Sorting out the Postal Service Disaster

Published August 25, 2020

The new Postmaster General, Louis DeJoy, takes the helm of a Postal Service in fiscal free fall and in the middle of a political controversy over whether it will be about to process millions of mail-in ballots in the coming election. To judge the current situation, it is necessary to put aside the rhetoric and sort through the issues involved.

First, the USPS has been and will continue to lose money as more people pay bills and access information via the internet. In the fiscal year 2018-2019, even with revenues of $71.1 billion, the USPS ran an $8.8 billion deficit.

Second, the one budget line where USPS is more than covering its costs is package delivery, thanks to the e-commerce boom led by Amazon. Revenues rose from $21.5 billion to $22.8 billion over the past fiscal year.

Third, by law, USPS must charge companies like Amazon, eBay, and others the direct costs for delivering their packages as well as a portion of fixed or overhead costs.

While regulations require 5.5 percent of the latter costs, those customers, cover 20 percent, and a court has ruled it meets its legal obligation.

Fourth, package delivery by USPS and private carriers have been a lifeline during the pandemic, with businesses often limited to shipping orders rather than selling to walk-in customers.

Fifth, President Trump has argued, wrongly, that USPS undercharges Amazon and should as much as quadruple the package rates it charges. A probable motivation is his dislike for Amazon chief Jeff Bezos, who also owns The Washington Post, a vocal critic of the president.

Sixth, raising rates on Amazon and other companies would mean shippers passing on higher rates to customers beleaguered by high unemployment and a shrinking GDP.

Seventh, COVID-19 dramatically reduced mail volumes and revenues, made up only partially by increased package revenues, accelerating the time when the Postal Service will run out of cash and have to cut back or eliminate service.

Eighth, Postmaster General DeJoy has asked for consulting firm Ankura to evaluate current package rates. The fear is the firm will use “fully distributed costing” to make this determination, as a way to justify higher package rates.

Ninth, DeJoy, with a business and logistics background, implemented emergency changes to stop USPS revenue bleeding, including cutting back on costly overtime, even when this means some mail might be a day late.

Tenth, the intense political rhetoric around voting by mail and the USPS role in delivering ballots has obscured the fact that absent the COVID-19 crisis, USPS would undoubtedly have made it through the election.

How can this mess be sorted out? Trump wants far less than the $25 billion Congress proposes. There are arguments about why too much could remove pressure for needed USPS reforms. Democrats who dominate Congress need to understand the need for real, long-term reform of USPS, the sort DeJoy was beginning to make, and not use a bailout bill to pay off its USPS union supporters.

The administration needs to understand that helping USPS weather COVID-19 should not link aid to a vendetta against Amazon with policies that would devastate rather than helping USPS. Sen. Susan Collins (R-Maine) seems to understand all this. She supports the $25 billion only if USPS certifies to the Postal Regulatory Commission and Congress that the money is needed only for COVID-19 losses and expenses. And she’d require the Postal Service present to Congress a long-term plan for financial viability.

There needs to be a serious discussion about the future of the Postal Service, not just short-term year-to-year fixes. This will require non-partisan discussions. This will no doubt have to wait until after the election, but it is best not to let USPS go bankrupt in the meantime.

[Originally posted on Microsoft News (MSN)]