Louis DeJoy on why he’s slowing mail and raising prices at the USPS: “We have no money”
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Postmaster General Louis DeJoy says this holiday season won’t be a repeat of last year’s, when — due to a pandemic-fueled increase in packages and a host of operational challenges — just 38% of the United States Postal Service’s nonlocal first-class mail arrived on time.
“We started early this year with our planning and we’ve expanded capacity and people, facilities, automation and transportation,” DeJoy told Marketplace’s David Brancaccio. “So tell all your listeners to send us their packages. We’re going to deliver them.”
This will be the first holiday season since DeJoy began implementing cost-cutting measures as part of a 10-year plan to pull the USPS out of financial difficulty brought on by years of declining mail volume and an onerous requirement that it prepay employees’ retirement health plans. DeJoy’s “Delivering for America” plan undertakes to slow the delivery of some mail, particularly to rural addresses, as well as to increase postage rates: on top of permanent price increases for sending letters and packages, there are temporary holiday surcharges of up to $5 in effect through Dec. 26.
DeJoy said the measures were necessary both to reduce red ink at the Postal Service and raise revenue for infrastructure improvements. He said that building repairs often took precedent over investment in technology and modernizing processes at the agency.
“We have 31,000 retail centers, we have 20,000 delivery units and we have no money. So that is a big, big part of the problem. When I say we spend $1.1 billion fixing roofs and air conditioning systems, we probably have a need for about $4 billion. And that’s one of the things that we’re looking at now. Our network requires significant, significant investment,” he said. “But we’re out to try and fix that.”
DeJoy spoke to Brancaccio about why he’s prioritizing profitability at the USPS; the possibility of new revenue streams like postal banking and alcohol delivery; and the questions raised over his personal investments and potential conflicts of interest after his appointment. The following is an edited transcript of their conversation.
“We are ready”: How the USPS is preparing for the holiday rush
David Brancaccio: Postal deliveries during this busy holiday season. What do you think, a nightmare to come? Or do you think you have it under control?
Louis DeJoy: David, I have three words: we are ready. It’s going to be a great season for the American people and for the Postal Service system, demonstrating its ability to perform. We started early this year with our planning and we’ve expanded capacity and people, facilities, automation and transportation. But what I’m most excited about is all the operational precision activities we’ve taken on over the last year. And the organization is rallying around this mission, we have great communication and I’m excited to see how it plays out. So tell all your listeners to send us their packages. We’re going to deliver them.
Brancaccio: The reason I raised the question was last year wasn’t so great. I mean, nonlocal first-class deliveries, for example, were running way behind. I think it was [something] like 38% got there on time.
DeJoy: Yeah, it was — we were overwhelmed. Both in terms of our infrastructure, we did not have the infrastructure to deal with the increase in package volume, substantial increase in package volume. We had excessive employee turnover and availability issues — both from, you know, we were, in fact, experiencing the pandemic also, and we had some bad hiring practices that had built up over the years. Our transportation performance was extremely limited and weak in terms of our air transportation, it was extremely problematic, below 50% performance. And overall, we were just not — when I joined, we were an organization in crisis and it manifested itself during a peak period. Much different story this year. We’re ready.
Why DeJoy is slowing down mail and raising postage costs
Brancaccio: Now, I get the fact that the post office was not perfect in every way by the time you got there. These are long-standing issues. But they’re big problems to solve, right? First of all, the internet took a lot of the first-class mail business away from you. And then the internet means a lot more packages are flowing to and fro. It hurts the bottom line of the institution.
