USPS: Laying Down the Law; $10B Loan Approved; New Loyalty Program

USPS letter carrier

The U.S. Postal Service has its work cut out for it to remain solvent and deliver expected service levels, and must do a better job of executing its operating plan in order to reach those goals, new postmaster general Louis DeJoy said in a statement released Monday.

Then today, the USPS announced it had reached an agreement in principle to receive a $10 billion loan from the U.S. Department of the Treasury under the CARES act, which the agency projects will keep it solvent at least until May 2021. It also continues to roll out initiatives aimed at driving efficiency and performance improvement.

The USPS also created for the first time a loyalty program that rewards regular shippers with credit toward its services, seeking to lure more ecommerce parcel business in a highly competitive environment as its mail volume plummets.

The USPS said its board of governors unanimously approved the loan agreement Tuesday, which will be finalized in the coming weeks.

USPS Needs Help

In his statement Monday, DeJoy said the USPS is going to need legislative and regulatory help from Congress and the Postal Regulatory Commission in order to overcome its massive operating deficits.

“At the same time, it is imperative for the Postal Service to operate efficiently and effectively,” DeJoy said. “Indeed, there are alternatives to every product that we offer, and the only way that the Postal Service can continue to provide prompt, reliable and affordable universal postal services for all Americans over the long term is by vigorously focusing on the efficiency of our operations.”

The USPS has been signaling its liquidity crisis for months as mail volumes have fallen even further amid the COVID-19 outbreak, and operating deficits balloon. While the $10 billion from Treasury has now been approved, Democrats in Congress have been asking for up to $75 billion to help bail out the USPS.

Billions in Extra Costs Not Making an Impact

DeJoy noted that on June 16, 2020, the day he was sworn in as postmaster general, the USPS Office of Inspector General issued a report outlining $4.3 billion in mail processing and delivery overtime and penalties and transportation costs in 2019.

“Yet even after incurring these additional costs, the Postal Service has not seen material improvement in our service performance scores,” he wrote. “While we did not fully agree with all aspects of OIG’s report, we did not dispute the fundamental conclusion that we need to redouble our efforts to focus on our plans to improve operational efficiency and to further control overtime expenditures.”

Loyalty Program Rewards Shippers

As for the loyalty program, the USPS said business customers can earn $40 in credits for every $500 spent on Priority Mail and Priority Mail Express postage through its Click-N-Ship program. They can apply the credits to subsequent purchases of those products at checkout. Credits expire one year from the date of issuance.

Also, new business customers get an additional $40 credit for the first $500 spent, and there is a one-time $20 introductory bonus for Click-N-Ship business customers during August and September. This differs from both UPS and FedEx, which have rewards programs where shippers earn points toward gifts, not credit toward shipping fees.

Earlier this month, various media reports detailed how DeJoy out of the gate enacted a measure aimed at reducing or eliminating late trips and carrier overtime, even if it meant leaving undelivered mail or parcels for the following day’s service. He estimated these steps alone would save the USPS about $200 million a year. It has been decried by numerous critics as a move to “slow walk” USPS deliveries and even impact mail-in voting.

DeJoy concluded his statement by noting that while the USPS has spent the last four years seeking legislative relief from Congress, chiefly from the mandated prefunding of retiree health benefits, as well as pricing relief from the PRC, for now it must focus on operational improvements.

President Trump has called for a 4x postal rate increase, which many experts say would be the death knell competitively for the USPS.

“We are highly focused on our public service mission to provide prompt, reliable, and efficient service to every person and business in this country, and to remain a part of the nation’s critical infrastructure,” DeJoy wrote. “However, changes must be made, and we will refocus on all of the items within our control, and propose changes to some that are not, in order to ensure that we will be able to continue to fulfill our universal service obligation to all of America.”

Strong Measures Needed for Broken System

Parcel consultant Jerry Hempstead said the postmaster general has to publish and report to Congress each year a delivery standard by class of mail, essentially a report card of its service performance.

“Even after millions spent in transportation and overtime, they still don’t make the performance number,” Hempstead said. “But if they don’t, nothing happens. Nobody gets fired. So, DeJoy is saying ‘Enough, we are going broke over-promising delivery, mostly junk mail that’s going to get tossed, and we have to rethink this. So, no more overtime, even if the mail sits.’”

While the postal unions will resist the change, and opponents claim it’s an effort to derail mail-in votes in a hotly contested presidential election year, Hempstead said he hopes DeJoy stands strong and holds the line.

Charles Moore, vice president of parcel solutions for Transportation Insight, said DeJoy’s actions and messaging indicate he’s raising the sense of urgency, given the USPS’s dire financial position. He also noted how both the USPS and UPS, which typically promote leaders from within, went outside to fill the top post to gain a new perspective.

Moore also said new programs like Expedited to Street/Afternoon Sortation (ESAS), designed to get carriers on route faster by prohibiting morning office sorts, as well as the overtime directive, show DeJoy means business. As with that directive, ESAS is strongly opposed by postal unions who say they were not consulted about its rollout.

“Time will tell whether these decisions will be embraced and create the stability that the USPS desperately needs, but without dramatic systemic changes it’s destined to flounder,” he said.