Despite the relentless hype from the Postal Service about the virtues of Postmaster General Louis DeJoy’s 10-Year Plan, it’s beginning to look like The Plan may not be performing as advertised.
Following the November 13-14 meeting of the Postal Service’s Board of Governors, the agency released its Form 10-K, containing the financial results for Fiscal Year 2023 (October 1, 2022, through September 30, 2023). As was widely anticipated, given the trend of the preceding months, the USPS ended the year with a loss of $6.478 billion.
Though the PMG argues otherwise, the annual figures for revenue and volume by class are widely believed to reflect the impact of two price increases totaling over 9.5% that followed price increases in FY 2022 of more than 13.3%. Actual revenue, again, did not grow in line with the increases. Revenue from First-Class Mail and from Shipping and Package Services increased, but only by 2.1% and one percent, respectively, while revenue from Marketing Mail and Periodicals decreased by 5.8% and 3.9%, respectively.
Mail volume was sharply lower, falling by 8.87% from the previous year. None of the classes had higher volume than in FY 2022, with First-Class Mail, Marketing Mail, and Periodicals shrinking by 6.1%, 11.4%, and 12%, respectively. Shipping and Package Services – a key part of the PMG’s revenue strategy – was as anemic as other classes of mail. The above-mentioned one percent higher revenue – as elsewhere, derived from price increases – was not reflected in volume – which actually shrank by 2.4%.
The only growth areas were complement – up 0.7%, including 1.6% more career personnel – and related costs. (FY 2006 had revenue of $72.817 billion – $104.53 billion when adjusted for inflation – and the all-time-high volume of 213.139 billion pieces. After 17 years, revenue is about 25% lower, and more than 45.5% of mail volume has been lost; however, complement is only 19.6% smaller, suggesting “efficiency” and cost reductions remain elusive.)
When Postmaster General Louis DeJoy issued his 10-Year Plan in March 2021, he forecast fiscal years 2021, 2022, 2023, and 2024 to show successive improvements in financial performance: a loss of $9.4 billion, a loss of $2.2 billion, break-even, and a $1.7 billion surplus, respectively. What’s actually happened has been much different.
The loss in FY 2021 was smaller – only $4.93 billion – and the impact of the April 2022 Postal Service Reform Act, which voided nearly $57 billion in prefunding obligations, obscured FY 2022’s “operating loss” of $950 million. These two years may have given the PMG hope for break-even in FY 2023.
Not only did FY 2023 not break even, the “official” result would have been significantly worse had two external factors not benefitted the agency’s bottom line: the worker’s compensation liability – tied to interest rates that are influenced by inflation – was about $2.5 billion less than in FY 2022, and the USPS earned over $900 million in “interest and investment income.”
Looking ahead, some in the mailing industry are reporting the Postal Service will forecast a larger loss – about $6.8 billion – in its FY 2024 Integrated Financial Plan.
The PMG’s prepared remarks offered a variety of reasons for why his Plan isn’t attaining advertised results. Those comments, repeated in a November 14 press release, defended the FY 2023 results, but should not be accepted unquestioningly:
“... When looking back to our DFA projections published in March of 2021, we forecasted that we would break even this year. Our efforts to grow revenue and reduce labor and transportation costs were simply not enough to overcome our costs to stabilize our organization, the historical inflationary environment we encountered, and our inability to obtain the CSRS reform we sought, none of which were accounted for in our forecasts.”
[Does this mean The Plan made assumptions that were too optimistic? Or that control cost wasn’t as robust as needed?]
“To reconcile this year’s results to our plan, the financial forecasts of the Postal Service at the time we developed the plan projected that we would lose approximately $15 billion in FY 2023 if we did not accomplish the cost reduction and revenue producing actions identified in our DFA initiatives. While timing and execution are factors, a close look at our DFA breakeven forecast identifies specifically that the allocation methodology for our CSRS liability would be re-evaluated and we would be relieved of the cost of our unfair CSRS obligation which totaled $3 billion in this year’s financials.”
[DeJoy excuses that his Plan incorrectly assumed that the CSRS liability would be adjusted favorably.]
“In addition, this year’s loss includes $2.6 billion in inflation above what we projected and what we were able to recover, as our pricing adjustments are not proportional to our costs and are garnered after we have already been impacted by the inflation. Therefore, if not for these two specific factors, breakeven results for 2023 were within reach...”
[DeJoy does not mention that CPI-based rate authority is designed to offset inflation or, moreover, that labor contracts to which he has agreed include semi-annual cost-of-living adjustments, meaning that inflation-fueled increases in compensation are a self-inflicted wound.]
DeJoy then delivered a litany of steps he’s taken:
“Many of you know of our ongoing efforts to redesign our network from 430 randomly deployed, inadequately equipped, and poorly maintained facilities to a logical and efficient network of 210 facilities suited for their intended purposes that are safe and habitable for postal employees.”
[DeJoy seems to believe that the USPS previously threw darts at a map as a means of siting facilities – another dubious and needless assertion that everyone before him didn’t know what they were doing.]
“Many of you have heard of our initiatives to stabilize our workforce by converting over 150,000 people to full time positions.”
[In an environment of plunging mail volume, many would say a flexible, low-cost workforce would be preferable to a larger complement of fixed-schedule, high-cost employees, protected by contractual no-layoff clauses.]
“I estimate that our requirement to deliver market dominant mail products to the required 165 million addresses six and sometimes seven days a week far exceeds any market dominant revenue we can ever achieve, even with our price increases.”
[It was long argued that delivery of mail should be trimmed to five days a week, but DeJoy agreed to make six-day delivery, not previously a legal mandate, a statutory requirement under the April 2022 PSRA; another self-inflicted wound for which he’s deflecting responsibility.]
“Using any costing methodology, over 50% of our retail centers and ZIP Codes do not make money, including the package revenue we have today, which if not for the competitive strategies being deployed under the Delivering America Plan, was in jeopardy of being ceded to our formidable competition as our market share was declining prior to our Plan...
[DeJoy conflates the existence of money-losing post offices – part of the Universal Service Obligation – with his efforts to win package business, as if unprofitable POs would be turned around by a surge in parcels.]
“As a final note, this endeavor also requires dramatic change from our regulator who has a demonstrated tendency to resist change or to move only incrementally as it concerns our efforts to acquire new business and save this institution. Their strategies, rooted in the legacy and bureaucratic thinking of a mail monopoly of the 1990s, impedes our efforts to timely and adequately respond to the requirements for success in the competitive marketplace...
“I ask that the PRC bring their thinking forward to understand what it entails to compete. Innovation, speed to market, cost, price, customer contracts, and disruption of long-standing practices that have proven not to work are requirements for this Postal Service to succeed...”
[While it’s true that the PRC – likely guided by its lawyers – tends to be cautious and risk-averse, DeJoy still seems to think they should overlook their statutory roles and simply let him do what he wants. As for having an “integrated mail and package system,” it was DeJoy who agreed to inserting the language in the PSRA; another self-inflicted wound.]
DeJoy’s Plan is long on confident declarations but short on measurable process, and relies on events – like Congressional action on CSRS reform and union cooperation on cost cuts – that are overly optimistic. He persuaded Congress to pass the PSRA but ladened it with the requirements for six-day delivery and an “integrated network” that impose their own cost consequences, and he’s investing heavily in network changes that may not be needed if his pricing strategy continues to drive away ratepayers and their mail.
