July 14, 2020
We reported on June 22 that the United States Postal Service revised its financial forecasts. First, we must note how pessimistic it is to have “this is when we run out of cash” as the primary metric for your forecasts. How many organizations do that?
Second, we have to observe how negative the main assumptions are in these forecasts. The pandemic initially reduced mail volume by about 30 percent and increased package volume by over 20 percent. The most recent weekly numbers provided by USPS show mail volume improving to down about 15 percent, and package volume up by almost 70 percent.
As a reminder, here are the USPS June 22 scenarios:
Forecast 1: Packages return to pre-Covid level, mail is down 20-25 percent
Forecast 2: Packages settle at 15 percent above pre-Covid, mail is down 20-25 percent
The Postal Service is assuming that packages will revert from up 70 percent to either zero or 15 percent growth. And it is assuming that mail volume will be down 20 to 25 percent.
While we don’t know the inner workings of the USPS model, we can surmise that each 15-percentage point increase in package volume buys seven months of not running out of cash. So, a bit more success in retaining a larger part of its 70 percent package windfall could go a long way toward buying time for real, lasting improvements in postal operating performance:
Package growth retained Run out of cash
0% March 2021
15% October 2021
30% May 2022
45% December 2022
60% July 2023
And these timeframes get extended even more if greater mail volume retention than the assumed negative 20-25 percent is achieved. USPS should aggressively pursue retention.
The USPS statement this week signals a welcome change in the direction of doing more with what it has: “While the overall plan is not yet finalized, it will certainly include new and creative ways for us to fulfill our mission, and we will focus immediately on efficiency and items that we can control, including adherence to the effective operating plans that we have developed.”