Washington Postal Scene by Bill McAllister

When Postmaster General Louis DeJoy takes office June 15, there are two big problems he will have to delve into: the financial health of the United States Postal Service and what’s behind the lower mailing rates that Amazon and other online firms have been granted.

Two recent reports on these subjects should be of keen interest to DeJoy, who has remained in Greensboro, N.C., interviewing the Postal Service’s top officers by telephone.

First he needs to know the true state of the Postal Service’s finances.

Despite Democratic cries from Congress that the USPS is on the verge of bankruptcy, a former postal finance officer declared May 26 that the USPS is not likely to run out of cash “for the foreseeable future.”

That’s the prediction of Stephen M. Kearney, executive director of the Alliance of Nonprofit Mailers and a longtime postal executive who won six Alexander Hamilton awards for excellence in treasury management while at postal headquarters in Washington, D.C.

In his May newsletter, Kearney examined the Postal Service’s preliminary financial results for April and found that the impact of the coronavirus COVID-19 pandemic appears to be much less than was being predicted on Capitol Hill.

“It turns out that April operating revenue dropped only 3.8 percent versus April 2019,” Kearney said.

That’s significant because April was the first month in which the full impact of COVID-19 should have been felt by the USPS.

Some Democrats in the House of Representatives have been warning that the USPS could fail as early as this summer due to a collapse triggered by a sharp decline in first-class mail.

The Democratic House has proposed a $25 billion appropriation.

That’s an amount far less than the Postal Service’s board of governors, all appointees of President Donald Trump, sought. The board wanted an $89 billion package.

Kearney said that “even the $25 billion bailout looks to be on the high side” because of the April financial results.

“As we all know, this was a net result of a big increase in competitive packages and a large drop in market dominant mail volume,” Kearney said, noting declines in first-class and marketing mail.

“Overall USPS volume was down 27.2% in April. Again, because packages have a much higher average price, the net impact on April operating revenue was only -3.8 percent,” he said.

That means DeJoy faces the problem of “how well can the Postal Service retain and continue to grow packages while recouping some of the mail volume lost during the first two months of the pandemic,” Kearney concluded.

If DeJoy wants to resolve Trump’s well-known opposition to Amazon’s discounted mail rates, he is going to have to dive into what the agency’s top lawyer recently described as “the most commercially sensitive aspects of our business.”

Thomas J. Marshall, general counsel for the USPS, was describing the web of discounts the Postal Service has given to various middlemen who hand out parcel discounts.

The degree to which those agreements remain secret became apparent when the Postal Service’s inspector general released a copy of a May 20 letter it received from Marshall warning that release of these matters in a proposed report “could have a significant chilling effect on the deliberative process concerning our strategic decision-making and could negatively impact our competitive position.”

What provoked Marshall’s ire was an inspector general report titled “Postal Partnerships: The Complex Role of Middlemen and Discounts in the USPS Package Business.”

The heavily redacted report was dated July 23, 2018.

The report noted a number of media outlets, including Linn’s Stamp News, had published articles about the discounts granted to what the USPS calls “channel partners.”

The aim of the discounts has been to boost USPS package volume, but the agreements have “changed and become more entangled over time,” the report said.

According to the report, Stamps.com, one of those channel partners, said its family of mail companies believes it ships 42 percent of all Priority Mail parcels.

To understand Amazon’s rates and those of other internet shippers, DeJoy will have to plunge into the complex web of middlemen that have become key players in the Postal Service’s shipping discounts that are not available at postal counters.

DeJoy’s job will be not only to understand how the Postal Service sets prices, but also to convince the president that the Postal Service is doing it right.

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