Louis DeJoy's big plan for USPS reform: rethinking its relationship with Amazon and other e-commerce players

  • The postmaster general teased reforms in testimony before Congress, including price increases. 
  • He said workshare agreements are under review, which could affect USPS’s relationship with Amazon.
  • President Biden’s postal board nominees could bring to DeJoy’s ouster if confirmed. 
  • Visit the Business section of Insider for more stories.

Postmaster General Louis DeJoy will roll out a plan to revamp the United States Postal Service next month. Whether he’ll get to implement it is another matter. 

DeJoy testified before the House Oversight and Reform Committee Wednesday, where he defended his controversial tenure and telegraphed some of the changes on the way in his forthcoming 10-year plan. The same day, President Joe Biden announced three nominees for open positions on the USPS governing board, setting up the possibility of his ouster if the nominees are confirmed by the Senate. 

During DeJoy’s 10 months as postmaster general, he has made controversial decisions regarding mail service — some of which were ordered reversed by a Washington, DC district judge. He also faced an onslaught of packages as the country’s consumption shifted online during the pandemic. The increase in package volume is one element in a slew of troubles leading the USPS to lose billions per year while service declines.

Based on reporting from the Washington Post and DeJoy’s comments Wednesday, USPS could raise prices and lower service standards if he stays at the helm. DeJoy could also make changes to existing USPS contracts and possibly reduce the options for e-commerce businesses accustomed to utilizing some of the most cost-effective shipping options on the market. 

A major takeaway from the hearing, and a sticking point with many members on the committee, was the idea of lowering service standards. DeJoy’s plan could include operational changes that would slow first class mail and lengthen the delivery time expectations for multiple classes of mail and packages.

DeJoy called the agency’s current service standards “unachievable” and argued that lowering the bar would bring expectations in line with reality. 

“It sounds like your solution to the problems you’ve identified is just surrender,” said Rep. Jamie Raskin. 

DeJoy replied that the three to five-day standard for first class mail has been running at 80% for years. 

USPS Inspector General Tammy Whitcomb testified that USPS’s difficulty meeting existing service standards preceded 2020. 

“Even before the pandemic, the processing network was not operating at optimal efficiency. The Postal Service’s drive to push mail through its network to meet its service goals actually led to costly inefficiencies due to lack of coordination and integration between the mail processing transportation and delivery operations,” Whitcomb said. 

Slowing down mail service — or lowering the standard the service is aiming for — could make USPS less competitive in a business environment that prizes speed. But for e-commerce, USPS is generally the choice of shippers who are less concerned about speed.

What could cause a shake-up in the e-commerce world is changes to the USPS’s workshare agreements. 

“I’m evaluating workshare,” said DeJoy Wednesday. 

Workshares with players like Pitney Bowes, UPS SurePost, DHL E-commerce, and others are arrangements where another company takes and sorts small packages, then transfers them to USPS for the last mile. They were designed as a way for USPS to bring in revenue while leaving some of the more expensive elements of delivery service (running large sortation centers and sometimes air freight) to other players. 

“You’ve got postal carriers stopping at every mailbox every day. What’s the incremental cost of an additional one pound package with the stops they’re already making?” said Glenn Gooding, president of iDrive Logistics, explaining the theory behind USPS workshare agreements, which are generally restricted to light packages. 

Amazon is also a workshare partner with the USPS (and its largest customer).

But this sort of agreement — leaving the task of sorting parcels to other players — has left USPS’s own network incapable of handling volume spikes, like the one-two punch of the 2020 election and holiday season, according to DeJoy.  

“I think in many ways … it has enabled people to run around the network. And it’s part of the reason we have a hollowed-out network and the network is the biggest part of our problem,” DeJoy. 

That “hollowed-out” feeling network was described by several members of the committee Wednesday, who described scenes of boxes overflowing out of the doors of sortation facilities. 

“The USPS showed during peak that they cannot handle substantially more volume in the middle mile,” Nate Skiver, shipping consultant and founder of LPF Spend Management, said. 

“I would say, based on DeJoy’s comments, he intends for the USPS to compete more directly with private carriers, as opposed to allowing them to use the USPS final mile delivery for their ‘extra or unwanted’ packages,” Skiver added. 

USPS’s main competitors, UPS and FedEx, faced a similar barrage last year, but their solution was to restrict the quantity of packages they would take in. 

“Our competitors stopped delivering to many different areas,” DeJoy said. “We continue to deliver 260 million addresses a day. We only deliver 35% of the packages to the American community right now and I think we have an opportunity to grow that and serve the people and having partnerships with commercial businesses and being fully integrated with them, as third party organizations really know how to do is a big opportunity for us.”

One thing that is certain is DeJoy is building his plan around continued package volume, and price increases will almost certainly be needed to tame that volume. 

“We believe the appeal of the Postal Service will survive these minor changes that we’re making. Not coming up with an operating model that can get out of losing $10 billion a year … I would suggest that we are on a death spiral,” DeJoy said. 

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