DeJoy: That’s accurate. I mean, there’s this disruption in every industry, as as time progresses, and that was one of the flanks that was under attack — the change in the digital communications. But there were also many other things that have contributed. I believe there’s an operational solution to our issues. But at the same time as we were experiencing this 42% reduction in mail volume, we also had poor — we had defective pricing regulation. We had unfair retirement funding legislation. And then we had lobbying against any type of action that the Postal Service took, including pricing changes. And then, I will say, there were limited attempts on our part to correct for that, at least significantly enough. That’s different now. The [Delivering for America] plan takes action to achieve our vision for the future. We cut waste in operations by $35 billion. We have a new way to adjust the packaging business, and gain $25 billion in net revenue. We just recently, finally, got our pricing for market-dominant [products] that is more fair and reasonable, and over the next 10 years, we should see $45 billion in that. And we’re hoping to get our legislation to pass, and that’ll be $50 billion. And the plan eliminates a potential $160 billion loss that was projected when I got here — and enables us to invest $40 billion in our much-needed infrastructure. So we are excited about where we’re going. And we think, at the end of the day, we know mail volume is still under, still has pressure on it, but we think that we can create an integrated mail and packaging network that delivers to the same 161 million addresses, six days a week, at affordable prices, and cover our costs. That’s our goal, David, and the organization is very much excited to engage in it. And that’s what we’re, in fact, doing right now.
Brancaccio: Now, Mr. DeJoy, you embrace a 10-year plan that, among other things, will slow down the mail in parts of the country. And many people think that’s either a shame or they might think, “OK, if that’s for the health of the Postal Service; no pain, no gain.” But then I read that the U.S. Postal Regulatory Commission looked into the 10-year plan and find it won’t save much money in the end. Do you think it’s time to rethink the plan?
DeJoy: No, no. I think the — you know, we have lots of different administrative viewpoints and political viewpoints and industry viewpoints on what it is that we should and should not do. And that’s been going on for a long time now, which is why nothing has been done. We think that — we know, in fact, it’s in the plan — that, listen, we committed to six-day-a-week delivery to 161 million addresses. And that is legislated and part of the universal mission. And on the other hand, we haven’t met our service standard in the last 10 years. And we’ve spent a significant amount of money chasing diminishing mail volumes around the country and delivering to expanding addresses, a million a year. That’s a recipe for disaster. And there was no operational way of solving for that. We think that there is a multiplier effect by integrating into one network, filling up our trucks, filling up our carrier bags and providing this solution. This is not just about the savings, David, it’s about also creating operational precision. And it feeds on itself as you improve your operations, you improve your costs, you improve your reliability — and that’s what we’re doing as we move forward. I mean, we can’t do all things at all cost. And that’s really what the postal act in 1972 established — that we had to cover our costs and, therefore, we had to evolve our services with the times. And that’s what we’re, in fact, doing. And we think that we will be used in the future, and be affordable and be reliable. And we think there’ll be a good place in the American economy for the Postal Service.
Should the USPS prioritize profits or public service?
Brancaccio: But what about that basic assumption that you have to cover your own costs? I know it’s just the way we think, these days, and it’s part of the law, now. But you are a public utility and getting medicine to people in a rural area on time is just something that has to happen. It’s necessary. Maybe operating loss isn’t such a bad thing?
DeJoy: Well, if you’re a postal employee, and you see that the way we’ve survived over the last 10 years is by not paying into our retirement funds, right — and if you see that our facilities, we spend $1.5 billion a year in capital, which is way under what we need to be doing, and $1.1 billion of it goes into replacing old roofs on old buildings and replacing old air conditioning systems in buildings, and not evolving with the marketplace, in terms of automation and so forth — we have harmed this institution over the last 14 years. And so there is no — I mean, I can’t have a policy debate. I’m not a politician. I’m running the United States Postal Service. And I have to have a vision for the future. And I have to have a strategy to get there. And then I need to execute on it, under the rules that we have today. And I don’t see much of that being changed during my tenure here — other than I am hopeful that the Congress reverses the unfair legislation with regard to Medicare, you know, the use of our retirees using Medicare. So there’s plenty of policy debates, and I often get asked those questions, and what I think about the policy is, you know, it would be interesting, but it’s not what I’m here to do. I’m here to run the organization, get the wasted costs out of the organization.
