The Supply Chain Matters blog provides highlights and insight commentary related to this week’s recommendations from the Task Force on the United States Postal System.

Supply Chain Matters has provided many prior commentaries related to the challenges related to the United States Postal Service (USPS), particularly as it relates to the current explosion in online buying and commerce. US Postal Service Van

In April 2018 blog, we addressed President Trump’s rant on Amazon, more pointedly, how the online retail giant was ripping off the USPS and taxpayers. We humbly suggested that the President channel his energies in a far more appropriate direction, providing the leadership and influence to help the USPS to become a modern and competitive agency for this new era of the online economy.

The brute reality is that Amazon is not alone in actions that might take advantage of USPS services or rate structures. Many other businesses, and indeed two of the globe’s other parcel transportation providers, FedEx, and UPS, are reliant on the postal service for a significant amount of last-mile delivery needs, including premium Sunday delivery services. FedEx itself remains a multi-billion prime air freight services contractor to support USPS’s overall air shipment needs and in-turn, its own divisions sub-contract certain of its own last-mile parcel delivery needs to the agency. Hence a symbiotic business relationship.

As a result of the President’s rants targeted on the postal agency, a task force chaired by the U.S. Treasury Department was created to study overall business operations and management structure. The recommendations of that task force were released this week.

The task force included a broad list of stakeholders including employee organizations, key industry associations reliant on public mail delivery, consumer action, state, local and tribal groups. It further included select private sector companies that included the likes of Amazon, DHL, FedEx and UPS, each of which could be argued have mixed agendas related to the future of the USPS as a services provider or as an industry competitor. What we feel was missing were external experts or noted consultants in logistics, transportation and operations management.

The report itself includes many recommendations, some with meaningful purpose and some tainted with a political bias.

In the first category, there was a declaration that the agency is on an unsustainable financial path to lose billions of dollars over the next decade. Declines in mail volumes have been compounded by caps on mail pricing. A further recommendation was that the postal service price packages “with profitability in-mind” including the imposition of higher rates on e-commerce movements and other deemed non-essential items destined for mail delivery. Meaningful recommendations include specific clarity on definition of Universal Service Obligations required by a postal service and establishing a separate balance sheet for packages to help prevent cross-subsidization.

From our lens, a humorous statement was that as the USPS delivers more packages, the agency has been distorting overall pricing in the package delivery market. Our observation remains that distortion in parcel pricing comes from all of the existing private industry participants, and if anything, the USPS has been charging market- based rates despite the President’s perceptions or disfavor.  Another recommendation in the category of humorous was to augment revenues with the issuing of hunting and fishing licenses., which lacks any quantification as to what added revenues that activity would garner for an operation that garners nearly $70 billion in annual revenues.

The task force called for stronger oversight by the Postal Board of Governors, yet the reality is that the Board has had little appointment of new members for much of the current past or current Administrations despite Republican party legislative majorities. The recommendation points the finger toward a continuing flawed political appointment process that has been so evident for many years.

In the category of overt political bias are recommendations that suggest eliminating collective bargaining over compensation for agency employees, pursuing reforms consistent with the President’s draconian FY19 Budget related to federal workforce reductions, along with calling for alignment to the Administration’s proposed Federal Employees Retirement System that would increase employee contributions and move toward a defined contribution system.

The biggest legacy flashpoint has long been the Congressional requirement that the USPS make mandatory payments into a retiree benefits fund in order to prefund benefits for 75 years. No other U.S. government agency is tied to that requirement. The report would seem to ignore this flashpoint in favor of the Administration’s broader federal budget agenda noted in the prior paragraph.

What All of This Means

To the President’s rant that Amazon has been ripping off U.S. taxpayers, the task force report lacks any evidence supporting such a charge. The realization that many other businesses and parcel carriers are taking advantage of the USPS will only come with more objective and balanced viewpoints. In everyday business, teams sometime encounter management directives that call for task force analysis that for career purposes, should support certain of the boss’s perceptions.

Regarding our recommendation that the President channel his energies in a far more appropriate direction, providing the leadership and influence to help the USPS to become a modern and competitive agency for this new era of the online economy, there are some nuggets to that direction. However, there are as noted, political biases and flashpoints that will entrench stakeholders, active or retired postal workers and other political groups.

In January 2019, the House of Representatives is reconstituted with a decided Democratic Party majority while the U.S. Senate preserves a  Republican Party majority.

Reforming the USPS to be able to cover its costs structure while existing as a viable channel for last-mile delivery should remain an overall goal, but the spirit of reason and compromise needs to ultimately prevail.

The ongoing labor stoppage of the Canadian Postal System at the height of the holiday retail fulfillment season should serve as a reminder of the criticality of a government postal and parcel delivery capability.

The most paramount risk is that U.S. residents, small businesses, underserved groups and lastly industry supply chains, are deprived of an efficient last-mile delivery capability that can service all of the population as well as provide a balanced alternative to market pricing.

All of these objectives may or may not be realistic in the current U.S. political climate without negotiation, compromise and conciliation rather than through force and power politics.

 

Bob Ferrari

© Copyright 2018. The Ferrari Consulting and Research Group and the Supply Chain Matters® blog. All rights reserved.