When Amazon announced last week that it was making plans to expand its delivery network into places served by the Postal Service’s rural routes, many postal observers rightly went UH-OH, knowing how impactful the associated loss of business would be on USPS finances. Though the possibility was always looming that Amazon could in-source more or all of the volume it now outsources to the USPS, it was nonetheless a surprise when that became a serious probability.
That such a business disruption could have perhaps equally serious follow-on effects likely isn’t something that many have considered. However, for those who’ve been paying attention for years – decades – it may not be surprising that, eventually, a single event could destabilize the insular world in which the USPS and its employees have been living.
Many individual circumstances over many years have brought the Postal Service to where it is, in this case genuinely imperiled by the loss of one (albeit large) customer:
- Assumed continuity. The Post Office had been in business for 196 years in a fairly stable operating environment until it became the Postal Service in 1971. While that event made structural changes, the USPS’ function and operations were essentially the same, and the new agency retained the monopolies of the POD. Overall, the institutional mindset assumed the world as it was would continue indefinitely.
- Labor. As a government employer, statutorily defined as a union shop, the USPS’ employees were in a comfortable bubble of their own. Despite the periodic melodrama of contract negotiations, there was never any doubt that workers would receive good pay and benefits, and that their jobs were not imperiled by business downturns, corporate shenanigans, or competition. Blessed with steady business, primarily from the monopoly products, there was no pressure to perform, to outdo the competition, or to work better-faster-smarter or at lower cost. There were no job performance standards; service was as it was, and there was no reason to excel, because there was no alternative to the mail.
- Not reading the internet tea leaves. When the internet age dawned and electronic communication blossomed in the late 20th century and early 21st, the handwriting was on the wall for the type of hard copy communication typically sent as First-Class Mail and the revenue stream it represented. Whether anyone realized that total mail volume was cresting in Fiscal Year 2006 is unknown (First-Class Mail volume hit its apex a year earlier), but the decline over the following years was obvious. That should have inspired some forward-thinking executives to plan for the day when revenue from hard-copy mail was much less, and decreasing. If any preparation for leaner days did occur, it wasn’t evident.
- The unions. If there was any awareness among the unions of the problems that would develop for the Postal Service, that wasn’t apparent, either. Keeping the membership at the right level of unhappiness with management, reassuring them that the fight for better pay continued, and never worrying about the future kept the dues coming and the union leadership comfortably in power.
- Prefunding. Relying on regular rate increases may have propped up postal income, but frustration with steep price changes led to the CPI-linked cap introduced in the 2006 postal reform bill. However, that bill also required prefunding about $59 billion in future retiree health costs over the following ten years, an infeasible obligation whose consequences irreparably impaired postal finances. Cutting costs and borrowing money were short-term but ultimately unsuccessful remedies, leaving the USPS short on funds for infrastructure maintenance and capital improvements.
- Unprepared for change. The essentially business-as-usual mindset that had worked for decades, coupled with a willing avoidance of the 900-pound gorilla in the room that was the Postal Service’s changing (and worsening) business environment, enabled successive postal administrations to keep doing traditional business in traditional ways with little interest in significant change. In turn, this caused them to not prepare themselves, employees, the unions, Congressional overseers, and the public for the hard choices and unpleasant realities that were staring them in the face.
- Louis DeJoy. Someone was needed to instigate change, to disassemble the way we do things and get the USPS more competent to face a world of instable and lower revenue, declining demand for monopoly products, and competition for business and income. The workforce and management would need to adapt to an environment with less assured stability and where cost control and – most importantly – service performance mattered. Unfortunately, the “someone” was Louis DeJoy. While he generally understood much of what needed to be transformed, his ego, narcissistic overconfidence, and intolerance for differing viewpoints propelled an incautious, bull-in-a-China-shop approach.
- He openly dismissed any interest in retaining, or slowing the loss of, traditional hard-copy mail, and concurrently implemented cuts to transportation that hurt service and steep price increases to optimize revenue from whatever volume would remain. In its place, he assumed he could grow package revenue. To move all of this anticipated volume, he began a costly remodeling of the infrastructure, some to catch up on needed maintenance, but mostly to focus on processing packages, not mail; he bought machinery, but failed to build a service-oriented workplace culture.
- True, DeJoy got the 2022 reform law passed that voided the prefunding obligation, but he concurrently codified six-day delivery and his “integrated network” that largely blurred product differentiation by processing and transporting them all together.
- Lastly, he never tackled labor, making it face the changing business environment. Rather than pressing labor to accept moderation in wages and benefits, and moving to a more flexible, lower-cost workforce, he placated the unions with unchallenging contracts and acceded to more fixed-schedule career employees.
With this background in mind, the single event of Amazon removing a critical mass of volume may initiate an unwelcome and uncomfortable reckoning with a reality that postal management, its employees, the unions, Congressional politicians, and the public have been happily ignoring for decades.
Unfortunately for him, the reckoning may happen on David Steiner’s watch, but the path may be clearer than it is easy.
As he’s acknowledged, the USPS is a service business, and that service is critical to winning and retaining business – whether from hard-copy mailers or package shippers. He also knows that top-quality service costs money, but it’s possible to fund if ratepayers are satisfied with the service they’re getting for the price they’re charged.
Rendering quality service requires infrastructure and transportation – all of which need alignment and investment – but most importantly dedicated people. Accordingly, given the history outlined above, his toughest challenge may be changing the workforce culture of comfortable complacency. Their circumstances may no longer be as assured as they once were, and may now rest on them providing the service that mailers and shippers are willing to buy in a competitive market. The familiar Golden Goose may not keep laying eggs.