The USPS needs to make up $160 billion in 10 years. Why?
The Postal Service has been in a rough financial position for years, and its problems came to a head during the coronavirus pandemic. The main issue is simple: We’re all sending less mail than we used to.
Americans sent nearly 40 billion fewer pieces of first-class mail — letters, cards, bills and most everything that fits in an envelope — in 2020 than they did in 2008. A great part of that decline stems from the maturation of the Internet and new forms of electronic communication. Consumers can pay their bills online, communicate with their banks and insurance companies online, and send holiday greetings online.
That’s problematic for the Postal Service for a lot of reasons. The most crucial is that first-class mail is the agency’s main driver of profit. But such correspondence is easily affected by changing economic fortunes: When business dries up, companies look for ways to cut costs, and postage is often one of the first on the list.
When the pandemic struck, the Postal Service forecast financial calamity, and as it was dealing with its balance sheet issues, it got dragged into a heated election season and heavy holiday season. The agency, in turn, proposed structural changes to keep it from falling into crisis the next time the economy turns sour. Because there are few antidotes for less mail, the agency had to dig deeper — and touch on controversial matters — in its restructuring plan to make up $160 billion in losses largely tied to declining mail volumes.
Where will that $160 billion come from?
Frankly, it’s tough, and even DeJoy’s fiercest critics give him credit for addressing the Postal Service’s issues head on. But his plan relies on a lot of things breaking the right way.
The most dubious is getting a postal reform bill through Congress. Legislation from Rep. Carolyn B. Maloney (D-N.Y.) would repeal the Postal Service’s burdensome pre-funding mandate for retiree health care and allow postal workers to enroll in Medicare. All told, it would save the agency $44 billion. DeJoy will also ask President Biden to order a review of how much the Postal Service should have paid into federal pension funds, and credit the mail agency with any overpayments. That would free up an additional $14 billion. That adds up to $58 billion, making it the single largest component of DeJoy’s financing plan — and it’s unclear whether any of it is likely to succeed.
Republicans have already signaled opposition to Maloney’s bill (even though they spent months drafting the legislation with her), and Democrats worry that she made too many concessions on liberal priorities, such as postal banking. The White House hasn’t indicated one way or another if it’s interested in a pension back-credit, but it has indicated a desire to see DeJoy leave office.
The Postal Service plans to make up the remaining $102 billion through a combination of higher postage prices (from $54 billion to $81 billion, spread over both paper mail and packages), service cuts such as shorter post office hours, and cheaper workflows. That will save $28 billion to $40 billion.
Does that mean mail will take longer to arrive?
The way “service standards” — or the amount of time it should take for your letter to get delivered — work right now, it should take no more than three days for a first-class mail item to arrive, no matter where it’s being sent in the United States. The Postal Service aims to deliver that mail on time around 96 percent of the time, but it hasn’t hit those marks for years. It’s come reasonably close — consistently between 90 and 93 percent — but no cigar.
Then DeJoy took over in June, and by July, he instituted policies (read more about them here) that delayed a lot of mail over the summer. Then election season hit. Then the holiday season hit. And the Postal Service could not seem to catch up.
DeJoy’s new plan resets expectations for the Postal Service. For 70 percent of first-class mail items, the three-day service standard is unchanged. But for the remaining 30 percent — which is roughly 5 billion pieces of mail — the benchmark will go from three to as many as five days.
It all depends on where your mail is going, and the Postal Service instituted some new mileage-based cutoffs as to how long it gets to deliver your mail. Anything sent up to 930 miles should still take no more than three days to arrive. First-class mail sent 931 to 1,907 miles should take up to four days. Anything beyond that — essentially any mail going cross-country — will take up to five days.
Why does it matter how the Postal Service transports mail?
A big reason for the changing service standards is how the Postal Service is going to ferry your mail in the “middle mile,” or the distance from post office to post office.
The Postal Service used to put about 20 percent of your mail on airplanes to move it across the country. This is the mail that was going from coast to coast, and to make the three-day service standard, the agency had to move it faster than was possible on a truck.
Well, now it’s going to drive.
The plan would cut air transportation to carry only 12 percent of first-class mail. There are two reasons for this: First, DeJoy thinks it will save the agency money. Even though the agency sends much more mail by truck than by plane, it spends way more on airfare. And the Postal Service doesn’t own any cargo planes, so every time it wants to send mail, it has to contract it out to an express carrier such as FedEx or UPS, or charter a flight, or fly it on commercial airlines.
