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From the article: “The more you increase prices, the more demand’s going to go down,” Schiavone said. “I just hope, at some point, the [USPS] Board of Governors sees this and just says, ‘This is crazy.’ Print is fragile, and you’re basically killing all volume.”
As a result of the digital age and the decline of first-class mail, there is no question that the Postal Service must change and develop a new business model.
Dateline Charlottesville, VA
‘My plan is about growth’: DeJoy charts path for USPS to thrive, not just survive
By Jory Heckman
19 min read
The Postal Service no longer teeters on the brink of a crisis. Postmaster General Louis DeJoy is trying to keep it that way.
USPS no longer finds itself in the same dire shape it was in at the height of the COVID-19 pandemic. When DeJoy took office in June 2020, the agency was on track to lose $20 billion that year, and stood less than two months away from running out of cash to operate.
The agency, even with some financial intervention from Congress — $10 billion in emergency pandemic funds and $3 billion in the Inflation Reduction Act to purchase more electric delivery vehicles and charging stations — is still far from fully digging itself out from its long-term financial challenges.
But DeJoy, sitting at a conference room table at his USPS headquarters office, is talking about what it’ll take for the organization to not just survive, but thrive.
“I feel good about what we’re doing. We make lots of mistakes. They don’t last long. We see them, we fix them,” he told Federal News Network in a recent 90-minute interview.
Among its ongoing initiatives, USPS is taking steps to modernize its massive mail processing and delivery network, launch a new fleet of mostly electric, next-generation vehicles, and compete for an even bigger share of a competitive package industry.
“My plan is about growth,” DeJoy said. “This is about saving the United States Postal Service. It’s about keeping it around, to be self-sustaining. Not just deliver mail tomorrow, but into the future. That’s what we’re trying to do.”
USPS, now more than two years into its 10-year “Delivering for America” reform plan, holds more than $18 billion cash on hand, according to the most recent Treasury Department data. But it expects to spend those funds on long-deferred capital investments.
The agency has about $20 billion in deferred maintenance projects, and is spending $10 billion on a next-generation vehicle fleet.
Congress passed the Postal Service Reform Act in April 2022, which eliminated a USPS mandate to pre-fund retiree health benefits well into the future. In total, lawmakers expect the legislation will save USPS $107 billion over the next decade — with more than half of those savings going into effect immediately, by forgiving $57 billion in deferred payments to its retiree health benefits fund.
But DeJoy said the legislation only “punted down the road” the agency’s obligations. Now under a pay-as-you-go system, DeJoy said USPS will resume payments into its retirement health care plan in 2026, and will be on the hook to pay approximately $6.7 billion a year into the fund.
To stay on track with its 10-year plan, DeJoy said USPS needs to cut costs by at least $3 billion a year and grow its revenue by $2.5 billion a year.
It also needs to recover the impacts of high inflation, modernize its “neglected facilities,” and “keep our people safe, productive and enjoying their careers.”
“If we do not make this happen in the next couple years, we will again be in a major cash crisis,” DeJoy said.
USPS, under the 10-year plan, is looking to reverse a projected $160 billion net loss by the end of the decade and get to a modest $200 million net profit by 2030.
The agency, however, is falling behind in its reform goals. As of May, USPS is looking at a $4.7 billion net loss for the fiscal year so far — nearly double its projected loss for the fiscal year.
USPS doesn’t expect to break even this year, as it previously expected in its 10-year reform plan. It did, however, cut projected losses for the decade by more than half — from $160 billion to $70 billion.
DeJoy said USPS is running more efficiently and cutting costs, but said it’s too early to tell if the agency will reach its goal of breaking even in fiscal 2024.
“I can’t tell you what I think next year is going to be yet, because I have a bunch of stuff coming together,” DeJoy said. “But I still have to deliver the mail with the network I have. So until I start making these changes, we’re not going to see the step reductions,” DeJoy said. “Right now, I’m able to manage better. Our shifts are starting on time. Everybody’s watching our people count what our yield is.”
DeJoy said USPS eliminated 40 million labor hours this year, and is driving down overtime costs. He also said the agency is currently $5 billion ahead of cost-savings projections in the Delivering for America plan.
But, as USPS recently told the Postal Regulatory Commission,“historically high” inflation and “the need to take a conservative approach in order to stabilize operations” wiped away those financial gains.
To further cut costs, USPS is calling on the Biden administration for an adjustment in what it contributes to cover postal employees under the Civil Service Retirement System (CSRS). USPS currently pays about $3 billion in annual contributions to the CSRS fund.
The Office of Personnel Management is responsible for administering CSRS benefits for USPS employees, and calculates what USPS must contribute every year to cover retiree health benefits for current employees.
