February 11, 2021

Remain Vigilant

Several developments surrounding the United States Postal Service mean that changes are likely to be coming soon. Whether these changes are good or bad for mailers of letters and flats remains to be seen.  There are several ongoing developments that mailers need to keep an eye on:

• The U.S. Court of Appeals will rule on our request for a stay of new Postal Regulatory Commission rules allowing three additions to the Congressionally-mandated inflation cap on rate increases for at least five years. The Wall Street Journal covered our important effort: “Businesses Launch Legal Fight to Prevent USPS Rate Hikes.”

• United States Postal Service joined its sister agency, Postal Regulatory Commission, in opposing private sector mailers’ request that rate hikes higher than inflation be on hold until the U.S. Court of Appeals rules whether the rules are unlawful, arbitrary, and capricious.

• The USPS says it soon will roll out a new 10-year strategic plan that is expected to cover many aspects of the agency’s operations, including cost controls, revenue generation with non-postal services, pricing, longer service standards, and investment in new capital improvements.

• The oversight committees in both houses of Congress are reportedly working on legislative proposals that could include re-amortization of pre-funding retiree health benefits, refunding of overpayments for pensions, new grants and loans for infrastructure and pandemic costs, and allowing the agency to offer more non-mail services.

• Democrats in Congress have pushed for President Biden to either fire and replace the USPS Governors, or quickly appoint several new Governors, both with the goal of replacing Postmaster General Louis DeJoy.

• The USPS Governors elected a new Democratic chair to replace Republican fundraiser Robert Duncan. Ron Bloom has done work for the National Association of Letter Carriers, the Obama Administration bailout of the auto industry, and financial firms.

• Postmaster General DeJoy apologized for decimation of delivery service during the recent peak holiday and yearend season. He said that the agency was overwhelmed with an unprecedented increase in package deliveries, while its employee availability was under stress with the pandemic. Service should get better with package volume reducing, the agency said, and there are signs this is already happening. Here’s an excerpt from the PMG’s statement:

During the peak season, Postal management took a number of steps to try and address our issues head-on.

• • This included hiring over 50,000 seasonal workers and then increasing full-time career staffing – by more than 10,000 positions in total – in key facilities across the country.
  • We continued to utilize employee overtime as necessary to stabilize operations; and, ran a significant number of extra transportation trips throughout the country.
  • We extended lease agreements on annexes to provide additional package processing and dispatch capacity beyond the holiday peak season – and bought as much air capacity as we had access to.
  • All in all, we threw everything we had at it—
  • No cost cutting—No efficiency initiatives—No relaxation of any effort anywhere –
    • And yet we missed our service standards by far and disappointed the nation.

• USPS financial results for the October-December 2020 (Q1, FY21) quarter showed an acceleration of the already prevalent rotation out of mail and into packages. Revenue improved by $2 billion over the same quarter in 2019, and the bottom line got better by $1 billion to reach a $318 million profit. Packages brought in 44 percent of $21.5 billion total revenue with only 5.5 percent of volume.  Operating expenses rose by $1.6 billion as the Postal Service spent more on labor and equipment to accommodate the surge in package volume.  Indeed, the USPS claimed a badge of honor for making little or no effort to control costs.

• USPS cash holdings, cash flow, and access to liquidity remain as strong as ever. The Postal Service Fund held $16.182 billion in Treasury securities at the end of January. The USPS has not yet tapped into the $10 billion grant already made by Congress for pandemic-related costs.  Its balance sheet shows $14 billion in debt, which leaves another $1 billion available under excellent terms from the Federal Financial bank.  The Postal Service spent only $41 million on interest expense in the latest quarter, which amounts to a 1.2 percent annualized interest rate.  USPS reported $1.528 billion net cash provided by operating activities in Q1, and spent $501 million investing in property and equipment, yielding an over $1 billion increase in cash.