Second, the Postal Service’s air-transport network has been pretty unreliable recently. In October, at the start of the holiday mail season, 84 percent of air-transport trips arrived on time, the agency reported. In November, it was 70 percent. In December, 58 percent. Trucks, DeJoy says, will be more reliable, even if they take longer.
How much more will it cost to use the mail system?
We’re not sure yet. DeJoy’s plan says the agency will see as much as $81 billion in new revenue based on price increases for both paper mail and packages, as well as the projected growth in package volumes.
When asked about the new pricing in an interview Tuesday, DeJoy said to read the regulatory ruling allowing the Postal Service to raise prices. Well, we have read the ruling (all 484 pages). At most, it’s about 9 percent.
That’s not a meaningful increase when it comes to sending a letter; a 9 percent increase would push a 55-cent stamp to about 60 cents. But it’s a big increase for businesses that send lots of letters, such as banks, insurance companies and utilities. The vast majority of first-class items originates from businesses, and the vast majority of those are mass mailings. If businesses decide they don’t want to stomach a 9 percent increase, they’ll pull mail out of the system (think about your utility encouraging you to “go paperless”) or they’ll pass that cost on to the consumer (think about your bank charging you a fee for paper statements).
For small businesses, it’s an even bigger deal. Odds are your average Etsy vendor can’t swallow that 9 percent rate increase for every custom dog portrait or bespoke necklace they drop in the mail.
The Postal Service says that if it had been able to raise prices more since 2006, when the law governing its rate structure was passed, it would have generated an additional $55 billion in revenue. And, it points out, comparable foreign post offices charge more than twice, on average, what the U.S. Postal Service does to send a letter.
DeJoy in our interview said the Postal Service will use its new pricing authority “judiciously,” and Ron Bloom, who chairs the agency’s governing board, said it was only looking to break even. But mailing industry groups are challenging the proposed new pricing authority in court. If they succeed, the Postal Service will get substantially less than the $81 billion it forecast.
Why is DeJoy banking on package growth?
DeJoy’s plan is based on the premise that the pandemic has fundamentally changed consumer habits and that people will keep buying things online. The Postal Service projects that package volumes, driven by e-commerce, will increase 6 to 11 percent each year through 2025.
If that pans out — and it’s a big if — it will be the Postal Service’s saving grace. The agency’s “mail mix,” or all the types of mail it handles, changed in a big way in 2020. For the first time, package revenue outpaced first-class mail revenue. Package volume has more than doubled since 2008.
That’s a huge opportunity for the Postal Service if it can find a way to keep winning more package business and to make more money on each package. DeJoy’s plan leans into that. The agency plans to open 45 package processing annexes nationwide to expedite shipping and will look to replace mail-sorting machines with package sorters, infrastructure the agency has needed desperately for years. It will also introduce new products to help commercial shippers move packages more efficiently.
Meanwhile, mail will continue to struggle.
“Mail, it’s unfortunate. I’m not a magician. I can’t create the need for mail,” DeJoy said in an interview. So as the market moves away from paper mail, the Postal Service has to find new lines of business. In DeJoy’s plan, that’s packages.
What is Biden’s role in all this?
Biden last week submitted nominations to fill three of the four vacant seats on the Postal Service’s governing board (Bloom is serving in a one-year holdover term.) Their Senate confirmation hearings are likely to be held in late April, and barring unforeseen circumstances, they’re all expected to be approved.
Democrats in Congress wanted DeJoy to consult with them on his proposals and wait for the new board members to be confirmed to get their feedback as well. Instead, DeJoy and the board of governors pressed ahead, stirring up more anger on the left at the agency’s leadership.
More than 90 House Democrats this summer called for DeJoy’s removal. More than 50 House Democrats asked Biden to fire the six sitting board members for cause.
Sen. Richard J. Durbin (Ill.), the second-ranking Democrat in the whole chamber, said Tuesday: “There’s no DeJoy in the post office tonight. Postmaster General DeJoy’s plan to raise costs and cut services is designed to sink the Postal Service, not save it.”
But Biden cannot remove DeJoy on his own. Postal policy is purposefully insulated from elected officials to prevent politicians from tinkering with the mail for political or personal gain.
DeJoy was hired by, and reports to, the Postal Service’s governing board, a nine-member, bipartisan, Senate-confirmed panel. Only six of the nine seats on the board are filled, all appointed by President Donald Trump, leaving Biden to fill the others. If the nominees are confirmed by the Senate, Democrats and Biden appointees would hold a 5-to-4 majority with the votes to remove DeJoy, if desired.