“We’d be very close to break even, if I would have gotten CSRS [reform], and we didn’t have the inflation this year,” DeJoy said.
300K hires needed to keep current headcount
To keep its current workforce headcount, DeJoy said that over the next 10 years, USPS may need to hire about 300,000 new employees. But the overall size of the future USPS workforce, he added, is subject to change.
“I think the workforce could be about the same, only with more volume and running with greater yields. That is not something I’m worried about trying to aggressively cut,” DeJoy said. “Number one, it’s not the commitment that the organization makes to its workforce. Number two, these are valuable people, trained people that know what we’re doing, [and] are valuable to us. What we need to do is inspire them.”
USPS currently has about 630,000 total employees — counting both full-time and part-time employees. DeJoy added that it’s “uneventful” that USPS stands at its current total headcount, even though the agency in recent years had as many as 660,000 total employees.
The size of the USPS workforce, DeJoy said, ultimately comes down to how successful the 10-year plan proves in growing the agency’s business.
“Do we get to 700,000 people instead of 600,000 people? It’s not out of the question,” DeJoy said. “In order to be committed to your employees, you have to be successful.”
The agency loses about 40,000 employees a year to attrition. That includes retirements and employees leaving to find work elsewhere.
USPS is trying to rein in turnover among its pre-career workforce, but even in a “best case” scenario, DeJoy estimated that pre-career turnover will still hover around 20%.
“It’s just hard work. You don’t get to go to boot camp, to figure out if you want to come here. You’ve got to go into the place,” he said.
Over the past two years, USPS converted 140,000 people from pre-career to career status, with better wages and benefits. The agency also signed agreements with postal unions guaranteeing career status to new hires within two years on the job.
“I’m committed to having a good workforce that feels the organization is committed to it,” DeJoy said.
“We will shape the workforce. We watch where we have pre-careers, where we convert [them to] full-time. We’re going to have to ask people to move around, from this plant to that plant. Move from this delivery unit to that delivery unit.
We’re going to build up,” DeJoy said. “Most of it has to do [with how] you’ve got to work at a place that is 15 minutes away from where you are right now. And I know that we will get support in terms of that.”
USPS stated earlier this year that its network modernization plans won’t result in layoffs or post office closures. More recently, the American Postal Workers Union recently signed a memo with USPS promising the ongoing network changes won’t lead to a reduction in retail operations.
But DeJoy said USPS is still weighing its options for what to do with its 31,000 retail centers across the country.
“When I came here, the plan was … let’s go back to POSTPlan, and start closing them,” he said.
Under POSTPlan, USPS floated the idea of closing 3,700 post offices, but eventually decided to reduce the hours of 11,000 rural post offices.
“I stopped that, because I really haven’t given them a good look yet, in terms of how do we make them more viable in their communities. Because we have more urgent things to get at. And that is fixing our network, as we become more of an enabler of delivery,” DeJoy said.
USPS in its recent filing to the PRC said it isn’t considering closing post offices or reducing retail operations, but also isn’t ruling those options out altogether.
“The Postal Service is not currently pursuing initiatives that would result in changes to retail access by aligning hours of operation to customer demand at certain post offices, or rationalizing stations and branches,” USPS wrote. “However, this does not mean that the Postal Service will never pursue these or other initiatives in the future that might impact retail access. A decision in that regard will depend on the Postal Service’s assessment of evolving circumstances, including particularly whether the Postal Service is achieving the financial and operational goals of the DFA Plan through those initiatives that we are currently pursuing.”
DeJoy rebuffs regulator: ‘We don’t need to be babysat’
To cut transportation and operating costs, USPS is bringing mail processing and delivery operations under one roof by creating Sorting and Delivery Centers (S&DCs) across the country.
As part of the consolidation, USPS will relocate letter carriers who previously worked out of hundreds of “spoke” post offices to S&DCs, which will serve as the “hub” of regional mail operations.
USPS expects to have 30 S&DCs running by the end of this year, and about 100 S&DCs running by the end of 2024. By the end of the decade, DeJoy said he expects to see 600-700 S&DCs.
But the Postal Regulatory Commission is calling on USPS to better explain its rationale for its network changes, as well as whether such changes will help USPS cut costs, or whether the changes would impact its level of service to the public.
DeJoy told House lawmakers in May that the regulator’s probe would “put this whole plan in jeopardy.”
“Who is the Postal Service going after on this whole thing?” DeJoy said. “We’re committed to the service standards, we don’t need to be babysat. What are they going to figure out, with what we do with transportation and all this stuff?”
He added: “We have a path; the men and women of the Postal Service are working hard at it. I do not see how any involvement by the PRC can be helpful — they haven’t been in the past,” DeJoy said. “This is the business at hand, we are focused on it, and it is urgent.”
