La Poste strikes back in parcel delivery
The postal service lost its way as the traditional letter – the most cost-effective product to deliver – slowly lost its relevance to email. The initial reaction of former postmasters was to cut costs and seek to reduce service. Discussions of privatization crept into the conversation. After the unions backed down, Congress and postal lovers halted all drastic action, unease set in, and financial losses running into the billions of dollars piled up.
Even after it became clear that the rise of e-commerce and parcel delivery would give the Postal Service renewed relevance, the system remained geared toward marketing letters and mail. The Postal Service was not nimble enough and lacked an adequate sales force to capture the volume of e-commerce. Companies large and small have rushed to take over this e-commerce business without spending to build a network and have dumped pre-sorted packages into the service’s local delivery units for the expensive last mile of the journey. Although the Postal Service carries more packages than United Parcel Service Inc., Amazon.com Inc. or FedEx Corp., the agency hasn’t harnessed the power of its unique network, which delivers to all 163 million addresses in United States at least six days a week and has 30,000 outlets.
That potential is now about to be unleashed if Postmaster General Louis DeJoy is allowed to carry out his 10-year plan to transform the Postal Service. It won’t be easy. He will be attacked from all sides.
In a blow to interests that prefer the status quo, the Postal Service this month eliminated its reseller program, which had given five companies deep discounts on package prices. These discounts were passed on to customers, including other large companies who, in turn, also offered these reduced rates to the end consumer. The program didn’t make much sense because these resellers were taking advantage of it without ever touching any packages. DeJoy has decided to cut out these middlemen and serve these customers directly.
This will likely become a theme as the Postal Service reconfigures its network from a network designed to deliver letters to a network designed to handle packages. It will take time and money – the agency plans to spend $40 billion over a decade to consolidate and upgrade sorting facilities and renew its fleet of delivery vehicles, which are on average 28 years old.
The Postal Service will also have to overcome the political baggage of DeJoy, a loyalist of former President Donald Trump. He was appointed by the Postal Service’s board of directors during Trump’s tenure and was accused of trying to sabotage mail-in voting by slashing the Postal Service shortly before the 2020 presidential election. The FBI investigated on him in connection with campaign contributions from employees who worked for him when he was in the private sector – he said the Justice Department dismissed the case without bringing criminal charges – and the Federal Election Commission has dismissed related complaints.
There have been calls for DeJoy’s removal, which can only be accomplished by a vote of the Postal Service’s nine-member board, which so far continues to support him, although the terms of two supporters from DeJoy expire in December. President Joe Biden has made no public effort to replace him.
As long as DeJoy is on the job, he has the logistics experience and entrepreneurial chops to drive a Postal Service transformation. He grew New Breed Holding Co. from a small logistics company in North Carolina with 10 employees when he became CEO in 1983, into a provider of distribution, transportation management and light manufacturing with 6,800 employees. When DeJoy sold the business to XPO Logistics Inc. for $615 million in 2014, the company had annual revenue of $600 million.
In a sign that DeJoy might be able to disarm union critics, who initially shunned him over fears he would try to implement Trump’s ideas to privatize the agency, he negotiated a work contract with the ‘American Postal Workers Union which accelerated the conversion time from part-time workers to full-time workers and was ratified by 94% of its members.
“We’re not afraid of new ideas and new thinking as long as workers are fully respected in the process,” union president Mark Dimondstein said in an interview.
DeJoy’s efforts are likely to raise complaints from companies including United Parcel Service Inc., FedEx Corp. and DHL from Deutsche Post AG. DHL offers an e-commerce service although it does not have last mile delivery trucks. The company collects parcels from large customers, sorts them and then hands them over to the postal service for final delivery. There are several of these so-called postal consolidators who can find a reinvigorated postal service taking over this business for itself, much like the reseller program.
The Postal Service, which does not have a delivery plane, has reduced the number of airmails and packages, which has a direct impact on FedEx. The company has a contract to provide air mail transportation, including international service, which ends in September 2024. The Postal Service is FedEx’s Express unit’s largest customer, and the reduction in postal volume has already had an impact on the company’s operations, FedEx said in its July annual filing. The company said a decision by the Postal Service to prematurely terminate or not renew the contract “would negatively impact our profitability.”
Trucks are more reliable than planes, mainly due to weather conditions, and using ground transportation reduces the number of times a package is processed to nine from 15, according to DeJoy’s plan. UPS sued the Postal Service, saying the agency also sets prices for its packages. low because it allocates too much of its costs to other operations such as mail delivery. At the same time, UPS relies on the Postal Service for light package delivery in a low-cost service called SurePost. The Atlanta-based courier, however, picked up some of those SurePost packages for itself when the package’s destination is close to where UPS drivers are already making deliveries. This left the Postal Service with UPS packages which are more expensive to deliver, such as in rural areas. With a strengthened sales force, the postal service can seek to capture these customers directly without UPS as an intermediary. The Postal Service’s network is perfect for the short-distance and fast deliveries required by e-commerce. Under a new service called USPS Connect, businesses can drop off packages at any of 2,600 locations for next-day service in 5,300 zip codes or same-day delivery if packages are there by 7 a.m. in the morning. The service was introduced in February after a trial in Texas and is being expanded, Steven Monteith, director of customer and marketing at the Postal Service, said in a recent presentation. For light packages, it costs $3.95 each, he said. This is a rate that customers will not get from UPS or FedEx.
As investments in technology and sorting equipment are rolled out, the Postal Service will be able to track packages more accurately and improve service. A large professional sales force must be assembled. The 10-year plan was announced in March 2021 and is already starting to show results, such as eliminating the Reseller program and meeting delivery service goals.
Still, this is a government agency, so changes will take time, and DeJoy doesn’t have a free hand. He has to wrestle with the Board of Trustees, the Postal Regulatory Commission, Congress, and many easily pissed off citizens who hold the Post Office dear to their hearts.
For example, critics denounced a postal service slowdown based on DeJoy’s strategy of using trucks instead of paying companies like FedEx for expensive air transportation. It was forced to add expensive and unproven electric vehicles into the mix for much-needed fleet renewal.
The list will not end there. DeJoy will certainly face a host of additional challenges to transform an organization that is not just a business but a public service that reaches millions of people every day and connects communities. Reasserting itself in parcel delivery is the right step for a postal service that needs to find a more solid financial footing.
More from Bloomberg Opinion:
• Congress can save the post office from itself: Timothy O’Brien
• Will DeJoy ever leave the postal service? : Timothy L. O’Brien
• Postal banking is very promising for the United States: editorial
This column does not necessarily reflect the opinion of the Editorial Board or of Bloomberg LP and its owners.
Thomas Black is a Bloomberg Opinion columnist covering logistics and manufacturing. Previously, it covered US industrial and transportation companies as well as Mexican industry, economy and government.
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