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The Postal Service Strikes Back in Package Delivery

WASHINGTON, DC - FEBRUARY 24: United States Postal Service Postmaster General Louis DeJoy testifies during a House Oversight and Reform Committee hearing on USPS Financial Sustainability February 24, 2021 on Capitol Hill in Washington, DC. The USPS recently signed a 10-year deal with Oshkosh Defense to produce the next generation of hybrid electric delivery vehicle able to carry more packages as part of a long term effort to vastly improve the financial performance of the service. (Photo by Jim Watson-Pool/Getty Images)
WASHINGTON, DC - FEBRUARY 24: United States Postal Service Postmaster General Louis DeJoy testifies during a House Oversight and Reform Committee hearing on USPS Financial Sustainability February 24, 2021 on Capitol Hill in Washington, DC. The USPS recently signed a 10-year deal with Oshkosh Defense to produce the next generation of hybrid electric delivery vehicle able to carry more packages as part of a long term effort to vastly improve the financial performance of the service. (Photo by Jim Watson-Pool/Getty Images) (Photographer: Pool/Getty Images North America)

After a couple of decades in the wilderness, the US Postal Service is finding its footing as the backbone of US e-commerce, seeking to establish package delivery as its top opportunity and smartly trying to claw back revenue that it has ceded to private companies. The agency will need to steel its resolve because many companies and interest groups feed off the Postal Service and aren’t keen on change.

The Postal Service lost its way as the traditional letter — the most profitable product to deliver — slowly lost relevance to e-mail. The initial reaction from past postmasters general was to cut costs and seek to reduce service. Talks of privatization crept into the conversation. After pushback from unions, Congress and people who love the post office halted any drastic actions, a malaise took hold and financial losses in the billions of dollars piled up. 

Even after it was clear that the rise of e-commerce and package delivery would give the Postal Service a renewed relevance, the system remained oriented toward letters and marketing mail. The Postal Service wasn’t nimble enough and didn’t have an adequate sales force to capture the e-commerce volume. Large and small companies swooped in to grab that e-commerce business without spending to build out a network and dumped presorted packages at the service’s local delivery units for just the costly final-mile leg of the journey. Although the Postal Service carries more packages than United Parcel Service Inc., Amazon.com Inc. or FedEx Corp., the agency hasn’t harnessed the power of its unique network, which delivers to all 163 million addresses in the US at least six days a week and has 30,000 retail outlets. 

This potential is now in the early stages of being unleashed if Postmaster General Louis DeJoy is allowed to carry out his 10-year plan to transform the Postal Service. This won’t be easy. He will be attacked on all sides.

In a shot across the bow to interests that prefer the status quo, the Postal Service this month eliminated its Reseller Program, which had given five companies deep discounts on package rates. Those discounts were passed on to customers, including other large companies that in turn also offered these lower rates to the final consumer. The program didn’t make much sense because these resellers were profiting without ever touching any packages. DeJoy decided to cut out these middlemen and serve those customers directly.

This is likely to become a theme as the Postal Service reconfigures its network from one built to deliver letters to one that’s designed to handle packages. This will take time and money — the agency plans to spend $40 billion over a decade to consolidate and modernize sorting facilities and renew its fleet of delivery vehicles, which are an average of 28 years old.

The Postal Service will also need to overcome the political baggage of DeJoy, a loyalist of former President Donald Trump. He was appointed by the Postal Service’s board during Trump’s term and was accused of trying to sabotage mail-in balloting by gutting the Postal Service soon before the 2020 presidential election. The FBI investigated him in connection with campaign contributions made by employees who worked for him when he was in the private sector — he said the Justice Department had closed the case without bringing criminal charges — and the Federal Election Commission dismissed related complaints.

There have been calls for DeJoy’s removal, which can be accomplished only by a vote from the Postal Service’s nine-member board, which so far continues to support him, though the terms for two DeJoy supporters expire in December. President Joe Biden has not made a public push to replace him.

As long as DeJoy is on the job, he has the logistics experience and entrepreneurial chops to push through a transformation of the Postal Service. He grew New Breed Holding Co., which was a small logistics company in North Carolina with 10 employees when he became CEO in 1983, into a provider of distribution, transportation management and light manufacturing with 6,800 employees. When DeJoy sold the business to XPO Logistics Inc. for $615 million in 2014, the company had annual sales of $600 million.

