Transcript

Welcome to the podcast, everyone! Wow, there have been a lot of changes in the short time since the last podcast.

We had a contentious hearing between The House Committee on Oversight and Reform and PMG DeJoy, three new Board of Governor appointees from President Biden, and a decision on the industry’s appeal to the DC District Court to delay implementation of a mid-year USPS price increase. It’s a lot of activity, but here are some of the key highlights.

Let’s start first with the House Committee hearing on February 24. For five hours, the House Committee listened to testimony from PMG DeJoy, BOG Chairman Ron Bloom, USPS Inspector General Tammy Whitcomb, APWU President Mark Dimondstein, Quad Graphics CEO Joel Quadracci, and Kevin Kosar a resident scholar of the American Enterprise Institute. Most of the hearing focused on the significant service performance delays the industry experienced during the 2020 fall mailing season and especially during the holiday season.

PMG DeJoy acknowledged the delays and apologized for them, primarily blaming the impact of the COVID-19 pandemic on USPS employees and logistics challenges with air freight; especially for First-Class Mail. Some Congressmen again seemed to imply that the performance was due to the dismantled sorting equipment the PMG did in 2020, but PMG DeJoy said that was not the case as those sorters would not have helped the situation.

Perhaps one of the more contentious exchanges of the hearing was between Congressman Cooper from Tennessee and PMG DeJoy. After a series of back and forth questions regarding market-dominant and market competitive mail class aspects and universal service obligations, Representative Cooper incorrectly stated that PMG DeJoy was a “political appointee” from the prior administration; a point that drew a sharp response from PMG DeJoy correcting the Congressman that the PMG was unanimously appointed by a bipartisan Board of Governors. Representative Cooper asked PMG DeJoy how long he planned to stay and the PMG replied, “A long time. Get used to me!” This seemed to be a continuation of the friction we saw in the August 2020 hearings.

There were other tense exchanges as well including Representative Wasserman Schultz who was still upset about not being able to tour postal facilities last year, and Representative Katie Porter from California who asked the PMG how much longer until the USPS runs out of cash. The PMG answered, “We could run out of cash tomorrow if we paid our bills.” An interesting response to be sure.

Look, while the political theatrics were interesting to watch, as many House hearings have been, there was an underlying serious purpose for this hearing. A piece of legislation entitled the “Postal Service Reform Act of 2021”, or also known as the “USPS Fairness Act” is being considered which would provide the USPS with three key provisions.

• The USPS would be able to set their own service standards of measurement. It basically would enable the USPS to set the “bar” at whatever height they deem is appropriate to “meet” for service performance. Given how poor the service performance has been, including the continued embargo of mail at certain entry facilities; something the PMG seemed to deny, and the admission that they did not follow normal FIFO procedures for mail acceptance and processing, this seems like a bad idea to many in the industry. The USPS should set service levels to the expectation of their customers, not what they think they should be.
• This proposed legislation would require current USPS employees to enroll in Medicare and give those over 65 three months to enroll. Approximately 73% of USPS employees are enrolled, but that still leaves a meaningful number that need to enroll into a system that they have already paid into and help save the USPS about $10B over ten years.
• Remove the $35B debt to prefund retire healthcare, a provision introduced in with PAEA back in 2006 and is a problem Congress created that Congress needs to fix.

While the proposed legislation was a primary reason for the hearing, there was also a lot of interest in when the USPS would release their 10-year strategic plan to ameliorate the projected $160B loss. PMG DeJoy stated that the plan, which was created entirely within the USPS and not with outside consultative firms, should be presented to Congress in roughly the next two weeks. It has been speculated that part of the plan is to move First-Class Mail from air service to ground service, which would only further delay this important class of mail. We will certainly be watching for this 10-year plan and will provide a podcast when it is published.

The next topic to discuss is the Board of Governors. On my last podcast, I talked about Title 39, section 202 and how it is the Board of Governors that are responsible for the hiring and firing of the PMG and not the President of the United States. Just a week after my podcast, coincidentally President Biden did put forth three nominations and I personally think they are excellent candidates for the Senate to consider and hopefully confirm soon.

The first is a name the industry knows well and that is former DPMG Ron Stroman. Ron understands the industry, has been to the PCC, NPF, MTAC, and various industry associations listening to the mailing supply chain. He knows how to work with Congress and will immediately be the most industry knowledgeable person on the Board of Governors if confirmed. I personally think Ron is the right person right now for the BOG.

The second candidate is Anton Hajjar, the former general counsel of the American Postal Workers Union. This too is a candidate that would add an important voice to the Board of Governors from USPS labor.

And the third candidate is Amber McReynolds, the chief executive of the National Vote at Home Institute. Amber brings an excellent voice to the Board of Governors at a critical time when many states and election offices are still looking at what went right and what went wrong with the 2020 elections. Vote by Mail will continue to be a topic and I personally think we will continue to see much more of it going forward. The key is to make sure we have the proper visibility and confidence that the ballots are going to the correct and eligible voter and that the entire process is done with the utmost in security and compliance with the Law. Amber seems like the right person to help make that happen.

During the Congressional hearing, Representative Bush from Missouri made the comment that the current Board of Governors “…looks like a millionaire white boys club.” She must have known when she said that, that the current Administration was already preparing the nominations of two men of color and a woman. And while I can appreciate the Congresswoman’s concern about having a more diversified USPS Board of Governors, I think it is more important to note the proven experience these candidates bring to a USPS that needs their leadership. Let’s hope with these confirmed appointees that the USPS will once again have a full Board of Governors and not allowed to go completely empty as it had under prior Administrations.

Finally, I wanted to update you all on a potential mid-year price increase. During the MTAC meetings in late January, PMG DeJoy said that a price increase was “imminent” and would leverage the increased pricing authority the PRC granted them under their interpretation of Title 39, section 3622. The industry pushed back on that and filed a motion to delay the implementation of this pricing authority. Unfortunately, the courts just recently came back denying this request stating that: “Petitioner has not demonstrated the type of imminent and irreparable harm necessary for a stay.”

While this is disappointing for many in the industry, it does present perhaps an opportunity to rally together and demonstrate how unexpected price increases in the past have indeed impacted the mailing industry. In fact, that was a point that Quad Graphics CEO Joel Quadracci tried to make during the House hearings. Back in 2007, catalogs had a huge price increase of 10% to 40% in some cases and we saw flat mail volume drop significantly. That drop in volume then further eroded any value or cost savings with the FSS initiative the USPS was rolling out at the time.

While the industry was asking for the courts to stop the “imminent” price increases, the major industry associations also quickly worked to send a letter to PMG DeJoy urging him to not increase prices. However, given the testimony at the House hearing, it seems likely that PMG DeJoy has already made his mind up to move forward with what could be a 6.5% or higher price increase this summer.

We will certainly continue to watch these events in the coming days ahead and will look to do another podcast when the USPS 10-year strategic plan is published. In the meantime, I would like to thank you again for listening to today’s podcast. If you have any questions or would like to contact us, please visit www.bccsoftware.com or give us a call. As always, we would like to know How Can We Help? Have a great day and hope to hear form you soon!