Posted by on July 7, 2020 5:27 pm
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By Steve Pociask, American Consumer Institute

 

As businesses nationwide start to map out reopening for the near-term and the post-pandemic world, the U.S. Postal Service (USPS) is also facing its own experience in hitting the reset button.

 

New Postmaster General (PMG) Louis DeJoy recently took the reins of the organization following the departure of PMG Megan Brennan after a five-year run. The leadership transition occurs at an intriguing time when those within the USPS have rightfully fretted about how the pandemic might broadly impact consumer behavior and even more downstream.

 

Congress has tried to lump the Post Office into various spending bills focused on providing COVID-19 relief funding. Most recently,  the Moving Forward Act, a $500 billion infrastructure bill, includes an earmark for $25 billion  to help bailout USPS . While it’s no secret that USPS has been losing billions of dollars for the last decade, it’s still unclear to Congress and the general public just how much the pandemic has impacted USPS’ financial outlook.

 

To this point, leaders of the Senate Homeland Security & Government Affairs Committee and the House Oversight and Reform, which have jurisdiction over Postal matters, sent a letter to then-PMG Brennan asking for honest reassessments of its business projections. The eventual purpose is for USPS to properly inform lawmakers, who are working carefully to make monetary relief available to those who truly need it during the pandemic.

 

All in all, as a consumer economist, I can only hope that this message from Congress gets passed on to PMG DeJoy as well. In digesting its details, Postal leadership will assuredly see that the ultimate lesson for these months is that in the midst of chaos and disruption, opportunity emerged for the USPS.

 

The truth of the matter is revealed in a close review of the Postal Service’s accounting figures for May 2020. The USPS earned total revenue of $6 billion, which is slightly ahead of USPS’ typical performance for the months of May. The USPS showed a 3.2 percent increase compared to the same period in 2019.

 

The opportunity emerging for the USPS has effectively been the surge in the number of package deliveries – as a shockwave of millions of Americans cautiously skip the runs to the store and instead opt to order for delivery.

 

In May, packages and competitive market items increased by 61 percent. Meanwhile, its traditional market dominant services and letters declined by nearly 29 percent. It is all evidence that the Postal Service is not at all getting marginalized, but instead there are simply different demands being asked of the institution.

 

The pronounced shift in deliveries also provides clarity into the concerning aspects of the Postal Service’s financial statement. Operational costs and typical inputs, which all types of businesses face, including personnel salaries, transportation, and supplies, have all escalated of late.

 

In just three months (March, April, and May), the USPS’ net loss of $3.1 billion eclipsed the agency’s loss for the entire 2017 Fiscal Year (a $2.7 billion net loss).

 

As the USPS’ leadership should understand, solving unfettered cost escalation involves a clear understanding of the exact origin of expenses. Prior to the pandemic in 2019, the packages carried by the Postal Service accounted for more than half of the organization’s total delivery weight ―  a figure that is undoubtedly on the rise. However, USPS is now delivering less total volume, but is spending substantially more.

 

By reporting greater revenues and net losses than ever before, the Postal Service readily exposes its reluctance to properly track its costs and adequately quantify the impacts of the weight and mass of its parcels.

 

Little progress has been achieved on this for years as the USPS and its regulators remain reliant on convoluted and archaic cost allocation formulas that do not take into account today’s modern delivery needs. However, with the agency’s activities in a state of flux in recent weeks, it is now finally time for leadership and lawmakers to ask questions that are far more straightforward.

 

The financials of the last few months show definitively what many of us have suspected for a long time – that the USPS uses First-Class mail to subsidize package delivery in violation of the law. As we have seen for nearly the last decade and most starkly in the last three months, there will never be enough traditional mail to cover this subsidy.

 

The Post Office owes it to all involved to open their books to greater transparency of pricing and expenses. Congress, the Postal Regulatory Commission, and the USPS itself need to chart a new path forward―that path needs to be led by packages covering their cost.

 

 

 


Steve Pociask is President and CEO of the American Consumer Institute, an education and research nonprofit. For more information about the Institute, visit www.TheAmericanConsumer.Org or follow us on Twitter @ConsumerPal.