of the postal regulator, no accountability and no expansion into new commerce areas. Most importantly, the Universal Service Obligation remains undefined. Can we wait another 16 years?” More hurdles for the USPS This bill is just one hurdle of several that the USPS must pass to claim success. The other hurdles are turning losses into profits and reversing the volume decline. For the first quarter of its fiscal year 2022 from Oct. 1, 2021, through Dec. 31, 2021, the USPS’ operating revenue was about $21.3 billion, a decrease of $202 million, or 0.9%, based on a 4.1% volume decline compared with the same quarter in the previous year. The USPS implemented higher rates beginning in January to help with what it sees as right-sizing rates that have often been perceived as too low in the market and to help cover the costs of its Delivering for America plan, which was introduced last year. The plan is to focus more on parcels and less on mail. The first of several new services under the plan was announced in February: USPS Connect, a set of four delivery solutions that leverage ongoing network improvements, new equipment, new pricing and enhanced operational precision to meet evolving business needs. The new services offer same-day, next-day and regional delivery services, including pickup and delivery of returns. "USPS Connect provides businesses of all sizes what they have been asking for — an affordable way to meet consumer demand for fast delivery," DeJoy said. "A pivotal point in our Delivering for America plan, it positions us to more fully leverage our network capacity to increase volume and revenue so we can continue to serve the American people with affordable, reliable mail and package delivery." But is focusing on parcels, raising rates and offering services that compete directly with the two largest last-mile providers, FedEx and UPS, the right strategy for the USPS? It's doubtful, given the fact that so many small- to medium-sized shippers use the USPS because of the lower rates. Plus, shippers have long memories and will not forget the delays incurred from the USPS during the 2021 holiday season – pandemic or no pandemic. The USPS will need to step up its customer service and tracking capabilities, among other things, if it wants to go up against the likes of UPS, FedEx and even Amazon. The Air Cargo Tech Summit, the new airfreight logistics event presented by Air Cargo World , will take place live in Miami from June 6-7. Learn more and register here.

Consultant Insight: USPS redo clears one hurdle

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