There was a commercial for Toyota that aired several years ago that had the tag line, “You asked for it, you got it.” In this case, given that the Postal Service finally issued its 10-year plan on March 23, the agency can say, “You asked for a plan, you got a plan.” Congress and the mailing community have been waiting for years for it; now we can all see whether the result has been worth the wait.
It was noteworthy how much of a production attended the release of “The Plan,” as I’ll call it. The document itself was a slick, full-color publication, with plenty of charts and graphs, accompanied by a simple two-page summary, and announced not only though the usual press release but on a professional-looking live presentation. The chairman of the USPS Board of Governors, the Postmaster General, and a succession of executive VPs all were on camera, reading from carefully worded scripts while coordinated slides were displayed to convey the points of The Plan.
Those who watched the press conference and others who read the materials knew the sales pitch was under way. Anyone or anything from the USPS who would thereafter speak about The Plan would be talking from the official sales sheet.
The Premise
Though the authorship of The Plan is unattributed, persons who’ve heard PMG Louis DeJoy comment on the USPS will hear him in The Plan – in its perspective on what’s wrong with the agency and why, in what to do to fix it, and in how his vision reflects his own professional background.
DeJoy has inferred in the past that the situation he inherited upon becoming PMG was the result of his predecessors’ failures to act decisively, to have a vision and implement it, to insist on operational precision (his favorite word), or to force the difficult choices his Plan has advanced. Whoever they may be, the authors of The Plan suffer no lack of conviction about the accuracy of their assessment of the situation or the virtuous efficacy of what they propose.
Every postmaster general in the past two decades has been a career postal employee, individuals whose understanding of the agency’s flaws and areas needing improvement, and whose desire to effect positive change, were tempered by their experiences in trying to implement change. Louis DeJoy has yet to have the enlightening experience of having a carefully developed plan derailed by Congress or, by proxy, by the postal unions. In presenting The Plan, and arguing it has to be implemented in totality if its predicted benefits are to be realized, DeJoy clearly assumes that the accuracy of its premises and the wisdom of its proposals are so manifestly compelling as to overcome the self-interest of everyone and anyone who could resist its adoption.
Likely, a dose of reality lies ahead.
The Plan also reflects an origin among like-minded people confident that their insular perspective is both accurate and the source of all necessary knowledge; absent from the process were meaningful contributions by outside stakeholders. The negative reactions to The Plan that are percolating outside USPS HQ are testament to what happens when a circle of predisposed authors drafts a complex document impacting many parties who aren’t present, and from whom they sought no advice. As a result, opportunities were missed that would have allowed stakeholders to raise and resolve issues they’re now bringing forward as criticism.
Big Money
The Plan looks at four sources to offset the estimated $160 billion it claims the USPS will lose over the next decade if the status quo is allowed to continue.
Of that, $58 billion is to result from favorable action by Congress. In that regard, The Plan repeats what past PMGs have said are essential to any strategy to put the USPS back on stable footing – Medicare integration and elimination of the pre-funding obligation being at the top of that list. The problem – that past PMGs have faced and that The Plan will encounter soon enough – is that both of those require Congressional action and, accordingly, will be evaluated and acted upon (or not) based on considerations having nothing to do with their merit or potential benefit to the Postal Service.
For example, if postal employee and retiree health plans are fully integrated into Medicare, that would be good for the USPS perhaps, but what about the consequences that would have on the Medicare fund, or on the health care premiums of other federal workers? The same would be true of the prefunding payments. In the mind of budget hawks and others who would label waiving the prefunding mandate as a “bailout,” officially dismissing the debt could be a step they’d be unwilling to take.
Therefore, no matter how much some in Congress may say supportive things about Medicare integration and ending prefunding, the PMG should not take either element of The Plan as a given until the president signs the necessary legislation.
Service
To generate some of the $34 billion in “self-help management initiatives,” The Plan proposes to establish revised service standards for First-Class Mail and time-sensitive Periodicals, moving some of what is now two-day service to a three-day standard, and stretching the remainder to a four-, five-, or six-day standard. Doing so would allow the USPS to move more long-haul mail less expensively by truck rather than by air, while enabling achievement of the revised standards.
DeJoy notes the cost of moving mail by plane, the many hand-offs in that process, and the unreliability of air carriers. During the worst of the pandemic last year, when airlines parked 70% of the planes, mail that required air transportation missed standards when lift wasn’t available, undoubtedly furthering DeJoy’s distrust of that mode for moving mail. Putting more mail on the ground would slow its movement so, naturally, he concluded that service standards have to be changed.
However, adjusting service standards can hardly be presented as the solution for chronic shortfalls against established service standards, for poor service for classes of mail than already move by ground, or for the performance of some facilities reliably at the bottom of service scores every quarter.
Changing service standards to more “achievable” levels is like lowering the passing grade for students who otherwise fail. Moreover, it’s unclear how lowering service standards for some mail, and adopting what should be normal quality performance practices, will generally improve service.
And here’s an alternative to changing standards that should be considered: make the system work to achieve the ones already in place. If DeJoy sees poor performance and execution in his network, why doesn’t he fix those systemic problems before easing the service goals they’re supposed to support? Until that internal problem is remedied, service won’t improve no matter what service standards are established.
Prices and Costs
The industry’s opposition to raising prices beyond the CPI cap is well documented, as are the arguments it offers about lost mail volume and, in turn, decreased revenue. The industry also notes the inappropriateness of asking ratepayers to pay more at the same time as decreases in service are being proposed, not to mention while the memory of the last few months’ service debacle is still fresh in their minds.