The commission in June rejected a motion from USPS to withdraw its public-inquiry proceeding to better understand how ongoing network changes will impact USPS costs and performance.
Rather than challenge the PRC’s inquiry in federal court, USPS earlier this month responded to the commission’s first request for information.
“We didn’t want to do it, because I don’t like being involved with nonsense. I’m pretty busy. Everyone here is pretty busy too. But I decided not to appeal it, and to try and work through it. But they’ve got to know that we’re losing money,” DeJoy said.
Among its questions, the regulator called on USPS to shed more light on which of its facilities will be impacted by network changes, how these changes will cut costs, and whether USPS plans to close post offices or other facilities as part of its plans.
USPS, in its response to the PRC, said it is “critical to recognize that the Postal Service must move forward with our self-help initiatives, without being hamstrung by the same sort of resistance to change, obstruction, unwillingness to confront the magnitude of the problem, and delay that contributed to our current condition in the first place.”
The PRC in 2020 gave USPS the authority to set mail prices higher than the rate of inflation. But DeJoy argues the regulator should have granted this pricing flexibility years ago, and said a “defective pricing” model has been at the root of the agency’s problems for more than a decade.
Edmund Carley, national president of United Postmasters and Managers of America (UPMA), said DeJoy blames the regulator’s inaction for the Postal Service’s long-term financial predicament, and has only grown more frustrated by the commission’s interest in USPS network changes.
“I think his point is, ‘I’ve got 100 plans, I’m only going to actually implement 10 of them. Why would you waste your time with the 90 that I’m not going to implement?’” Carley said. “His modus operandi is that [this] just slows the whole process down. ‘I’m not going to answer more questions … leave me alone, get it fixed.’ That’s the tension between him and the PRC. He lays a lot of the blame for the position for we’re in, when he got here, at the feet of the PRC. I don’t know if that’s fair, but that’s where that comes from.”
Steve Kearney, executive director of Alliance of Nonprofit Mailers, and a former USPS treasurer and vice president of pricing, said the PRC is well within its jurisdiction to ask these types of questions about USPS network changes.
He added that the postal regulator has played a largely hands-off role in overseeing USPS, allowing the agency to raise mail rates in recent years and set a slower standard for on-time mail delivery.
“I don’t think there’s much evidence that the Postal Regulatory Commission is slowing the Postal Service, or standing in their way,” Kearney said.
“From the perspective of mailers, the PRC is pretty much giving the Postal Service all of the freedom and authority that it wants, and it’s completely unrealistic to assume that you’re leading a federal government agency in the executive branch, and that you would not be subject to regulation.”
While USPS is largely self-funded through its own revenue, Congress and the PRC have a say in how it conducts business.
“Believe me, I would like to be able to run the company without intrusive oversight. But it’s not a company, it’s a federal agency,” Carley said.
USPS competes for more package revenue
USPS, seeing continued declines in first-class mail volume, is looking to bring in revenue from competitive package business. To capture more of the package business, USPS is launching new options for delivery.
USPS on July 10 rolled out Ground Advantage, a new two-to-five-day delivery service for packages that weigh less than 25 pounds.
With the introduction of this new product, USPS is retiring three of its old services: USPS Retail Ground, USPS Parcel Select Ground, and USPS First-Class Package Service.
Carley pointed to recent changes in the shipping and package industry — including UPS trying to avert a nationwide strike of its workforce — and said USPS is in a good position to capture more of that market share.
“We have capacity. If we were a Fortune 500 company, I’d be buying stock. I would not have said that in the last 15 years,” he said.
USPS package volume remains higher than pre-pandemic levels, but the agency wrote in its fiscal 2023 Integrated Financial Plan that the “surge in revenue from consumer behavior changes during the COVID-19 pandemic will continue to subside in 2023.”
“I don’t want to see government entities doing everything that private industry wants to do, but in this case, it’s the only way we pay for ourselves,” DeJoy said. “I promise we’ll leave some packages for everybody else, because I’m just trying to break even here. That’s all we’re trying to do. The market is big enough. We allowed ourselves to get in quite a pickle on packages, and we need to straighten that out, and that’s what we’re on our way to doing.”
Raising mail rates
While DeJoy said USPS’s universal service obligation to deliver mail and packages six days a week to every address is “a life-sustaining operation,” he added that its mail-delivery business is no longer the financial boon it once was.
“This is no longer like a monopoly,” DeJoy said about mail. But he added that USPS is focused on meeting its service targets for mail.
DeJoy said about 99% of the U.S. population is getting mail and packages within three days — and that 50% of First-Class mail is getting delivered a day in advance.
“The complaints that we get are very, very small, but concentrated,” DeJoy said. “And it’s important, we’re trying to fix that. But it mostly has to do with labor availability in these remote areas.”
