Last week, the U.S. Postal Service released its long-awaited 10-Year Strategic Plan. The plan, entitled Delivering for America, outlines how the Postal Service proposes to achieve financial stability over the next ten years. The plan suggests the Postal Service will face $160 billion in losses over that timeframe if not adopted. (The mailing industry is skeptical of the size of the projected deficit.) The USPS Strategic Plan then proposes to fill that gap from four primary sources:
- $58 billion (36%) from legislative actions (mainly related to retiree costs);
- $44 billion (28%) from expanded pricing authority (above the current CPI cap);
- $34 billion (21%) in cost improvements (including reduced service levels); and
- $24 billion (15%) in revenue growth (mostly from parcels).
As with any plan of this scope and scale, there are aspects many postal stakeholders can support and other aspects that may cause stakeholders concern.
Constructive Elements of the USPS Strategic Plan
Medicare integration: The Postal Service and its employees pay taxes into Medicare—with $35 billion in combined payments since 1983, making them the second largest contributor into Medicare. Despite that, the lack of integration between the Federal Employees Health Benefit Plan and Medicare means about 24% of USPS retirees don’t take advantage of this investment in Medicare coverage, driving up retiree healthcare costs. Integrating Medicare into the scope of USPS retiree healthcare options would reduce current costs and lessen the need for additional rate increases, while leveraging investments made over the past 30 years.
Maintenance of six- and seven-day mail and package delivery: Both senders and receivers of mail and packages have come to expect six- and seven-day delivery. Marketers and shippers have built business models around full-week access to recipients. Doing anything less would put the Postal Service at a disadvantage to other carriers.
Investment in vehicles and infrastructure: The bulk of the USPS delivery fleet, known as Long Life Vehicles (LLVs) have lived up to their names. First introduced in the 1980s, they have reached the end of their long lives and need to be replaced. Replacement would also give the Postal Service the opportunity to move away from gasoline powered vehicles to electric vehicles, reducing its carbon footprint. The Postal Service’s financial issues have also delayed upgrades to mail and package processing equipment and information technology tools that would make them more efficient and cut costs. It is time to make these investments.
Investment in people: Turnover in the USPS non-career (part-time and flexible) workforce is unacceptably high. Implementing programs to support career planning, expanding training and self-development, and offering opportunities for growth, advancement, and promotion are essential to reducing that churn and retaining a diverse pipeline of candidates to fill career positions as well.
Concerns about the Plan
Lack of stakeholder engagement: The USPS Strategic Plan was primarily developed in-house by the Postal Service without input or consultation with either mailing industry customers (ratepayers) or craft employees (who would need to execute the plan). We need a collaborative approach that engages all stakeholders in the design and execution of the plan to ensure all participants in the “postal ecosystem” thrive well into the future.
Limited mail vision: The Postal Service should be focused on growing both mail and package volume, but this plan provides few creative solutions to attract and retain mail volume. Growth initiatives in the plan are almost exclusively focused on developing additional package volume. Enhancing the ability of the Postal Service to efficiently sort and deliver packages is a worthy goal. Many USPS processing facilities don’t have the dock and floor space needed to enable organized staging and processing of high volumes of both mail and packages. Adding package sorting facilities and capabilities, such as the suggested conversion of Network Distribution Centers (NDCs), currently used for mail and packages, into Regional Distribution Centers (RDCs) exclusively focused on package sorting deserves careful consideration by stakeholders. But mail still provides the vast majority of revenue and volume for the Postal Service, and the agency needs a robust game plan aimed at expanding, not contracting, the use of mail.
Reliance on price increases: The plan is vague on just how the agency will implement postage increases. Although the Postal Service says it will make “judicious use” of the new above-CPI pricing authority recently granted by the Postal Regulatory Commission, timing for an above-CPI price increase couldn’t be worse. Budgets for 2021 were set long ago. Coming on the heels of a massive service failure during the holiday peak season that lasted well into February, any price increase introduced mid-year will only cause marketers to question the value of mail and cut mail volumes to compensate for higher prices, potentially permanently depressing mail volume and USPS revenue.
Service and network changes: First-Class Mail (and some Periodicals) could see a one- to two-day slower delivery, largely from a shift from air to ground transportation. Service standards for Marketing Mail will remain unchanged. Reducing service undermines the strength of the Postal Service’s brand. The agency should be asking what level of service its customers need, and finding ways to deliver that service in a cost-effective manner.
We Succeed Together
The mailing industry wants to see the Postal Service succeed. We remain ready to support a collaborative approach to ensuring the success of the Postal Service while also supporting the interests, responsibilities, and contributions of the many stakeholders who depend on the Postal Service. A financially stable Postal Service offering cost-effective, predictable delivery will continue to drive success throughout mail and package supply chains.
Have questions about how the USPS Strategic Plan could impact your direct mail programs? Contact me or your IWCO Direct account team. We’re happy to help.