Yet still, in The Plan, the USPS remains in thrall of raising prices based on the new authorities granted by the PRC last year. Despite saying it will be “judicious and prudent” in exercising its authorities, the Postal Service has set a goal of $44 billion in revenue through actions before the PRC, e.g., price changes. Given that the current annualized CPI cap is just over one percent, it’s clear that the USPS will have to use its new, over-CPI authority if it’s to reach its revenue goal.
Of course, the role of higher rates in The Plan harkens back to negotiations over what would be included in potential postal reform legislation. In those discussions, all stakeholders are supposed to put “skin in the game,” i.e., each agreeing to sacrifices to reach a consensus. Usually, the stakeholders are the Postal Service, postal labor, ratepayers (the mailing industry), and the public (allegedly represented by Congress). Under The Plan, Congress would grant $58 billion in relief to the USPS, and ratepayers would kick in another $44 billion. The USPS would also generate its own $58 billion through “self-help initiatives,” such as streamlining processing, reducing service standards, and growing parcel volume.
What’s conspicuously missing is the contribution – the skin in the game – from postal labor, even though salaries and benefits represent the majority of USPS costs (63.6%: $52.4 billion out of $82.4 billion total expenses, in FY 2020, excluding costs for health and retirement plan obligations). The Plan makes no mention of reducing those costs. At the same time, contracts negotiated during the Postal Service’s financial crisis repeatedly have perpetuated pay raises and cost-of-living increases, expansion of pay grades, and the continuation of “no-layoff” clauses.
It would seem reasonable to expect that, had DeJoy been taking measures to turn around any other financially struggling business, he would have quickly looked at pay and benefits as a source of cost savings but, regarding The Plan, he’s said he’d rather improve productivity before “getting into workers’ pockets.” Regardless, that The Plan includes nothing representing postal labor’s “skin in the game” is an egregious flaw.
The Infrastructure
Back in 2012, the current First-Class service standards were implemented as part of the Postal Service’s “network rationalization” process under which about half of its processing facilities – ostensibly in place only to support overnight service commitments – could be consolidated or closed. While there was uproar over the change in service standards, there was more over the impact of facility closures on the postal workforce, particularly clerk craft employees who staffed the operations of the affected facilities. In turn, this led to the involvement of politicians and, predictably, to the termination of the rationalization program before all the candidate facilities were closed.
In The Plan, as part of internal cost reduction efforts, the effort begun in 2012 will be reopened. Hold that thought.
Elsewhere, The Plan says the USPS will “evaluate and consolidate low-traffic stations and branches of city Post Offices into nearby full-service retail Post Offices.” Missing from this component of The Plan is any mention of low-traffic post offices, including contract facilities, and any potential adjustment to their operations – or their consolidation or closure – even though that, too, would reduce cost and make providing retail service more efficient.
Even with the limited attention The Plan gives to stations and branches, The Plan’s authors present the topic without having experienced trying to close a postal facility. Whether, as discussed above, the target is a processing facility or simply a rural post office, opposition to any closure is typically fierce and persistent, commonly spearheaded by the postal clerks union and supported by its Congressional allies. Politicians like to urge the USPS to become more efficient but lack the commitment to put any “skin in the game.”
Packages
Perhaps the most brash – not bold – element of The Plan, one that pervades most of its underlying thinking, is that the future of the Postal Service is in packages. Looking at the windfall volume and revenue it’s received as the pandemic changed shopping habits, it’s understandable why the agency wants to tie its future so closely to that product line.
However, banking on packages to be the key to the agency’s future is like planning your life around the affections of a fickle lover. Unlike the market-dominant classes held captive by the postal monopoly, packages are a competitive product, and the USPS is far from being the preferred alternative to UPS or FedEx. Moreover, given its recent record of service, The Plan looks all the more starry-eyed when it talks about building package volume. Planning for more packages in the future mail mix is reasonable, but putting so much reliance on them as The Plan does seems like counting chickens before the eggs are even laid.
Conclusions
Despite the glitzy debut it was given, The Plan is far from groundbreaking and, moreover, its future is far from certain. Despite its enthusiasm to get it, Congress is far from reliable when it comes to taking action. The Plan puts too much weight on the willingness of ratepayers to generate $44 billion while avoiding making politically-risky demands of other stakeholders, and much of the rest of The Plan rests on a web of optimistic, if not, overconfident assumptions about the reception and disposition of its proposals.
Largely unquestioned so far is The Plan’s assumed need to overcome a $160 billion shortfall over the next decade, an amount that’s the product of projections and estimates and assumes nothing to avoid it will be done. What happens if those assumptions are wrong? For example, nearing half way through this fiscal year, the USPS is about breaking even; will it really lose $16 billion over the second half?
Putting up a big scary number may be a strategy to get co-operation from Congress on legislative matters, but why ask for $44 billion from ratepayers when there’s no guarantee that much is really needed? And what happens if the shortfall is really $200 billion, or only $50 billion? Is there a scheduled time to adjust the estimates and, accordingly, The Plan?
We wanted a plan; we asked for it, we got it. The question now is where things go from here.
Leo Raymond is Owner and Managing Director at Mailers Hub LLC. He can be reached at lraymond@mailershub.com.
This article originally appeared in the May/June, 2021 issue of Mailing Systems Technology.