Meanwhile, the agency is settling into a familiar routine of biannual rate increases for its monopoly mail products. USPS on July 9 raised the price of a first-class stamp to 66 cents.
USPS raised the price of a first-class stamp to 63 cents in January 2023, after raising it from 58 cents to 60 cents in July 2022.
For context, the price of a first-class stamp was 50 cents before January 2019.
DeJoy said last May that USPS will keep raising mail rates at an “uncomfortable rate,” until it reaches a point where the agency is on track to be self-sustaining in the long term.
“It would be negligent not to use our pricing authority. It is not my job to subsidize products that can’t afford the price of a stamp,” DeJoy said.
Kearney, however, warned that USPS’s twice-a-year rate increases are driving some of its biggest customers away. In light of these rate increases, mailers are shifting more of their messaging away from mail in favor of alternatives.
“There’s a lot of talk among mailers that they’re being forced to reduce their mail volume, and some are making major, strategic moves out of mail — not only because of what’s happened so far, but because there’s just no end in sight. We haven’t been told when this will stop,” Kearney said.
Steve Schiavone, the director of the print supply chain at Consumer Reports, said the nonprofit is reducing its direct mail program to acquire new subscribers, “because it’s just getting more and more expensive, so we have to target better and better.”
“The more you increase prices, the more demand’s going to go down,” Schiavone said. “I just hope, at some point, the [USPS] Board of Governors sees this and just says, ‘This is crazy.’ Print is fragile, and you’re basically killing all volume.”
Schiavone said Consumer Reports has more than 2.5 million print magazine subscribers, but postage makes up more than half of the magazine’s costs. The other half of those costs go to paper and printing.
“The print industry, we’re managing a slow decline. But I think with all these excessive costs twice a year, it just exacerbates the decline,” he said.
On the other hand, Schiavone said the nonprofit is seeing a marked improvement in on-time delivery.
“I’ve seen better delivery since last December than I’ve seen in my 20 years here,” Schiavone said. “I’m saying that at a national level. At a local level, there have been people having issues with deliveries. But I’m saying if I aggregated from how we look at delivery, for our marketing campaigns and our periodicals, they’ve been doing very, very well.”
‘I’m not going anywhere yet’
DeJoy faced a chorus of critics at the start of his tenure — from lawmakers, to the Biden administration, to agency watchdogs and its customers — over changes to mail delivery ahead of handling a historic volume of mail-in ballots in the 2020 presidential election.
DeJoy said USPS started to win over skeptics at the end of 2021, by turning around the agency’s performance during its peak holiday season.
“If we didn’t rescue the next peak, I don’t know that anybody would have given us a package. I considered that a potential threatening [our] existence thing, after the peak of 2020,” he said.
Soon thereafter, DeJoy smoothed over his standing with the Biden administration by getting involved in talks that led to the launch of CovidTests.gov.
“We rocked it,” DeJoy said in an interview last year, when USPS had delivered about 380 million free COVID-19 rapid tests nationwide.
As of this June , when the Biden administration stopped new orders on CovidTests.gov, USPS delivered more than 755 million tests to more than two-thirds of American households.
DeJoy said the COVID test delivery is just the start, and that he’s back in talks with other agencies on other areas for possible collaboration.
“There’s more things for us to do in that area. I personally go visit some of these agencies that have things scattered throughout the nation. Who’s going to be more responsive than us? Who’s going to have more positions than us? We have places to put things, we just never thought of it that way before. And I didn’t want to put the cart before the horse; I had to get our structure running the right way,” DeJoy said.
Even with a plan in place to put the Postal Service on firmer financial footing by the end of the decade, DeJoy said he’s setting his focus on an even longer-term vision for the agency.
“Even if we get this solved for the next 10 years, it might not be solved for the next 20 years — and that is something we should have a plan for,” he said. “I haven’t laid out the whole game plan yet. I’ve got a lot of people working on a lot of initiatives. We’ve got hundreds of initiatives. If everybody fixed them tomorrow – got done with them – I’ve got another 400 or 500 initiatives. That’s the kind of diagnostic we’re doing on the organization.”
He added: “Right now, I could tell you what ZIP codes make money, what post offices make money. I could tell you all that – I’m looking at all that.
Why am I looking at that? Because I need to plan for that forever. Some places will grow and get better, some places won’t. So we need, as an independent organization, to forecast out, I don’t know, a century is too long, but 50 years.”
It remains unclear how long DeJoy stays at the helm of the agency to see the 10-year plan’s rollout. The USPS Board of Governors decides when it’s time to hire a new postmaster general. But the former logistics executive is anything but bored with his biggest turnaround project.
“I like work. I like big projects,” DeJoy said. “I’m not going anywhere yet.”
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