America’s favorite government agency
The mission of the U.S. Postal Service®, codified under U.S. law, is to provide every American citizen and business with trusted, affordable, universal delivery of mail and packages. Americans seem to appreciate the effort. A 2020 Pew Research Center survey revealed that an impressive 91% of respondents share a favorable view of the USPS®.
The USPS also serves as the backbone of a mailing industry worth trillions. This dichotomy between public service and market competitor was formally addressed by the Postal Accountability and Enhancement Act of 2006, which created two types of products within the USPS:
Market dominant products offered by the USPS consist of mailing services like First-Class®, Marketing Mail® and Periodicals. Given that the USPS is the only entity that delivers mail, it has significant power over the market. As a result, pricing of these products is limited by the USPS’s regulator through pricing caps outlined in law and regulations.
The competitive products of the USPS include package services like Priority Mail®, Priority Mail® Express and Parcel Select®. These products are priced to compete against other shipping providers in the marketplace. Federal law and regulations create guardrails to ensure the USPS can realize its economies of scope and scale by delivering mail and packages together, which generally lowers the costs it incurs to deliver packages. Those same laws and regulations also ensure a price floor exists to guarantee fair competition. In addition to Retail pricing, discounts are offered to businesses and workshare partners through commercial and contract pricing.
Given changing consumer habits over the past decade, the USPS has seen mail decline over time, while packages have grown. Now, even greater change is on the horizon for the USPS with the Delivering for America plan. How this plan might impact the public and private sectors who depend on the USPS’s services is something every business and consumer should be aware of.
Delivering for America: The USPS 10-year plan
Nearly all USPS stakeholders and consumers agree: The USPS is a national treasure and ensuring it evolves to meet the future needs of business and consumers is critical. The organization receives no tax dollars for general operations, instead relying on the sale of its services. Because of the secular decline of mail, as well as government-imposed obligations for its retirees, the USPS has been operating in the red for some years.
The 10-year plan aims to restore the organization’s financial sustainability and optimize its services for the future.
The plan’s core goals, as cited by the USPS, include:
- A modernized Postal Service capable of providing world-class service reliability at affordable prices.
- Maintenance of universal six-day mail delivery and expanded seven-day package delivery reach.
- Workforce stability and investment strategies that empower, equip, and engage each employee and put them in the best possible position to succeed.
- Innovation that grows revenue and meets changing marketplace needs.
- Financial sustainability to fulfill our universal service mission.
The impacts on ecommerce, consumers and last-mile delivery
Every increase in postage rates, no matter how small, impacts mailers and shippers--whether it’s a nonprofit organization fundraising via First-Class Mail or a small business in a rural area using Priority Mail Express to ship its wares to customers.
The USPS raises prices on its packages each year following market-based rates. The profit it generates from the package business helps cover the costs of running the USPS as mail declines.
The USPS Board of Governors and the USPS’s regulator have final approval of any mail rates—from the price of a stamp to third-party discounts. And they approve retail package rates and the reduced rates offered to businesses and workshare partners.
While in the past, rate changes generally occurred in January, the USPS recently announced new rate hikes for their market dominant products (mail) that will take effect at the end of August. We will likely see package rate increases that will take effect later this year, as private carriers also continue to raise their rates.
The Delivering for America plan calls for $44 billion in higher rates over the next 10 years, but the USPS also understands that affordable, predictable, stable pricing is important to its mail and ecommerce clients. Finding the right balance between pricing and service will be a deciding factor in whether retailers continue to use the USPS for ecommerce deliveries and whether mailers continue to invest in mail.
Delivery times of mail sharply rose over the last year, due in large part to the pandemic. But the USPS also cites an underfunded processing and delivery network built primarily to accommodate First-Class mail, versus the growing volumes of packages it now handles.
The USPS believes that adjusting some First-Class Mail services from the current three-day delivery standard to five days will allow it to move First-Class Mail from air transportation to ground transportation for more flexibility. Periodicals, which travel with First-Class Mail, appear to be most impacted by this change.
The current integrated and universal six-day delivery of mail and packages is critical to commerce as we know it today. This is especially true for businesses and consumers in rural America. The new plan acknowledges the importance of maintaining six-day mail delivery and even plans on expanding its seven-day package delivery.
Both stakeholders and consumers will be closely watching any adjustments to delivery as these changes roll out.
The all-important last mile
The collection, processing and delivery of mail and packages in America is carried out by an integrated network of private carriers, private sector partners and the USPS. But it’s the USPS that most often completes the last mile of delivery. The USPS is the only carrier mandated to serve every single residential address in America. Because of this, private carriers like UPS often partner with the USPS to complete that last mile.
Last mile delivery is vital for rural residents who depend on the USPS for deliveries like prescription medication and consumer goods. In addition, rural communities, which often lack reliable broadband services, depend on their mail service to pay utilities and complete time-sensitive tasks many urban residents take care of online.
The last mile is more than a romantic ideal of the good ol’ USPS. It’s a critical lifeline to millions of Americans across the country. Fortunately, the 10-year plan and recent legislation introduced in Congress both acknowledge the integrated mail and package delivery network and an emphasis on increasing the reliability of the USPS’s services.
Businesses and consumers—rural and urban alike—rely on the USPS for predictable, affordable mail and package delivery six days a week. Change is inevitable and necessary given both declines in mail and growth in ecommerce. Many of the goals proposed in the 10-year plan will be beneficial. Others will need to be defined in more detail to determine their impact.
So long as the USPS and its plans for the future remain focused on the daily delivery of mail and packages for all Americans wherever they reside, the USPS is in little danger of losing its status as America’s favorite government agency.