March 25, 2021

The Plan is Fatally Flawed

On March 23, the leadership of the U.S. Postal Service, headlined by Chairman Ron Bloom and Postmaster General Louis DeJoy, announced their new strategic plan with much fanfare.  Mailer, customer, and service provider associations that were not at all involved in developing the plan, saw it for the first time.

The Alliance provided our first reaction with a statement that day.  As the PMG said that dozens of postal executives worked on the plan for eight months, we wanted to take time to read and understand it.  We have to say that it doesn’t get better with age.

Seeing this plan helps us understand why the PMGs preceding Mr. DeJoy were reluctant or unable to issue ten-year plans of their own.

The plan projects total losses of $160 billion over the next ten years if it is not fully implemented.  It offers four major categories of change to solve the losses, but leaves out other actions that most, if not all, private sector organizations facing massive losses would normally employ.

PMG DeJoy and Chairman Bloom stressed that all “stakeholders” must contribute, and no one should stand in the way of the full plan.  Otherwise, failure awaits.

In the plan:

$58 billion from Congress to reduce and shift retiree costs

$44 billion from the Postal Regulatory Commission to charge mail customers above CPI

$34 billion in cost improvements that include mail service degradation

$24 billion in revenue enhancements that stress package service enhancements

$160 billion

Not in the plan:

$0 billion management pay and benefit savings

$0 billion craft pay and benefit savings

$0 billion annual appropriations to fully cover non-businesslike public services

The plan demonstrates:

• The impossibility of succeeding with the 100 percent “self-funded,” more accurately “mailer-funded” model, should be clear to everyone.  With a 40 percent drop in mail volume and ever-increasing costs, driven mostly by labor and unfunded public service mandates, USPS can’t charge captive mailers enough and compete for packages enough to make the model work.  (The auto industry restructuring did not require that the companies cover all sorts of ancillary costs unrelated to the quality and sales of the vehicles.)
• Reliance on less-than-certain Congressional action that USPS has been pushing for years makes up $58 billion or 36 percent of the plan.  Absent that law change that shifts retiree health care costs to Medicare, the plan is sunk. (The auto industry bailout did include large financial help from taxpayers, but the government recouped most of its grants.)
• The assumption that you can make $44 billion (27.5 percent) from charging mailers well above inflation every year must rely on archaic elasticity models.  More likely, this part of the plan will drive mail volume down to levels not seen since before it reached 100 billion in 1980.  If we mailers win our federal lawsuit, the plan is sunk.  (The auto industry crisis did not require that buyers of Ford, Chrysler and GM vehicles to pay 50 percent more over the next five years.)
• USPS has been trying to implement cost efficiencies for what seems like forever.  Now, among other things, they are moving rapidly to further reduce First-Class and Periodicals service standards to try to cut the cost of processing and delivering mail.  The plan also anticipates further consolidating the mail network as the agency expands and enhances the package network.  (The auto industry has shifted resources from compact cars to SUVs and pickup trucks, but not by reducing the safety and reliability of the smaller cars.)
• After consistently arguing that any new package volume will not persist and pleading poverty, the USPS has done a complete about-face in claiming that it will grow the package business to the tune of $24 billion to the ten-year bottom line.  At the same time they want to degrade legacy mail service, USPS leaders are dangling cool new package services for households that suddenly will order everything via e-commerce.  Basing an agency recovery plan on beating UPS, FedEx, DHL, and Amazon at their own game is beyond risky.  (Unlike the auto industry crisis response that strove to keep a level playing field, this plan pits a government agency against its private sector competition.)
• The plan illuminates the power of the postal employees who developed it without working with customers.  They face no pay or benefit cuts or downsizing.  Customer organizations will surely be forced to implement layoffs, shuttering of operations, and compensation cuts to deal with their postal crisis caused by this plan. (The auto industry did lots of pay, benefit, and employment reduction during the 2008-10 crisis.  Not only was it necessary for a business to stay afloat, it also was required to receive federal assistance.)