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The Clock is Ticking for the US Postal Service

Posted by Mark Fallon on Nov 17, 2019 5:00:00 PM

There wasn’t a lot of good news for the U.S. Postal Service (USPS) last week. The proposed rates for 2020 have been returned from the Postal Regulatory Commission (PRC), the losses for the last fiscal year were higher than expected, and the search for the next Postmaster General (PMG) is formally announced amidst uncertainty.

On Wednesday, November 13, the PRC issued an “Order Remanding Price Adjustments for First-Class Mail”. The rate increase filed by the USPS last month was supposed to be consistent with rate of inflation as determined by the Consumer Price Index (CPI), or 1.93%. The PRC determined that USPS incorrectly calculated the impact of the proposed rate for the “Inbound Letter Post” category. When the correction is made, the rates for First-Class Mail would increase by 2.109% - or higher than the rate of inflation.

The PRC recognizes that the mailing industry needs to prepare for implementing the rate case. As such, the order allows the USPS up to December 12, 2019 to file an amended notice with the new rates. If the USPS meets this deadline with the appropriate changes, the new rates will go into effect on the planned January 26, 2020 date.

The next day, Thursday, November 14, was the release of the FY2019 financial report. While losses were expected, the numbers were higher than many anticipated. The net loss was $8.1 billion, with $3.4 billion in controllable losses. The difference between the two numbers are charges from the federal government for prefunding future retiree healthcare, changes in workers’ compensation liability and retirement obligations. Part of the losses also include paying down debt by $2.2 billion.

The declines in volume of First-Class Mail was 3.1%, consistent with prior years. For USPS Marketing Mail, the decrease was 2.1%, much higher than the 1.4% loss a year earlier. However, 2018 was a lively election year, and the same can be expected in 2020. The real unwelcome news was the anemic growth in parcels – less than 1% – demonstrating the impact of FedEx and Amazon using their own assets to complete the “final mile” delivery.

Without significant changes in rates, expenses and funding liabilities, the USPS calculates that it will run out of cash by 2024. At the same time, it needs to modernize plants, improve the technology infrastructure and replace an aging fleet of 180,000 delivery vehicles.

Against this backdrop, the Board of Governors announced this week that they have hired the firm Russell, Reynolds and Associates to lead the search for a new postmaster general. PMG Brennan announced that she will officially retire on January 31, 2020. That leaves just over two months to bring on a new replacement.

Actually, the window is even shorter. A lot of noise was made earlier this year, when the Senate confirmed 3 of the President’s nominees to the USPS Board of Governors. After more than 5 years, the Board has a quorum. But that is now in jeopardy.

Governor Robert Duncan’s official term expired on December 8, 2018. Under law (39 US Code 202), a “Governor may continue to serve after the expiration of his term until his successor has qualified, but not to exceed one year.” That means in less than 3 weeks, unless his nomination is confirmed by the Senate, Governor Duncan will have to leave the board – ending the quorum.

The president resubmitted Mr. Duncan’s name in January, however the committee didn’t report out his nomination favorably until late July. This was before the August vote confirming the other governors; however, his name was omitted. The Senate is scheduled to be in recess from November 25 – 29, 2019 (Thanksgiving), which means there are only 10 workdays to complete the confirmation.

The clock is ticking.

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United States Postal Service / USPS / U.S. Postal Service / Postal Reform / Leadership / Postal Regulatory Commission

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