Changes at the USPS
Editor’s Note: We welcome John Haber as our newest contributor. A shipping and supply-chain authority, he is the founder and CEO of Spend Management Experts, a global shipping and supply-chain consulting firm. His first piece, below, addresses changes at the USPS and how those changes could affect ecommerce merchants.
To combat the massive budget problems of the U.S. Postal Service, Congress has begun to address postal reform. With two bills in play, passage of any or all of these measures is sure to significantly impact ecommerce companies who rely on the USPS for all or a portion of their shipping services.
The two bills are a high-profile, bipartisan Senate bill and a House GOP bill that has not yet reached the floor for debate. Between them, the bills address (a) the pension and healthcare funding requirements, (b) efficiencies of employees and infrastructure — called “network rationalization” — and (c) the reduction of delivery service from six to five days per week.
Neither bill advocates a quick transition from six to five-day delivery service. Another provision proposed directly by the USPS — called “Retail Access Optimization Initiative” — calls for the closure of up to 3,652 retail locations. It may or may not be addressed by either bill. However, according to USPS postmaster general and CEO Patrick R. Donahoe, neither bill goes far enough fast enough. Here are the three main issues as addressed in the two bills.
“Mail Processing Network Rationalization Service Changes, 2012.” This is the current active case before the Postal Regulatory Commission, the independent agency that overseas USPS matters. It calls for the closure of approximately 250 operating facilities where sorting and processing takes place for first class mail (FCM) and other products. If passed, this will likely result in elimination of FCM one-day delivery. The only way to keep one-day service locally will likely be mailing by 8:00 a.m. or noon. Periodical service standards will change from current 1 to 8 day service to a 2 to 9 day standard. The PRC will issue a non-binding advisory opinion sometime after testimony is complete in June.
“Six-Day to Five-Day Carrier Delivery and Related Service Changes,” this is the elimination of Saturday delivery, which has been banned from implementation by congressional legislation. However, it would be possible — after a moratorium — under either proposed bill.
Pension and Healthcare Funding Requirements. Perhaps the biggest USPS liability is its huge financial commitment to employee benefits. It’s also the biggest issue from a legislative reform standpoint. The bipartisan Senate bill would allow the agency to spread out prepayments for retiree healthcare that were earlier required by Congress. The new House bill goes even further by empowering a task force to construct a cost-cutting plan and would ban future no-layoff clauses in collective bargaining agreements with USPS.
Of the three initiatives, the network rationalization initiative appears to be moving forward, unless Congress passes legislation that creates a moratorium. However, the extension deadline approved by Congress does not coincide with the legal proceeding timelines. The USPS is pushing forward with the consolidations despite the fact that those opposed will likely not present their case until June. The USPS can begin closing facilities as early as May.
Impact of the Postal Bills
Keeping in mind that the initiatives are separate, the collective impact would include the following.
Retail location closures. Postal returns and outbound shipping will be impacted.
Parcel product delivery will slow down. First class mail will be one day slower, which, in turn, will impact organizations’ accounts payable and receivable cycles unless everything is processed electronically. In some cases, Priority Mail will be delivered a day later than current operations making this product less competitive to priority products from UPS and FedEx.
The shipping times of all products — including “hybrid products” with final mile delivery by the USPS — is still unknown. Since these products skip much of the USPS network, no Saturday delivery is unlikely to significantly impact transit times.
Longer term, we all should be concerned about the competitive landscape within the parcel industry. FedEx and UPS are being investigated for price fixing, collusion, and anti-competitive trade practices by the U.S. Department of Justice — here’s a blog post that describes the investigation. A separate lawsuit from a shipping consultant, alleging price collusion, is scheduled for trial in June 2013.
A weakened USPS helps UPS and FedEx. But it hurts ecommerce merchants, who are likely to see an increase in shipping costs, degradation of service levels and potentially the closure of their local post office.