Delivering for America: An analysis of the U.S. Postal Service’s 10-year plan to achieve financial sustainability and service excellence

The following is a brief summary, with comments, of a 55-page document. The U.S. Postal Service understands it is not financially sustainable in its current form. It admits to being unable to provide dependable service, and is in need of major capital investment. Their network is described as broken. 
The USPS document provides, with numerous charts and exhibits, a 10-year plan to financial sustainability and reliable service. The plan depends on a series of changes and improvements to be successful. 
It is understood that all of their recommended changes must be accepted and implemented, and all of their numerous assumptions on mail volume, revenue and expenses must be accurate for the plan to be successful. The plan starts with the assumption that USPS will lose $160 billion over 10 years without implementing this strategic plan, and will have a net income of $200 million over 10 years with this strategic plan.
The vision is to realize two central goals: service excellence and financial sustainability. This would require USPS to operate with the following characteristics: 
• A strengthened public service mission
• Service standards that foster service excellence
• A bold approach to growth, innovation and continued relevance
• Environmental stewardship
• Best-in-class mail and package processing
• A modern, transformed network of post offices
• A fully optimized surface and air transportation network
• Best-in-class delivery operations
• A stable and empowered workforce
• An organization structured for success
• A supportive legislative and administrative framework
• A more rational pricing approach
• Financial sustainability and investment 

The report acknowledges none of the above currently exists, and the implementation of the strategic plan is a massive undertaking, a $160 billion undertaking.
So where would the $160 billion come from? 
• $58 billion from Legislative and administrative action. This includes Medicare integration and eliminating the pre-funding requirement
• $44 billion from regulatory changes via Postal Regulatory Commission. This includes pricing “flexibility” for market-dominated products.
• $34 billion from self-help management initiatives in cost improvement. This includes mail processing, transportation, retail, delivery and administrative efficiency.
• $24 billion from self-help management initiatives in revenue improvement. This includes package growth, new competitive products and pricing changes.
In other words, USPS needs: 
• Positive Congressional action, price increases
• New processing equipment, modern post offices
• New delivery vehicles, an efficient transportation system
• Administrative reorganization, work hour savings 
• Relaxed service standards they could actually meet
• New sources of revenue

Again, this is a massive, challenging strategic plan. It does not include using taxpayer dollars. USPS would expect tax dollars if the federal government wanted the new postal vehicle fleet to be more than 10% electric.

What can the periodicals community expect looking forward?
• Price increases. This is with or without the implementation of the strategic plan. New PRC rules allow above-CPI price increases under certain conditions, and those certain conditions currently exist and will continue to exist for the next several years. USPS has long believed that Periodicals prices were “under water”, not paying their fair share. The current standard is for every class of mail to cover its costs. Postal thinking is that current Periodicals rates cover about 80% of their costs. USPS doesn’t plan and isn’t able to close that gap in one or two years, but Periodicals rates can be expected to go up annually by CPI plus 1% plus a couple percentage points to close the gap. Much of the burden will be on outside county pieces. In-county rates will go up, but should continue to be a relative bargain. Periodicals volume is dropping and USPS understands that trend will continue. 
• Service. This is a true unknown. Most would agree current delivery service is poor. USPS acknowledges Periodicals service performance is about 80%, 10% short of their stated goal, and about 20% short of your goal. USPS hasn’t met their service standards for years and won’t be able to in the foreseeable future. The strategic plan proposes relaxing service standards slightly to improve reliability. Yes, those are their own words. This isn’t as bad as it sounds IF USPS could actually meet the new standards. Periodicals and First-Class Mail are intended to receive the same service. Under the new standards, 93% of Periodicals volume would stay at the current standard. A percentage of Periodicals volume would move from current 3-day standard to 4-day or 5-day, depending on distance. Delivering 95% or more of Periodicals volume in 5 days or less would be a significant improvement from the status quo. USPS would request an advisory opinion from PRC concerning the proposed changes before implementation.
• Consolidations and closings. USPS intends to evaluate and implement processing facility consolidations that were deferred in 2015. As part of a processing realignment, new facilities may be added, expanded or consolidated. The plan also includes retail realignment. This could include changes to hours of operation and the closing of low-traffic stations and branches.  

A lot of thought and effort went into this strategic plan. It shows that USPS recognizes the problems it is facing, and understands the solution involves major changes and realignments across the network. It also makes a lot of assumptions on mail volumes, revenue, costs and cost savings. USPS recognizes that First-Class Mail and Periodicals volume will continue to drop. USPS recognizes that although the package industry will continue to grow, USPS market share will drop and package volume will flatten out due to their inability to compete.
Some of the numbers and assumptions are troubling. This is a 10-year, $160 billion plan, and if everything were to go according to plan, USPS would have a net income of $200 million. That leaves little margin for error. USPS expects to lose $11.6 billion in FY21 and FY22, and with plan implementation, earn a total of $11.7 in FY23-FY30. The numbers are hard to follow from section to section.  In one section cost improvement is $34 billion. In a later section one initiative, the 100% capture of cost savings on work hour declines due to volume decline, is $48.7 billion. This doesn’t make sense and it’s highly unlikely USPS captures 100% of any potential cost saving, especially on work hour savings. If USPS miscalculated but only 1%, the expected 10-year net income of $200 million is gone. In an era of rising energy costs and potential increases in overall inflation, the USPS expense assumptions appear to be based on inflation increases of 2% or less over 10 years. That seems optimistic. 
On the increased revenue side, $35-52 billion is from Dominant Market price increases. That seems like a lot. USPS admits the current organizational structure of 67 districts is overly redundant and believes the solution is to reduce from 67 to 50 districts. So 67 is redundant and 50 is not? Why not 20, why not 10? That seems arbitrary and still redundant. 
USPS deserves legislative relief on Medicare integration, retiree pre-funding and pension costs adjustment. But Congress is sure to push back on plant and post office closings as well as changes to the Service Standards. USPS seems to finally understand the problem, but the solution isn’t going to come easily.

Joel Alllis is TPA's postal consultant.