You see, there’s two types of inefficiencies in the Postal Service, David. There’s the inefficiency of us not managing appropriately, operationally and so forth — and there’s a lot of money there. And we say $35 billion, we get out. And then we also add, by properly marketing into the package business, we get new revenue. But we got to root out that operating inefficiency. But then there’s the inefficiency of mission, which is going to 161 million addresses each day, whether you have one package, one piece of mail or nothing, we got to go by it. You know, we have routes that go by every home, every address, 161 [million]. And we sign up to that mission, because that is a fact of law, and that’s what we need to do. But we have to make that efficient also. And then our plan is to drive increased revenue to a common network of mail and packages, where we think we can be successful enough to break even. Now, I mean, there’s plenty of things that — you know, we have a lot of unfunded mandates by the Congress, and, you know, a lot of things that, I think, if we got paid for those things, would be great. But there is wisdom in saying we have to cover our cost, because it makes us be relevant. Now, that wisdom got attacked when they passed [The Postal Accountability and Enhancement Act] in 2006, where they limited our pricing to [Consumer Price Index]. And, you know, our cost components go up much higher than that. And then a diminishing mail volume of 40% really eroded any math that would have made that plan viable. So if it was passed 15 years ago, it was outdated 14 years ago. And that’s been a big reason for our problem. Right now, the Congress wants us to pass that cost on to the consumers, and that’s what our plans need to be based around, until they make a change. If they make a change, then we’ll address it. And the big difference is that this organization, now, is addressing its mission within the framework that has been set out by the Congress, and trying to serve the American people with that six-day-a-week delivery. And the changes we are making in service, I believe, are minor, relative to where we were in actually providing service and where we were going. And I disagree with the [Postal Regulatory Commission] analysis on this.
New revenue opportunities: postal banking, alcohol delivery
Brancaccio: Let’s spend a moment on innovation. I remember when you could walk into a post office in Britain or Italy and do basic banking. You could save, they gave you checks, in some cases. These days, I guess it would be some kind of debit card. But then I see that the U.S. Postal Service is experimenting with some banking.
DeJoy: We — that’s been a little bit overblown. We have gift cards that we’re able to get at retail centers. And one of our largest stakeholders, the [American Postal Workers Union] wanted to — it’s been on the table for a while, looking at taking checks and converting them into gift cards at certain retail centers. And we gave that a limited test of four delivery units. In no way does that constitute an expansion into banking. We have significant regulatory requirements to move forward in any kind of banking thing, and we don’t have the expertise to actually pull that off. So, again, it was, in my mind, much to-do about nothing. And we try many things with our union partners to try and make a better performance, and we have lots of additional types of things regarding delivering of mail and packages that we’re working on together. And I think there’s a plan here for us to break even and serve the American people at affordable prices well into the future. And, David, that’s innovation. And that’s also what our mission is. And that’s what I’m setting out to do here.
Brancaccio: And I know it’s a little early in the morning to think about alcoholic beverages, but I was reading that maybe — I mean, you are prohibited by law from delivering booze and, I suppose, wine. There’s some talk about maybe, if the law were changed, you could make some money off of that?
DeJoy: Yeah, well, we have lots of rules, David. I mean, we can go on. Listen, I’m an operations exec. I took the job when the Postal Service and the nation were in crisis because I believed that there was a way, an operational and sales and marketing way, to fulfill our mission, which is delivering mail and packages in a cost-effective manner. And that’s where I put all my focus on. Even to do that, to change a price, to change a service — we have tremendous administrative hurdles to jump over to get there. And I’ll leave alcoholic beverages and banking for the policy wonks. Right now there’s enough for us to work on here, to reverse an $160 billion projected deficit. And, you know, that’s what we’re working on. And if it comes across that we get the ability to ship a package, as long as it’s a certain sized box and fits our product design that we’re working on? Well, we don’t really care what we, you know, deliver, in the end. But I think that’s a long way off, like any legislation. And it’s not anything I could sit still and wait for — you know, sit behind the desk. The Government Accountability Office, just last month, put out a number of things that Congress should look at with regard to us, and it has to do with services: What level of service does the nation need? It asked the same question: Should we be self-sustaining? And it asked the other question: What type of institution should we be? Well, those are all good questions. But I can’t sit at my desk waiting for somebody to decide that. I think that’s been the problem at the Postal Service, and it has eroded the operational precision the organization needs to perform its mission. It has created stress amongst the workforce. And we’re fixing it. There’s a lot of excitement here at the postal service right now. And I’m very proud to lead this organization as it goes through this transformation. And we’re gonna do it.
