Postmaster General (PMG) Louis DeJoy told Senate lawmakers Friday that the U.S. Postal Service (USPS) must be “liberated” from long-standing restrictions on how it prices products and services, claiming it has cumulatively lost about $80 billion in the past decade or so just from the lack of rate flexibility to respond to changing market conditions.
In his first congressional testimony since becoming PMG June 15, DeJoy also said that USPS is studying ways to make its last-mile parcel services more profitable. There are areas where USPS could “push up” parcel rates, he said, adding that there are “reasonable business gaps that exist” that could be filled by more aggressive parcel pricing measures.
USPS late last week announced a series of peak-season surcharges on its band of parcel delivery products classified as “competitive,” meaning they aren’t monopolies like first-class mail. The surcharges, if approved by the Postal Regulatory Commission, the agency required to sign off on rate changes, would take effect Oct. 18 and run until Dec. 27. The levies would apply only to commercial users that meet high-volume thresholds. However, analysts have said the increases will be marked up and passed on to merchants, thus increasing their costs during their busiest time of the year. For big users like UPS Inc., by contrast, the surcharges could evolve into a strong profit center due to the expected pass-throughs.
In his testimony, DeJoy urged the Postal Commission to move expeditiously through a 10-year rate reform initiative. USPS has waited for years for the agency to act, but it has yet to finalize a replacement system, he said. The Postal Commission acknowledged several years ago that the pricing status quo is no longer workable in today’s dynamic environment.
DeJoy’s appearance before the Senate Homeland and Governmental Affairs Committee comes a day before the House of Representatives votes on whether to provide $25 billion in funding to help USPS offset the higher costs of delivering through the coronavirus pandemic, and to compensate the agency for falling mail volumes since the virus spread nationwide in March and April.
President Donald Trump has opposed USPS funding in the next coronavirus relief package, but recently said he might reconsider his position if Democrats agree to give on other provisions in the bill. Trump, facing a brutal reelection battle with Democrat Joe Biden, has railed against universal mail-in voting as fraudulent and an abuse of the election system. It is unclear how the Senate Republican majority will act.
DeJoy, for his part, said he thinks that Americans should be allowed to vote by mail, and that USPS has more than enough capacity to quickly and accurately process and deliver ballots. He also said the agency needs significant congressional relief so it can continue fulfilling its mission of delivering to every address in the country.
DeJoy also said he hasn’t discussed his work at USPS with Trump.
Trump has repeatedly said that USPS can restore its financial health by quadrupling rock-bottom parcel rates. Analysts have warned such a move would cause many users, notably Amazon.com Inc. (NASDAQ:AMZN), the largest parcel customer, to take its business elsewhere. In Amazon’s case, most of the parcels would be diverted into its own network. What’s more, USPS has actually raised parcel rates for the past two years, and an analysis earlier this year by consultancy ShipMatrix has found that, in many instances, it would cost Amazon less to ship items in its own network than by using USPS.
In his testimony, DeJoy painted a dire picture of USPS’s finances. USPS has suffered net losses every year since 2007. It is approaching $11 billion in losses for its 2020 fiscal year, which ends Sept. 30. Its liabilities exceed its assets by $135 billion. Without dramatic change, there is “no end in sight” to USPS’ financial woes, and the 245-year-old agency faces an “impending liquidity crisis” that threatens its ability to fulfill its mission, he added.
At the same time, DeJoy cited the operational progress that’s been made in his short tenure. The agency has improved its dispatch schedules to 97% on-time dispatches from 89.4% a few weeks ago. Late trips have decreased by more than 2,900 daily trips, while extra trips have dropped by more than 1,600 per day, DeJoy said, pointing out that the latter decrease has resulted in a 70% cost reduction just in the past four weeks. There is no current USPS policy to block extra trips, DeJoy said, inferring that the reduction in extra trips is due to more effective rationalizing of the agency’s transport network.
“While the improvements are dramatic, this effort did expose a need to realign some of our processing and scheduling that caused mail to miss the scheduled transportation and has temporarily impacted mail and package service performance,” DeJoy said in his opening remarks. He admitted that more work is needed to “ensure we are service responsive.”
At the time of his swearing in, DeJoy said that about 12% of USPS’s daily truck trips were reported running behind schedule. “FedEx and UPS run their trucks on time,” said DeJoy, alluding to two rivals and partners that the PMG, who spent decades as a logistician in the private sector, would like to see USPS emulate.