Back in April of 2018, President Trump ordered a special task force to analyze the USPS operating structure and develop recommendations to stabilize it financially. This task force was led by the Secretary of the Treasury Steven Mnuchin.
The USPS incurred a $3.9 billion net loss in their fiscal year 2018, which marks the tenth year in a row that the USPS has reported a substantial loss. The two major reasons for these losses have been the steady decline in both first class mail, the USPS’ most profitable product, and marketing mail, and the 2006 mandate to prefund the Postal Service Retiree Health Benefits Fund.
The US Treasury Department released their report earlier in December on recommendations to remedy the financial outlook for the USPS. So, is there hope for the USPS? Here is a look at a few of the recommendations and what our subject matter experts think.
Recommendation: More closely align wages for career and non-career postal workers with those of other federal employers. US Postal employees are among the highest paid for federal workers, and some believe for good reason considering the work that is performed versus other federal employees. So how is this to happen given that US Postal employees are joined by Unions? The report states that for this to occur, it would require a necessary act of Congress. So the Union would have no say, as collective bargaining would then be out of scope. Based on expert opinion from Gordon Glazer, Senior Consultant for Shipware LLC, the Union would most certainly lobby Congress to sway in their favor. And if you are waiting for Congress to make a decision, don’t count all that savings in labor costs just yet.
Recommendation: Give the US Postal Service the authority to change market-based prices for mail and packages, especially within their competitive products. The 2006 Postal Accountability and Enhancement Act restricted price increases for the market-dominate products with a cap tied to the annual Consumer Price Index. It also must have all price increases reviewed and approved by the Postal Regulatory Commission (PRC). There are conflicting points of view surrounding President Trump’s claim that the USPS loses money on their package delivery service business from Amazon. Other industry talk has claimed that raising prices for USPS competitive products, that being their Priority Mail, Priority Express Mail, and package services, will drive shippers to other carriers, and therefore lower volume for the USPS and subsequently reduce revenue rather than increase it. It is reasonable to think that, but the USPS has raised prices on these packages consistently each year, and continues to see a rise in volume. Given more freedom to raise prices further would have customers complaining, but USPS still would remain a more viable solution for shippers based on the many advantages it still has over its competitors. Even if prices were raised, USPS still has the most aggressive rates to zones 1 to 4 under 5 pounds with faster delivery times than Ground Service from its competitors. USPS is also the only carrier that has no accessorial charges like residential surcharge, fuel charges, Saturday delivery, peak season surcharges, and others. It should also be noted that both FedEx and UPS have consistently raised prices each year far above USPS increases, and that trend will most likely continue.
Recommendation: Explore new business opportunities that will allow it to extract value from its existing assets. One of those assets is your mailbox. Currently, Federal law restricts the use of the US mail box to deliveries only from the US Postal Service. But perhaps the US Postal Service can charge a fee to other carriers for their privilege to use your mailbox for deliveries. Interesting thought, but will other carriers be willing to pay the fee? UPS CEO David Abney responded to the opportunity as a way to provide “much better service” for their customers. Rob Martinez, CEO of Shipware LLC, offered his expert opinion by stating that “Using cluster boxes and curb boxes would be of large appeal. If using a curb box can shave off 8-10 seconds from parking the delivery vehicle and walking to the front door for those smaller packages, times millions of residential deliveries per month, those time efficiencies would be material.” Other experts have cited potential issues surrounding the difference between a federal crime of stealing someone’s mail from the USPS mailbox versus a misdemeanor that currently is imposed for stealing a UPS package. Also, both UPS and FedEx could appeal to the PRC that USPS has an unfair advantage with a specific monetization attached. So could charging carriers for the privileged use of mail boxes be a new revenue source for the USPS? Absolutely, but don’t look for UPS packages in your mailbox until all of this gets ironed out, and that could take some time.
These are just a few of the recommendations made by the Task Force. One of the biggest debates is the existence of the prefunding of the Postal Service Retiree Health Benefits Fund, which will most likely remain with a recommended restructure, or re-calculation, of the amounts to be prefunded. The most reassuring part of the 70 page report is that the Task Force has determined that the US Postal Service is, and should be for many years to come, a vital and valuable service agency to the country and its customers.
It is doubtful, and even unreasonable to think, that all of the Treasure Department’s recommendations will be set into action. Many of the recommendations will most likely meet with resistance, while some may be a welcoming change. Whatever will be enacted, the question still remains: Will it be enough to save the USPS? It certainly is a step in the right direction, and only time will tell the effects, especially since the consumer has much to say about their continued use and need for the service agency.