Postmaster General DeJoy Delivers On Postal Reform

This article was originally published in Issues & Insights on July 22, 2020.

The U.S. Postal Service is drenched in red ink, having accrued more than $78 billion in net losses since 2007. In May, the Government Accountability Office somberly concluded, “USPS’ current business model is not financially sustainable due to declining mail volumes, increased compensation and benefits costs, and increased unfunded liabilities and debt.” Yet some lawmakers, such as Senate Minority Leader Chuck Schumer, D-N.Y., want to hand the struggling agency a blank check to subsidize this failing business model.  

Fortunately, there’s a new postmaster general (Louis DeJoy) in charge and he promises to get America’s mail carrier back on firmer footing. While details of his reform plans have yet to be released, documents obtained by the Associated Press suggest major changes to overtime work and delivery routes. If executed properly, these changes can help the beleaguered agency get back into the black and save taxpayers from a multi-billion-dollar bailout. This is hopefully the start of a new, low-cost era of mail delivery.

After years of excuse-making and buck-passing, USPS leadership is finally getting ready to make some significant changes. In a recent “stand-up talk” delivered to employees across the country, management made clear that “late trips” will no longer be tolerated. Under the status-quo, mail delivery trips can start late in the day (often due to processing plant delays) and typically result in mail workers claiming overtime pay. But under the soon-to-be-implemented system, “If the plants run late they will keep the mail for the next day.”

These changes are long overdue, given the large and growing costs associated with overtime pay at the USPS. Examining fiscal year 2018 data on overtime costs and planning, a 2019 inspector general report found that the USPS “planned for total mail processing overtime costs of about $732 million, but actually incurred $1.09 billion, a difference of 49%.” Furthermore, “Overtime costs to process mail increased by $257 million (31%) in FY2018 from the previous year.”

Of course, not all overtime costs are due to planning lapses; long, unconventional hours can sometimes be justified. Special services such as Priority Mail will inevitably lead to high overtime costs, as will packages sent by certain companies with two-day delivery guarantees. That makes sense as long as the USPS is charging prices that account for these high-cost expedited services. But in the case of packages, there’s no real way of knowing if they are priced in the realm of reality.

The USPS is more tight-lipped than the CIA in disclosing its package pricing, leading to plenty of black ink but no insight or analysis available to the public. And by all indications that are publicly available, the postal pricing methodology significantly underestimates the contribution of packages to overall system costs. Unless DeJoy gets a grip on this problem and pursues critical pricing reforms, package prices will almost certainly fail to cover overtime costs.

Other reform plans identified in the “stand-up talk” will give the USPS some much-needed fiscal breathing room to contemplate longer-term pricing reforms. For starters, all routes are to have no more than four park points starting this summer. The idea is that unnecessary stopping and inefficient deliveries are needlessly wasting time; and time is money. This problem also spills over into the “middle-mile” (i.e. highway mail deliveries between processing centers), where inefficient routing continues to be an issue.

The inspector general has also found that about 85% of highway routes are categorized as static, rather than accounting for changing volume and demand. Clearly, the USPS has a long way to go in becoming more efficient and embracing data-driven operations for mail delivery. And unless it reforms its dysfunctional pricing system, overtime costs will go uncompensated.

DeJoy must deliver on these, and other critical postal reforms, in order for the agency to be fiscally stable.