PROTECTING SMALL BUSINESS, PROMOTING ENTREPRENEURSHIP

New Postmaster General Brings Needed Business Acumen to Struggling USPS

By at 4 June, 2020, 3:58 pm

Small Business Insider

By Karen Kerrigan-

As the mailing, logistics, and e-commerce industries operate in a state of flux, a refreshing change is coming to the U.S. Postal Service (USPS). The beleaguered agency needs new ideas combined with basic financial discipline, and that is what stakeholders hope will transpire when a new leader takes the helm on June 15th. The USPS Board of Governors recently announced that Louis DeJoy will become the Nation’s 75th Postmaster General.

DeJoy will succeed Postmaster General and CEO Megan Brennan, and he will lead the USPS at a critical time. The agency is financially challenged, but has also been the subject of mischaracterization and misinformation, including claims by House Oversight Chair Rep. Carolyn Maloney (D-N.Y.) that “USPS will not survive the summer,” as well as hyperbolic media commentary that reformers seek to “starve, strangle, and sabotage the U.S. Postal Service.”

These inaccuracies neglect to mention years of self-inflicted fiscal wounds at the USPS, and the longstanding need for meaningful reform. The USPS needs a massive financial and tactical makeover, as its cumulative and growing net losses are quite staggering.

Outgoing: (Former) Postmaster General Megan Brennan

Megan Brennan began her leadership tenure at the USPS in 2015, and has served more than 33 years with the agency. During her time as Postmaster General, fiscal challenges have swelled, leading to a total net loss of more than $31 billion in under six years. While Brennan has aggressively sought to capitalize on growth opportunities, the higher revenues generated by USPS and increased market share have come at significant expense.

At the start of her tenure, USPS revenues were $68.9 billion and operational expenses came in at $67.7 billion. Under Brennan’s management, however, the USPS has suffered increasingly wider losses  – with deficits now reaching $4 billion annually – due to escalating expenses, and a shift towards cost-intensive competitive products like parcels and packages.

Brennan also sought to boost revenues through its Market Dominant mailing business. At the start of 2019, Brennan enacted the largest stamp price increase in the agency’s history, hiking rates by 10 percent (from 50 cents to 55 cents). The USPS’ First-Class monopoly products have earned more than $12 billion in annual profits, and Brennan pushed the envelope (so to speak) by pursuing further monopoly rate adjustments, including what could amount to another 40 percent hike for letters. This pattern of actions largely completes the full picture of the USPS accounting strategy, which leans heavily on its core services to financially prop up other competitively-oriented parts of the operation (like packages).

In April 2019, there was hope among lawmakers that a concrete understanding of the problem could be achieved as part of a 10-year USPS business plan, which Brennan promised to deliver to the House Oversight Committee. However, that plan has yet to be delivered, and there is significant concern as to whether Brennan can finish the job as her exit looms.

Incoming: Postmaster General Louis Dejoy

In selecting Louis DeJoy, the Postal Service Board of Governors has brought in private-sector expertise for the first time in 20 years. This marks only the fifth Post Master General to join the institution from the private sector since the USPS became a federal independent agency establishment in 1971.

Specifically, DeJoy’s vast and relevant expertise presents a fresh opportunity to reform and transform the USPS. He brings 35 years of private sector know-how, having built New Breed Logistics from a 10-employee family-owned business to a sophisticated and technology-oriented logistics company with 9,000 employees.

DeJoy has certainly taken on a sizable challenge at the USPS. But an experienced outsider who knows the industry and the postal business appears to be exactly what the USPS needs. Among its widening financial challenges, the USPS has suffered a massive spike in deficits in recent weeks during a period in which competitive volume has grown in excess of 30 percent compared to the same period in 2019.

Parcel segments are clearly important to the USPS’s future, yet the degree of financial obfuscation surrounding this part of the business has proven to be a loser for the agency, as it is “losing” massive amounts of money in this area.

Assuring consumers – including small businesses – about the long-term viability of the USPS will be an important part of DeJoy’s work. Some have called for a massive bailout of USPS to bring it through years of mismanagement. That would be wrong – USPS needs massive reform, not a bailout.

Let’s hope DeJoy pursues a business approach and works to unravel the numbers so that smart – probably tough – decisions will be made to put the agency on a sustainable financial path.

Karen Kerrigan is president & CEO of the Small Business & Entrepreneurship Council.  

 

 

 

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