The general public’s direct interaction with the US Postal Service has been declining for decades now. How many young people have mailed a letter or picked up a package at the post office? We send e-mails. We pay bills online. If we need to ship a physical document, we hand it to FedEx Corp or United Parcel Service Inc.
That long decline of regular post office connection obscures that consumers increasingly depend on this 249-year-old federal agency as a pillar of the economy. The US Postal Service is the backbone of e-commerce, delivering more packages across the US than all couriers, including Amazon.com Inc.
This dependence on the US Postal Service is rising along with e-commerce sales, which rose 7.6 percent last year while overall retail sales climbed 2.1 percent. Last year, the service handled about 7.1 billion US packages, almost 50 percent more than UPS. Would it not be great if this money-losing, inefficient agency could be modernized and compete efficiently with its private-sector peers for packages?
Illustration: Louise Ting
That is the goal of an aggressive transformation plan proposed by Postmaster General Louis DeJoy, who was hired by the agency’s board of directors at the end of the administration of former US president Donald Trump and rode out a storm of criticism — including that he tried to sabotage mail-in balloting — to remain on the job during the administration of US President Joe Biden. The reason DeJoy survived the onslaught is largely because he is a logistics guru and presented a solid plan on how to fix the postal service. It has drawn criticism from entrenched interests, but DeJoy deserves time and leeway to show that he can finally turn around the agency.
His timing was fortuitous because almost everyone agreed that profound changes US Congress made under the Postal Accountability and Enhancement Act of 2006 were strangling the US Postal Service. While there might have been good intentions almost two decades ago that motivated the adoption of rate caps, the rigidness on adjusting rates has squeezed the service’s revenue. The 2006 law was also inspired by the onset of e-mail and the early signs that this could spell trouble for the first-class letter, which is the monopoly product that has sustained the service since its inception in 1775. The diagnosis was correct, the remedy was not.
What is more puzzling is the motivation behind the law’s requirement to prefund not only pension benefits but retiree medical coverage. That financial burden was a hammer to the agency’s kneecaps. The losses began piling up immediately, and the capital investment needed to keep the operations functioning efficiently was choked off. The US Postal Service piled up US$91.9 billion in losses from 2007 to 2021 before a big gain in 2022 related to the cancellation of the prefunding requirement. It lost US$6.5 billion last year.
DeJoy said that when he took over in 2020, the agency was in a state of daily exhaustion from seat-of-the-pants actions just to make it through another shift without a catastrophic failure. Processing equipment and vehicles were outdated and in decliningly poor condition, DeJoy said.
High on his list was new postal legislation to throw off the yoke of the 2006 law.
Biden signed the Postal Reform Act of 2022 a little more than a year after DeJoy presented his “Delivering for America” plan. The ambitious overhaul has a little of something for everyone.
For consumers, the plan pledges to maintain six-day service to the 167 million mailboxes across the nation and to keep the 31,000 local post-office retail outlets. For businesses, the promise is to provide reliable and reasonably priced package service while managing the decline of letters and marketing mail. For the nation, the pledge is to stem the losses by cutting costs and increasing revenue. For the unions, the strategy is to expand the service and add employees, not slash the workforce. As a bonus, the agency is investing in modern facilities and buying new vehicles. For the environment, the reduction in emissions just by running fewer, fuller trucks is huge. That does not even count the 106,000 new, more fuel-efficient vehicles to renew the fleet.
The core of the plan is a hub-and-spoke strategy that hinges on 60 large regional processing centers with updated technology like touchless scanning and sorting. So far, 10 have been built. They would be connected to an array of smaller sorting and distribution centers — many converted from old buildings — that feed the delivery units from where the letter carriers pick up the mail and packages for delivery. The transformation is audacious because of its magnitude, but none of this is revolutionary logistics. It is based on proven methods used by FedEx, UPS and others.
DeJoy is now in the middle of the hard part — implementing the plan. The blowback is beginning to bubble up as the changes disrupt the “status quo” and disturb the many postal service stakeholders. There are accusations that DeJoy is slowing down the mail, and this is the case for some products. At the bargaining table, the postal workers union would push for rules that would keep local mail from traveling outside the immediate area, limiting how volume flows to the large processing centers. Critics have pounced on the inevitable stumbles in the early deployment of these large processing centers in Richmond, Virginia and Atlanta as evidence the plan needs to be halted and reworked.
“We had a bad spell,” DeJoy said in an Aug. 2 interview. “We’re going to pick ourselves up, dust ourselves off, and move forward with all these initiatives. We’re 15 years behind.”
The loudest complaints naturally come from individuals who are directly affected — such as letter carriers whose commute to a new facility is suddenly much longer — and not from the perspective of the health of the entire system. The critics also overlook the dire situation from which the postal service has emerged, nor the Herculean task of transforming a culture of government workers who have clung to bad practices of the past because that is what got them through the day.
“The big work we’re doing here is changing the culture,” DeJoy said. “The culture here has to be about urgency, about excellence and performance, about serving your customers.”
Outsiders do not realize that trucks from the new processing centers are running 90 percent full, up from 30 percent. This increased density is the holy grail of efficient logistics. DeJoy stretched out the delivery time for some pieces to five days from three days, which allowed those items to be moved by truck instead of air. That shaved off US$1.5 billion from the roughly US$3.5 billion the US Postal Service was paying FedEx for air cargo. That postal air contract is switching over to UPS after DeJoy put it up for bid.
He is introducing new package-delivery products for small and medium-sized companies and is building a sales team to compete with FedEx and UPS on the large contracts. DeJoy already got rid of the resellers that were buying postage in bulk and selling it as printable labels to customers. He wants the package consolidators, including Deutsche Post AG’s DHL and Pitney Bowes, to hand over packages higher up in the sorting stream so that the US Postal Service captures that work, boosting revenue and filling up trucks. Now, these consolidators take in packages from consumers, sort them and hand them over at local delivery units for final delivery.
The US Postal Service now has about 25 percent of the small-business package market, and that drops to 5 percent for the middle market, DeJoy said.
The agency should capture 40 percent of small-business packages and more than 30 percent of the middle market, he said.
If anything, DeJoy needs more of a free hand to implement these changes. The US Postal Regulatory Commission must sign off on new products and even on delivery contracts with customers. Doing away with that micromanagement would make the postal service more competitive. If it is a success, a vibrant US Postal Service should never have the market power to drive UPS or FedEx out of business. That would mean the rules are tilted in the agency’s favor. Still, shippers would welcome a competitive US Postal Service to tamp down delivery prices, which were supercharged during the pandemic and have continued to rise even in a slack market.
After all, the postal service has an unmatched network that touches every address in the US, and DeJoy has the knowledge to unlock the power of this network. Oversight is always needed, but now is not the time for the US Congress, business lobbies, unions or even consumers to micromanage what he is doing. Let DeJoy finish the transformation.
Thomas Black is a Bloomberg Opinion columnist writing about the industrial and transportation sectors. He was previously a Bloomberg News reporter covering logistics, manufacturing and private aviation. This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
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