December 31, 2019
After many months of either no or very few USPS Governors, we now have five of the nine slots filled with very qualified individuals. These men were appointed by the current administration and they have extensive relevant experience in government, unions, investment banking, business, and nonprofit leadership. It is likely more new Governors will be added in the coming months.
The very interesting question is whether and how much the Postal Governors will take an active role in turning around and redefining our postal agency. Most likely, they are all coming up the USPS learning curve through briefings and meetings with stakeholders. They also likely are mulling over what the strategic plan should be for the USPS.
There is a good chance that the new strategic oversight of the Postal Service will lead to a break from the recent past in which management sought mainly the help of Congress and the regulator. Perhaps the new Governors will try things within their purview that would lead to new revenue sources and efficiency opportunities.
The first sign of how the Governor will approach their role will be their selection of the next Postmaster General.
The greater postal community is waiting with bated breath to see who the next PMG will be. It seems very likely that as Megan Brennan bows out at the end of January, a run of 23 years of career chief operating officers being appointed will come to an end.
The experience with Marvin Runyon in the 1990s demonstrated how an aggressive PMG from outside the agency can pursue major changes with mixed results. Indeed, his tenure probably led to the two decades plus of career PMGs.
The pendulum seems ready to swing back to seeking outside leadership help. With all of the disruptive crosswinds hitting the postal world, a new approach may be just what we need.
Major questions include how quickly the new PMG can hit the ground running, whether he or she will break from the somewhat pessimistic management viewpoint of recent years, and whether the Governors, Administration, and Congress will provide major support to the new leader.
Earlier this month the Postal Regulatory Commission issued a new proposal to change the USPS rate setting system. They included a very similar set of three layers of surcharges above inflation that the Postal Service would be able to use.
The following table summarizes the key changes found in the PRC’s new proposal:
|Order No. 4258 (Dec. 1, 2017)||Order No. 5337 (Dec. 5, 2019)|
|General Above-CPI Rate Authority||CPI+2%; every year for five years for all market-dominant products||Formula-based “density rate” authority; tied to per-piece cost increases caused by measured year-over-year declines in density
Formula-based “retirement obligation” authority; tied to extra revenue needed for USPS to make amortized retirement health and pension benefit payments
|“Performance-based” Above-CPI Rate Authority||CPI+0.75% annual surcharge for maintaining productivity rates; measured against rolling 5-year average
CPI+0.25% annual surcharge for maintaining nominal service standards
|CPI+1% annual surcharge if both productivity and service standards are met (productivity no longer weighted more)
Productivity must exceed previous year’s (by any amount) rather than meet specified 5-year average target
|Noncompensatory Products||USPS must raise price of noncompensatory products by at least 2 percentage points above class average. If entire class is noncompensatory, USPS must raise overall rates for the class by 2 percentage points per year.||Additional rate authority for noncompensatory classes (i.e., Periodicals) now optional rather than mandatory.
For noncompensatory products within compensatory classes (e.g., Marketing Mail Flats), USPS shall raise product rate by at least 2 percentage points above the percentage increase of the class.
The PRC is requesting comments by interested parties by February 3, and reply comments by March 4. After receiving comments, the regulator will decide whether to issue a final rule that would allow USPS to add surcharges for at least the next five years. The rate increases could exceed the 28 to 40 percent over five years that we estimated for the first proposal, because of the formulas that have been added.
If the PRC does issue a final rule next year, the USPS could begin implementing. The traditional approach would be to implement as large a set of rate increases allowable as soon as possible.
If the PRC does issue a final rule, it is likely that multiple parties will appeal it to the U.S. Court of Appeals. Unless the court grants a stay, the USPS could implement one or more annual increases before the court finally rules. And then that ruling would be subject to appeal.
A major factor will be whether and how much the new Governors will decide to implement new rate increasing authority granted by the regulator. History says they will use all of it.
A more enlightened leadership could decide to retain as many current customers as possible by keeping rate increases within inflation, while the agency works on remaking itself for a successful future.
Whether and what form of reform legislation Congress might pass is a major factor that will determine our mailing future. Some proposals would greatly improve USPS finances and give the agency time to redefine itself for new realities. An example would be investing the prefunded pension and healthcare accounts in normal asset allocations of stock and bond portfolios which would eliminate unfunded liabilities. Another would be Medicare integration for all postal retirees.
Other types of “reform,” such as removing or tampering with the discipline of the CPI cap on rate increases, would run the risk of driving away current customers.
The USPS management approach of driving all decisions by how they might affect the chances for postal reform seems very likely to change. Congress seems to prefer an agency that has a very specific long-term plan to right itself, with Congress playing a supporting role.
It is possible that the new Governors and PMG, taking a different approach, could motivate Congress to pass needed reforms to support the strategy.
If the Postal Service can transform itself from what many view as an outdated liability to a valuable, necessary asset to our society and economy, there is hope. Many attempts by the USPS to diversify and enhance its service offerings have been blocked by private sector competitors and other stakeholders. The Postal Service itself has led many existing customers to believe they are not valued (see the five brushes with disaster above).
The new leadership of USPS will have to successfully navigate Congress and the Administration to create new roles and revenue streams. There are opportunities for it to provide needed government services that depend on a physical presence. With the virtualization of so many aspects of our lives, a ubiquitous physical presence could be one of the strongest, most valuable assets the USPS possesses.
While it will take time to transform the USPS, it must stay afloat and relevant by supporting and retaining the customers and mail volume it has now. Everything it does must be with an eye toward treating its customers as valued and retaining their trust and business.