Questions over DeJoy’s conflicts of interest
Brancaccio: Now, I do want to ask you about matters of ethics. I want to ask you about allegations that you were slow to address possible conflicts of interest. At first, you recused yourself, I remember, from decisions at the post office that might affect private companies that you and your family have an interest in. But it was only late this summer, I think, when you actually divested. If you met the post office ethics guidelines all along, which I think you’ve said, do you think it’s time to maybe tighten the guidelines?
DeJoy: Tighten? Well, again, I think there’s a lot of sensationalization around, you know, what I owned when I came into the — remember, I came in on 45 days notice, and file information the day I walk in the door, and that’s when I, in fact, get feedback. Now, should there be changes to that? I don’t — again, I mean, it wasn’t uncomfortable for me from the standpoint of, you know, worrying was I doing anything wrong. You know, it just creates a lot of noise. And again, I mean, if the government — I’m not the first person of some level of wealth to join a government agency. I might be, under the current environment, you know, at the Postal Service. But we followed all the government — you know, both the Postal Service rules, the government ethics rules, the [Office of Inspector General] audited it and said everything was fine. And that’s the process that I followed, racing in to try and perform — you know, do my government service. And should that be different? Well, you know, if I had six months to come in, and then we would have evaluated what direction to take, that could be different. This was an emergency type of situation. And that’s for better minds than me to figure out what it should be.
Brancaccio: I ask because I know that the Postal Service is not the central bank of the United States, but the Federal Reserve just tightened up its ethics guidelines after questions of financial conflicts of interest involving Fed presidents came to light. Maybe it’s a time that, you know, that part of the process should be: Are the guidelines in place effective?
DeJoy: Well, you know, I haven’t studied what’s gone on there. But you’ve got to remember, my situation is totally different. I was a private citizen, I owned — I had lot of — the reason I have good operating experience is because I was in that business, OK, and I owned a lot of different things. And I ran into the agency when it was [in a] self-declared crisis, gonna run out of cash in 90 days in the middle of a pandemic, and began to get my advice on what it is I should do — my evaluation, from both the Government Ethics Office and the postal service, while I was employed here. So that was the situation that I came in, and I’ve cleaned all of that up that I could. And I think, you know, if you would ask me, would I have done that had I known what I would have to part with, and what I would go through with regard to my honest life beforehand? That would be more of a question. Should somebody engage in this if they’re going to go through that? But, in any case, I’m here, and this is, you know, what has happened. And I’m not an expert on government ethics rules, and there are plenty of people that proclaim to be, so we’ll evaluate that.
(A postal spokesperson later clarified, “As confirmed by the Office of the Inspector General in sworn congressional testimony in February, the Postmaster General has followed guidance from postal ethics staff, set up screening arrangements to avoid potential conflicts and divested appropriately. When and how he divested reflects the process he was instructed to follow by the Postal Service ethics office in compliance with federal ethics regulations. Additionally, the Postmaster General’s divestiture was fully approved by the Office of Government Ethics.”)
Infrastructure challenges: “We have no money”
Brancaccio: You’re very candid, Postmaster, about the infrastructure challenges at the actual post offices. You know, roofs that need to be fixed. I just went down to mine in suburban New Jersey, and they’ve only got one of the automated machines and it’s broken, it wouldn’t do postage. This was just on Friday when I went over. And then there’s a sign up at the counter that said they wouldn’t take any cash. Now, I have a debit card, so no big deal, but not everybody does. I mean, it’s clear that the post offices themselves need work.
DeJoy: Well, we have 31,000 retail centers, we have 20,000 delivery units and we have no money. So that is a big, big part of the problem. When I say we spend $1.1 billion fixing roofs and air conditioning systems, we probably have a need for about $4 billion. And that’s one of the things that we’re looking at now. Our network requires significant, significant investment. So it’s everywhere. And that’s the shame of the situation that we’re in, and there’s many contributors to creating that condition. But we’re out to try and fix that.
Brancaccio: And, again, you’re optimistic, somehow.
DeJoy: Candid and optimistic is the definition of me.
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