There is a lot to monitor at the USPS, with the Postal Reform Act looking to make changes

Now that the United States Senate followed the House’s lead in signing off on the Postal Reform Act legislation, which is focused on augmenting the financial health of the long-beleaguered United States Postal Service (USPS), earlier this month, questions regarding next steps still largely remain.

As previously reported, the key aspects of the Postal Reform Act include:   

• eliminating the unfair, outdated, and burdensome retiree health benefit prefunding requirement;
• integrating its retiree health benefit program with Medicare in a manner that is fully consistent with private sector best practices;
• formalizes its obligation to deliver mail and packages six days per-week through an integrated delivery network; and
• includes accountability, transparency and reporting requirements

And they added that the Postal Service Reform Act is a key part of the USPS’s “Delivering for America 10-Year Strategic Plan” that was rolled out in March 2021 and focused on achieving financial sustainability and service excellence, in order to meet customer and business needs.

The plan takes an ambitious approach focused on helping the USPS get on solid financial footing, as the organization has been in the red over the last 15 years.

And it calls for the USPS to continue its universal six-day mail delivery, as well as expanding seven-day package delivery, with the latter being a major revenue source for the organization. A key part of the plan stated that the USPS will generate $24 billion in net revenue, partly from enhanced package delivery services for business customers, including same-day, one-day, and two-day delivery offerings.   

Other key objectives outlined in the plan include: improving cash flow for the investment of $40 billion in workforce, new vehicles, improved Post Offices, technology improvements, and infrastructure upgrades; a move to an electric vehicle delivery fleet with Congressional support; adjusting select delivery standards to improve efficiency and reliability; enhancing customer experience through a new suite of consumer and small business tools; stabilizing the workforce with a goal of cutting non-career employee turnover in half, and creating more opportunity for growth, including more predictable progression into career workforce; aligning pricing to reflect market dynamics; and ask for bipartisan legislation in Congress to repeal retiree health benefit pre-funding mandate and to maximize future retiree participation in Medicare.

Gordon Glazer, Senior Consultant, USPS Specialist, for San Diego-based Shipware, offered up some key insights for shippers on the Postal Reform Act.

The first point he made is that it is important for shippers to realize that this is not a bailout of the USPS, rather it is correcting deficiencies of the previous PAEA (Postal Accountability and Enhancement Act) of 2006 that split the Post Office into Mailing (Market Dominant) and Shipping (Competitive) divisions. 

“The previous legislation provided the foundation on how the USPS sets pricing and cost/contribution (overhead) per service level,” explained Glazer. “The ink on that was still drying when stakeholders from all the silos started to complain. For example, publication mailers were crushed as prices doubled due to the true underlying costs that were never reflected in the historical postage paid.”

At the time, he noted that the Office of Inspector General (OIG) had determined the USPS had overpaid Federal and Civil Service retirement some $80B and counting. And in exchange for stopping overpaying for retirement, the Post Office reluctantly agreed to prepay healthcare for 75 years into the future for 800,000 employees (it is around 600,000 now). 

“So they replaced retirement funding to Congress with prepaying healthcare, a shell game,” he said. “This was fine in 2007, when "Shape Based Pricing"..PAEA was implemented. Then the recession came—and the subprime mortgage bubble burst, causing the two largest vertical mailing sectors to cease: finance, real estate, and the associated insurance mail volume came to a grinding halt.  This volume loss tipped the scale, and there was no longer any way to continue paying for future healthcare.”

Glazer observed that this, in turn, left the USPS caught in the middle, with the USPS fighting a ten year battle with UPS over cost allocation at the PRC, which has influenced package pricing in different ways. 

“We had the then-President of the United States declaring the USPS was the glorified ‘delivery boy' for Amazon,” he said. “Accusations that the USPS was losing money on every package proved to be false, accidentally published internal documents seen by many experts revealed very savvy internal analysis showing the value and profitability of the Amazon NSA. Over the years the USPS has proposed and initiated numerous initiatives to try and return to solvency.  Reducing mail to five days and packages to six was rejected by Congress, as was the idea of mandating Cluster Boxes to save on delivery costs.  Postal Banking was rejected as an additional revenue source. Trying to close unprofitable Post Office locations is very challenging again due to Congressional interference.  Congress also interrupted the Network Rationalization plan right in the middle, as the Post was consolidating processing facilities to run multiple shifts made possible by the elimination of the overnight delivery standard for First Class Mail.”  

Those are far from the only challenges, with Glazer noting there is a lot of noise about mandating the USPS to purchase Electric Delivery vehicles instead of the gas-powered ones that won the huge replacement contract.

“Once again, trying to force mandates without providing funding…Congress needs to pay for this to achieve national reduction carbon goals,” he stated.

This also leaves open the question if there can be a return of First Class Mail to the previous two-to-five- day delivery standard, said Glazer. 

Current Postmaster General Louis DeJoy seems set on keeping this reduced standard to better utilize their ground transportation assets, coupled with the shipping community needing and wanting this to revert back, according to Glazer. 

“The slowdown in First Class Mail has opened the door to new competitors that will continue to erode volume from the USPS and is the wrong path for America,” he said. “We need an ounce-based delivery service that flies with the full backing and support the USPS service provides.  If not, competitors will fill this void.”

While the Postal Reform Act appears to be a step in the right direction, there is much more work to be done and more progress to be made. Shipware’s Glazer makes a whole host of interesting points, which will require a watchful eye, in terms of what happens next.