The High Cost of USPS 'Efficiency': Slower Service, Higher Prices

Several years ago, not long after taking the reins as Postmaster General (PMG), Louis DeJoy made significant changes to Postal operations. He removed the 1-day delivery standard for local mail and reduced the delivery time standard used to manage and evaluate USPS performance. Instead of aiming for the bullseye on the barn, the target became the whole barn.

This was the beginning of recent efforts to make mail and package processing more efficient. By not waiting for late-night collection and processing of local mail, sorting machines could run multiple shifts from fewer facilities to meet the lower performance standard. At least in theory. Unfortunately, the timing of this was not ideal, as the USPS was facing huge volume spikes produced by the pandemic e-commerce surge.

Then the USPS went all in on the DFA (Delivering for America) plan to reorganize and consolidate its transportation network. The national rollout of these mega-facilities has been a disaster, with delivery times falling to their worst performance ever in impacted areas.

Many e-commerce shippers pivoted to using Postal Consolidators to bypass these bound-up centers. Savvy shippers who expanded their carrier mix in this way added vital redundancy, improved transit times, and lowered costs. Truly a "win-win" for consumers, the Consolidators, and the Post Office.

DeJoy has been vocal about his dislike for these workshare incentives that were forcing the USPS to compete against itself. So, like his changes to the measurement standards that were relaxed to improve poor performance perception, removing the workshare incentives will fix the competition problem by removing the competition!

This process gained traction with the recent July 14th rate change that impacted wholesale induction costs for Parcel Select (PS), the service Consolidators use to induct packages into the USPS network. The marketplace has yet to feel the full impact of those changes, as they were set to take effect on contract renewals in January. In that change, the USPS removed 70% of the incentive to induct at the DDU vs. the SCF (local PO vs. regional processing center) while simultaneously raising ounce-based pricing much higher than all other weights.

Last week, the USPS announced major changes to how they will move and measure the movement of mail and packages. Instead of 3-digit origin and destination ZIP code pairings for expected transit time, they are expanding to 5-digit measuring for much more accurate planning and reporting. Unfortunately, it comes at the cost of slowing down delivery to rural America.

Today, the USPS announced the complete removal of the DDU entry discounts for PS Consolidators' NSAs (Negotiated Service Agreements). So, while the category discount remains in their pricing, most usage is via NSAs, and the reduced incentive makes using it a waste of resources. Consolidators are being forced to induct further upstream. This will have the undesirable effect of slower performance at higher costs.

Those not directly impacted: FedEx delivers almost all their Ground Economy (formerly SmartPost) in their own network, and UPS SurePost delivers almost half their volume themselves. Regional Carriers completely skip any USPS involvement. It is interesting to note that these competitors dislike competing for ounce-based lightweight shipments where they are less profitable. They will benefit from significant wholesale cost increases on ounce-based shipping: both on the rate itself and higher-cost regional induction. When the USPS regional centers bog down, Regional Carriers, UPS, and FedEx will be able to outperform USPS and will be able to do it more profitably.

Winners and Losers

• Winners of these changes: UPS SurePost, FedEx SmartPost, and Regional Carriers will have less competition and the ability to bypass congested USPS sortation centers.
• Losers: Consumers are going to be the biggest losers. A rising tide lifts all ships, and these changes will cause shipping costs from all service providers to increase. The best value for e-commerce shippers has been the Postal Consolidators. These USPS workshare vendors will suffer from the loss of DDU entry discounts along with the loss of ounce-based discounts. In addition, the reduction in USPS transit times to rural America will allow competitive service providers to better compete by aggregating volume for deferred delivery at more profitable pound-based pricing.

Conclusion

While it is understandable for the USPS to go after profits where they can, it begs the question of whether they should. Does it serve the American public? Does it honor the founding vision of our Postal Service to bind the country together?

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