In a sign that DeJoy may be able to disarm union critics, who initially rejected him on concern he would try to carry out Trump’s ideas of privatizing the agency, he negotiated a labor contract with the American Postal Workers Union that accelerated the time for converting part-time workers into full-time ones and was ratified by 94% of its members. 

“We’re not afraid of new ideas and new thinking as long as the workers are fully respected in the process,” Mark Dimondstein, president of the union, said in an interview.  

DeJoy’s efforts are likely to raise complaints from companies, including United Parcel Service Inc., FedEx Corp. and Deutsche Post AG’s DHL.  DHL offers an e-commerce service even though it has no last-mile delivery trucks. The company picks up packages from large customers, sorts them and then hands them over to the Postal Service for final delivery. There are several of these so-called postal consolidators that may find an invigorated Postal Service taking that business back for itself, somewhat similar to the Reseller Program.

The Postal Service, which owns no delivery aircraft, has reduced the amount of mail and packages being carried by plane, which has direct repercussions on FedEx. The company has a contract to provide air transportation for mail, including international service, that concludes in September 2024. The Postal Service is the largest customer of FedEx’s Express unit, and the reduction in postal volume has already impacted the company’s operations, FedEx said in its July annual filing. The company said a decision by the Postal Service to terminate early or not renew the contract “would negatively impact our profitability.”

Trucks are more reliable than aircraft, mainly because of weather, and using ground transportation reduces the number of times a package is handled to nine from 15, according to DeJoy’s plan.UPS has sued the Postal Service, contending the agency sets its package prices too low because it attributes too much of its costs to other operations such as letter delivery. At the same time, UPS leans on the Postal Service for delivery of lightweight packages in a low-cost service called SurePost. The Atlanta-based courier, though, has been taking back some of these SurePost packages for itself when the package destination is close to where UPS drivers are already making deliveries. That has left the Postal Service with the UPS packages that are more costly to delivery, such as in rural areas. With a bulked-up sales force, the Postal Service may seek to capture these customers directly without UPS as an intermediary.The Postal Service’s network is perfect for the short-distance, quick turnaround deliveries that e-commerce is demanding. Under a new service called USPS Connect, businesses can drop off packages at one of 2,600 locations for next-day service in 5,300 ZIP codes or same-day delivery if the packages are there by 7 a.m. This service was introduced in February after a trial in Texas and is being expanded, Steven Monteith, chief customer and marketing officer at the Postal Service, said in a recent presentation. For light packages, it costs $3.95 each, he said. That’s a rate that customers won’t get from UPS or FedEx.

As investments in technology and sorting equipment are rolled out, the Postal Service will be able to track packages more accurately and improve service. A large, professional sales force needs to be built out. The 10-year plan was announced in March 2021 and is already starting to show results, such as eliminating the Reseller Program and meeting delivery service targets.

Still, this is a government agency, so the changes will take some time, and DeJoy doesn’t have a free hand. He must grapple with the board, the Postal Regulatory Commission, Congress and a lot of easily riled citizens who hold the post office dear to their hearts.

For example, critics have decried a slowdown in mail service based on DeJoy’s strategy of using trucks instead of paying companies like FedEx for expensive air transportation. He was forced to add unproven, expensive electric vehicles in the mix for a much-needed fleet renewal.

The list won’t end there. DeJoy will certainly face a host of additional challenges in transforming an organization that is not only a business but a public service that reaches millions of people each day and ties communities together. Reasserting itself in package delivery is the right step for a Postal Service that needs to find firmer financial footing.

More From Bloomberg Opinion:

• Congress May Rescue the Post Office From Itself: Timothy O’Brien

• Will DeJoy Ever Leave the Postal Service?: Timothy L. O’Brien

• Postal Banking Has Great Promise for the US: Editorial

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Thomas Black is a Bloomberg Opinion columnist covering logistics and manufacturing. Previously, he covered U.S. industrial and transportation companies and Mexico’s industry, economy and government.

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