NOW

NEXT FIVE YEARS: USPS Sees Volumes Declining, Delivery Points Growing

In accordance with federal law, the USPS has released its five-year strategic plan covering its goals for 2020-2024. The plan includes the usual statements on legislative reform, but there is no discussion of privatization. There is an estimate that mail volumes will decline by 18% over the next five years.

Click to download USPS Five Year Strategic Plan 2020-2024

Excerpts from from the plan:

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Key Forecasted Trends

The rapidly changing business conditions under which the Postal Service competes, coupled with the evolving needs of our customers, require us to adapt in order to maintain our relevance to the American consumer and to strengthen our business. The next five years are likely to usher in dramatic technological, social, and environmental changes that will fundamentally change the way we live, work, and relate to one another.

We are seeing rapid technological advances across many areas that include artificial intelligence, advanced energy storage devices, next-generation broadband, autonomous machines, augmented reality, social networks, internet of things, and quantum computing.

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Beyond the dramatic technology advancements, we are facing continued and significant environmental and demographic changes. Experts forecast that every year the United States will experience more extreme weather events. In addition, the Census Bureau estimates that the United States will continue to see population growth, but with more growth in citizens older than 65 than younger than 18 over the next five years. Beyond the trends that are established and significant, these technological, social, and environmental changes will drive changes in ways that we do not yet understand.

Over the next five years, the three trends described in the following paragraphs are expected to become more pronounced and will significantly impact our current business model.

Delivery Points Grow and Mail Volumes Decline

The transition from print to digital communications and business transactions will continue. Businesses will continue to conduct more transactions electronically with consumers, putting continued downward pressure on First-Class Mail volume, which currently provides the greatest contribution toward covering our institutional costs.

Digital advertising currently captures more than 50 percent of advertiser spend and is forecast to continue to increase almost 10 percent each year, while the portion captured by direct mail (postage costs only) is expected to decline by almost 5 percent per year.

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Our forecasts for delivery points (excluding PO Boxes) assume a growth of 5 percent, or 6 9 million delivery points by 2024, as shown in Exhibit 3. Meanwhile, our baseline forecast for total mail volume anticipates a decline of 18 percent over the same period, leading to a decrease in revenue per delivery point of 4 percent. This will continue to cause declines in daily pieces per delivery point, which has gone from 3 8 in 2014 to 3 3 in 2019, and is forecast to drop to 2 6 daily pieces per delivery point by 2024.

Although our baseline forecast shows continued decreases in the demand for mail delivery services, there will still be significant demand and the expectation that all United States residents will retain the ability to send and receive mail delivery services from their homes and businesses.

We believe there is an opportunity to reposition the value of mail with businesses, retailers, and marketers by integrating digital features with the physical delivery experience to enhance their omni-channel communication and marketing campaigns. Successfully repositioning mail as a value-added feature to digital communication opens new opportunities to retain existing customers and reach new ones.

Competition Increases for Last-Mile Package Delivery Services

We believe that the growth in domestic mobile e-commerce sales will continue to outpace the growth in brick-and-mortar retail sales. Historically, the growth in domestic e-commerce sales has correlated well with the growth in the number of domestic parcel shipments. We see this relationship changing in the future as consumers buy more expensive items online and e-commerce companies combine more products within a single shipment.

In addition, we envision more downward pressure on the growth of parcel volumes shipped via the Postal Service due to continued growth in competition in first- and last-mile delivery services, especially from large retailers and other domestic carriers using part-time on-demand workers.

The following trends will continue to fundamentally transform the profile of the shipping market:

— Consumer demand for accelerated shipping and retailer investment in supply chains will lead to strong growth in the one-day and local shipping markets and increase demand for local entry.
— The two-day and regional markets will remain relevant for shippers with fewer distribution centers and stabilize demand for competitive network products.
— The distance that parcels travel for delivery will continue to decline and the 3-day+/national markets will shrink.
–Marketplaces will continue to rely on network products but will face increasing pressure for delivery in two days.

Package volumes, which have more than doubled since 2010 and have been the Postal Service’s primary source of revenue growth, began to demonstrate slowing growth beginning in 2017, as customers began to insource more of their last-mile deliveries.

Year-over-year growth declined from a high of 16 2 percent in the first quarter of 2016 to negative 2 4 percent in fourth quarter of 2019. As such, we forecast that package volumes delivered through the Postal Service network may decline slightly in 2020 and 2021 and grow modestly thereafter.

In response to these trends, the Postal Service has a parcel strategy that underpins our forecast. The strategy is to grow product value by both enhancing our offerings and keeping prices competitive.

In summary, the core elements of our parcel strategies are to continue to leverage the strength of our last-mile delivery services by expanding Sunday deliveries, expanding same-day and next-day deliveries, enhancing return services for business and consumers, and enhancing our end-to-end network to meet the growing demand for low cost, reliable, ground shipping. Continuing to grow profitable parcel delivery operations is key to supporting the revenue forecast in the baseline.

Absent Legislative and Regulatory Changes, USPS Financial Losses will Continue

Despite continued innovations across our existing service offerings, expanded digital offerings, and implementation of aggressive cost controls, we project continued annual losses over the next five years assuming no legislative or regulatory reform.

Volume is expected to decline while revenues stay relatively flat due to a price cap and other marketplace trends. Our financial challenges reflect the dynamic that our largely fixed and mandated costs continue to rise at a faster rate than the revenues we are able to generate in a highly competitive marketplace. Without more flexibility to respond to the changing market in an economically rational way, we expect to run out of liquidity by 2021 if we pay all our financial obligations — and by 2024 even if we continue to default on our year-end, lump sum retiree health-benefit and pension related payments.

Click to download USPS Five Year Strategic Plan 2020-2024

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