August 29, 2022
Just a reminder that we recently updated our projections for the next market-dominant mail rate hikes. These will be the first of promised semi-annual rate increases in July and January. The January rate surge will be based on six months of the Consumer Price Index (CPI). (July increases include the regulatory add-ons.)
Non-compensatory or under-water products within compensatory classes will increase two percent or greater above the CPI cap for each class. The main impact of nonprofit mailers will be on Marketing Mail Flats. MM Letters likely will go up less than the cap to balance out Flats. There are many more Letters than Flats affecting the weighted average.
We expect to revise the forecast one more time after the September 13 CPI release, the last of the six months USPS is using. The Postal Service should file its rate hikes at the Postal Regulatory Commission before October 13, following approval by the Governors.
What we would expect to happen with an excessive set of rate increases just happened in July. Market-dominant mail volume declined substantially but revenue was up.
July FY 2022-to-date
Volume -5.8% -0.9%
Revenue +3.8% +5.9%
Source: USPS reports to PRC.
We can see in this chart that USPS started Fiscal Year 2022 with a big mail volume drop following the large rate hikes on August 29, 2021 under the new PRC authority. The Postal Service soon announced its plan for semi-annual rate increases, but “skipped” a potential increase in January 2022.
With no January increase, there were several months of mail growth and year-to-date mail volume fought back to reach -0.1% in May. The announcement of another set of large price increases on July 10, 2022, and the promise of another increase in January 2023, began suppressing mail volume growth in June and got worse in July.
USPS mail volume bears watching in the coming weeks and months. Naysayers would say there are other reasons for volume fluctuations. Anyone in touch with the mailers making decisions about how much to mail and whether to move out of hard copy knows that price is a major factor.
From a policy perspective, some would say that a business with a monopoly on its traditional, but declining product line should milk the cash cow. Then the business would use the cash garnered from captive but departing customers to invest in other product lines that it thinks have a better chance of growing in the future. USPS managers have made it clear that they think the future is in package delivery and mailers will just have to absorb the rate increases imposed on them.
The USPS business plan might make sense for a pure business. But is that what our Postal Service is? How much public harm will be done by forcing more and more out of hard copy in pursuit of package delivery profits?
How many private sector investors would buy stock in USPS if they could? Is the plan to outcompete private sector businesses like UPS, FedEx, Amazon, DHL, LaserShip, and others a viable plan? Is it a good idea to bet the future of this important 250-year-old government agency on competing for packages?
The July financial report shows that in FY22 to date, USPS has lost 5.8% of its package volume and revenue is down 2.0%. In comparison, YTD mail volume is down 0.9%, and, thanks to monopoly pricing, revenue is up 5.9%. So far, the agency is achieving the easy part and failing to do the difficult businesslike stuff.
Without demonstrating how it will save money and improve service, USPS has started communicating to its unions the plan to reshuffle the way mail is distributed before delivery. An internal consultant presentation also has leaked. It explains the process to choose and implement new Sorting & Delivery Centers (SDCs) around the country. We have posted the presentation here.
The concept is simple. The plan is to centralize in larger facilities the work that now is done close to delivery routes to prepare the mail for carriers to load their trucks before they go out. USPS found many larger facilities with enough extra space to move what is now done locally into a more centralized place. The presentation described the objectives and goals (not sure what is the difference) as follows:
➢ Support the Delivering for America Plan
➢ Improve customer service and offerings
➢ Grow revenue by expanding access to our customers
➢ Realign the entire network, ensuring sustainability for the USPS
✓ Allows for easier standardization and management of operations
✓ Improve building and operating conditions for employees
✓ Enables customer service and local commerce opportunities
✓ Gain efficiencies in transportation and mail handling costs
Letter carriers will have to commute farther to work and they will have to drive longer distances to and from their routes in their postal vehicles. The plan includes increasing the number of routes because carriers will spend more time on the road getting to and from routes.
Presumably, the agency has demonstrated that the savings from centralization will far outweigh the extra costs of longer drives by thousands of carriers and added routes. We say presumably because nothing has been shared and the Postal Regulatory Commission has been remarkably silent about one of the largest proposed changes in modern postal history. USPS padded its list of objectives and goals with only one of eight promising cost savings.
USPS set up its Delivering for America (DFA) Plan as a four-part strategy to go after the losses of $160 billion that the agency predicted for the succeeding ten years without DFA. The external solutions proved by Congress and the PRC have been done. A couple of years in, the internal ability to achieve very large savings and revenue growth comprising 41% of the DFA Plan remains in doubt:
Done – $58B Legislative and administrative action
Done – $44B Regulatory changes via Postal Regulatory Commission
? $34B Self-help management initiatives: cost improvement
? $24B Self-help management initiatives: revenue improvement
It’s not official yet, but word has come from more than one attendee at the convention held by the American Postal Workers Union (APWU) that the union delegates voted to make a public statement opposing Postmaster General Louis DeJoy and his DFA Plan. Word is that it would come within 30 days of the conference that took place August 15-18 at the Gaylord National Harbor.
The APWU also is voting to either continue with longstanding President Mark Dimondstein or replace him with John L. Marcotte who criticized the incumbent for trying to work with PMG DeJoy rather than fight for his removal. Whether he wins reelection or not, the blowback received by Dimonstein is forcing him to be a strong critic of the network redesign that DeJoy is embarking on.
For example, former APWU head of human resources Sue Carney posted an article that said:
“… The delegates also resoundingly rejected President Dimond-stein’s ‘we will judge DeJoy based on his actions’ in the future regarding any effort to actively seek his removal as PMG now. The delegates rejected Dimondstein’s wait and see mentality having read the PMG’s 10 year plan to dismantle and privatize the postal service; having witnessed our service standards to our communities plummet; knowing he and his wife have vested financial interests with our competitors; having experi-enced his hostile workplace policies and his inaction to stop rampant manager abuse; having threats of excessing hang over their heads; watching him lay the ground work in an effort to justify post office closures, consolidations and the termination of 50,000 career positions.”
Candidate Marcotte said in his post:
“We have been down this road before. Reduced hours, Rural Carriers doing Clerk work and rural America gets second class service from a government where all are citizens are suppose (sic) to be equal. DeJoy will at a minimum lessen hours in rural America but I fear more. In his postal forum speech he said a retail center will be in “easy reach” of every community. Knowing what he did at election time, I see code speak for closing and consolidating rural post offices. Enough, this guy has got to go! #dumpdejoy”
We mailers have been calling for much more efficient postal operations for years. The Alliance has filed hundreds of pages of testimony urging the regulator to require normal businesslike efficiency and cost control before allowing excess rate increases.
The Postal Service has said repeatedly that this consolidation will be done under its collective bargaining agreements and applicable laws. Previous attempts at network rationalization have been stymied by union and political opposition.
The worst-case scenario is that we mailers continue to be saddled with higher rate increases driven by inefficiency while postal management persists in its inability to implement necessary changes.