In the last 20 years, USPS’s position in the market has shifted dramatically. The shift to email communications, electronic bill payment, digital marketing, and other technological innovations has meant fewer letters as a percentage of total USPS volume and revenue. Originally designed for letter delivery, the network now inefficiently manages and services packages in an infrastructure not built for this purpose.

This is where Postmaster Louis DeJoy and the 10-year Delivering for America Plan comes in. Delivering for America was first announced in 2021, and it has grown and evolved since then. The plan, whether explicitly part of the plan or corollary actions meant to support the plan, involves four primary initiatives that we will cover here:

·Changes to current service standards and definitions

·Adjustments to the current network and resources

·Price changes

·Evolution of how the USPS deals with consolidators and workshare partners

I should mention that as of the time of this writing, much is still unclear. Many of the proposed changes are still pending Postal Regulatory Commission (PRC) consideration and approval. We will do our best to describe the current state of the play, but things may have changed prior to publication.

Changes to Current Services / Service Standards

USPS Ground Advantage was launched in July 2023, combining the former First-Class Package, USPS Retail Ground, and Parcel Select Ground services. This new offering has been well received by small to mid-sized shippers, who appreciate Ground Advantage as a cost-effective alternative to Priority Mail and the national parcel carriers' ground services when value is more important than speed. However, there are concerns about the impact on rural customers, potentially leading to slower delivery times and further declines in on-time performance.

Most of the proposed changes currently under consideration do not alter the services themselves but instead modify the delivery standards of existing services. These proposals are facing intense public and political opposition.

Current Network and Resources

As mentioned above, the USPS network has long needed a top-to-bottom overhaul for some time. The network was well designed to fit its original purpose, but as that purpose has shifted over time, efficiency and effectiveness has been negatively impacted. The specific contemplated changes to the network are too complex to dive into in this venue, but the USPS is effectively changing the structure and function of its sort facilities and is planning consolidation of many facilities. In May of this year, DeJoy agreed to pause further consolidation until January of 2025 and to slow the implementation of the network changes. The pause was in response to pushback from a group of senators, as well as significant pressure from the public and shippers, which itself was spurred largely by challenges in the Atlanta hub. Despite the agreed upon pause, it appears that the USPS has, or may be, continuing with some of the planned changes. In a June 17press release, the Postal Regulatory Commission said, “(the PRC) requested information about continued large-scale network changes by the Postal Service despite its announced ‘pause’ in implementing parts of the Delivering for America (DFA) plan.” The release also stated, “On May 20, the Postmaster General issued a letter to the Chairman of the Senate Homeland Security and Governmental Affairs Committee, Senator Gary Peters, stating that the Postal Service would move forward with network changes in dozens of locations around the country, despite separately announcing a “pause” in some facility consolidations. The Postal Service is required by law to request an Advisory Opinion on changes that will impact service on a nationwide or substantially nationwide basis, and the Commission continues to urge the Postal Service to request an Advisory Opinion on certain DFA initiatives.” It is uncertain which perspective will win the day on this issue.

Price Changes

On May 10, the USPS filed notice with the PRC of proposed price changes, primarily targeting Parcel Select pricing, the service used by most postal consolidators and workshare partners. The proposed increases were 25% on average, but that only tells parts of the story; as with national parcel carrier GRIs, the average obscures the effect. Where the increases will hit heaviest depends on the weight, the point in the USPS network that packages are injected, and, ultimately, on the PRC’s approval. Sub-pound packages and those injected closest to the DDU will take the bulk of the hit; in some instances, as high as almost a 50% increase. Also, assuming PRC approval, sub-pound pricing will for all intents and purposes be going away. Yes, sub-pound packages will be accepted, but rates will be normalized to the new, higher, one-pound rate.

These are not tactical increases meant solely to address revenue or margin shortfalls. Rather, they play into the USPS’s strategy regarding workshare partners.

Consolidators and Workshare Partners

Of all the in-process changes affecting shippers, the relationship between the USPS and its workshare partners is arguably the biggest. While the USPS is not proposing to cut workshare partners’ access to DDU injections explicitly, the proposed rate changes are structured to make these injections less profitable and incentivize consolidators to inject further upstream in the USPS network. If the proposed changes are approved, the USPS will effectively eliminate, or all but eliminate, workshare partners’ ability to profitably inject at the DDU level. Consolidators will have to raise shippers’ prices, inject further upstream, or more likely both. The USPS is effectively trying to take a greater share of relationship and revenue ownership of the workshare model and make the best, most profitable use of the more efficient network it is building. Whatever happens here, it seems obvious that shippers are going to pay higher prices for USPS workshare/final-mile shipments.

This is an extremely dynamic situation. And all of the variables listed above are interrelated. As the USPS has become a bigger player in the parcel market and looks like it will continue to penetrate the market, shippers should watch developments closely. It is going to be a bumpy ride for the next few years, and those shippers who follow developments closely and position themselves to shift volume across carriers and services quickly will reap the benefits (or suffer the losses) of the changes to come.

Joe Wilkinson is VP, Professional Services (Transportation Consulting) at Intelligent Audit. He can be reached at joeywilkinson@intelligentaudit.com