More packages, higher prices and a longer window to deliver first-class mail underpin the U.S. Postal Service’s plan over the next decade to overhaul the agency’s operations and avoid more than $100 billion in projected losses.

The proposals to be disclosed Tuesday are part of Postmaster General

Louis DeJoy’s

strategy to improve reliability, modernize operations and financially overhaul the cash-strapped agency. The plan hinges on legislative relief long sought by the Postal Service to ease its financial burdens for retiree benefits as well as spending to build out the network to capitalize on the growth of e-commerce. (See highlights of the plan.)

Mr. DeJoy projects the moves would help the agency break even over the next decade, through a combination of boosting its package business and reducing costs to account for the precipitous decline in mail volumes. The agency has lost money in each of the last 14 years, including a $9.2 billion net loss in its last fiscal year.

“The biggest change here is that we have a growth plan,” Mr. DeJoy said in an interview.

The plan confronts the opposite courses that two of its key businesses have been on for years. Annual revenue from first-class mail is down more than 36% since 2007. Meanwhile, revenue from packages has nearly tripled during that same period with the explosion in online shopping. Neither trend is expected to stop.

“You can’t chase the mail down,” Mr. DeJoy said. “You have to ride the growth up.”

Mr. Dejoy, shown during a House committee hearing Feb. 24, says ‘The biggest change here is that we have a growth plan.’



Photo:

Graeme Jennings/Zuma Press

The Postal Service has long structured its vast network around the sortation centers and truck routes needed to move flat letters. Mr. DeJoy said it has missed out on opportunities to expand its package business with more processing sites and equipment better attuned to moving boxes from one destination to the next. During the pandemic, for instance, the Postal Service’s package arm was strained with the influx of packages, and its growth trailed the industry.

To address the decline in first-class mail, Mr. DeJoy proposes raising rates on first-class mail faster than the Postal Service has been allowed to in the past. Previously, the upper limit was tied to inflation, but the Postal Regulatory Commission last year gave the agency more leeway to raise prices.

“The government has told us to break even, to be self-sustaining,”

Ron Bloom,

chairman of the Postal Service’s board of governors, said in an interview. “They’ve also told us that the only place you get money is from the sale of your product. The only way that circle squares is if we can charge a little more for our product.”

In tandem with higher prices, the Postal Service will look to change the service standard for first-class mail, allowing it to take up to five days to arrive instead of three. Over the last eight years the Postal Service hasn’t been hitting its target of delivering first-class mail within the window 96% of the time. Widening that service window will also allow the Postal Service to use more lower-cost ground transportation to haul mail across the country instead of paying for costlier air transportation.

Messrs. DeJoy and Bloom said they were committed to continuing mail delivery at six days a week, rejecting some prior proposals that called for reducing delivery days to mend the agency’s finances. Their plan also doesn’t include widespread layoffs or closures of local Post Offices.

The proposal will be reviewed by a Congress that has been split along partisan lines and so far unwilling to answer the Postal Service’s calls for relief. Unions representing many of the Postal Service’s more than 640,000 workers are expected to weigh in. So could big users of mail and businesses, including e-commerce giant

Amazon.com Inc.,


AMZN 1.84%

that have been lobbying against increases in postal rates.

Mr. DeJoy is a relative newcomer to the Postal Service. The former logistics executive and Republican donor was appointed Postmaster General in May 2020. He came under fire from Democrats last year for poor service levels and operational changes he started ahead of the presidential election. He put changes on hold until after the election.

Mr. Bloom, who in the Obama administration helped engineer the U.S. auto bailout, joined the postal board in August 2019 and was elected chairman in February. He is a former union negotiator and Wall Street banker who in 2011 advised the National Association of Letter Carriers.

Mr. Bloom said he hoped that the plan generated bipartisan support and was evaluated in totality. “Are we going to come together in a bipartisan way and ask, ‘Do we want what’s good for the Postal Service?’ or do we want to play politics?” Mr. Bloom said.

Mr. DeJoy said many of the operational changes could be enacted, while others, including higher prices and new service standards, will require approval from the Postal Regulatory Commission. Although some operational shifts he put in place last summer led to temporary delivery problems, Mr. DeJoy said the agency would be able “to make these moves…without a real hit to service, and pull off our cost objectives also.”

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The Postal Service plans to move more first-class mail and packages by truck instead of by plane, where it relies on third-party carriers such as

FedEx Corp.


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, a move it says will save money and improve delivery times.

Shifting more volumes to ground would also improve efficiency by using more space in trailers, the agency says. “We have put way too much of our cubic foot movement up on air,” Mr. DeJoy said, while trucks in the Postal Service’s network are running at around 35% full.

To help handle that load, the Postal Service is rolling out new automated equipment, including some 185 new package sorters. It plans to convert 21 distribution centers that now process marketing mail, periodicals and packages into dedicated regional package-only sites.

The Postal Service will ask Congress to integrate its retiree health plans with Medicare and rescind a requirement that the agency prefund its employee retirement benefits decades out into the future.

More than a decade of losses have put the U.S. Postal Service in a dire financial situation. To understand how this happened, WSJ takes a look back at how the modern postal service became an entity balancing public service and the need for profit. Photo Illustration: Jacob Reynolds/WSJ (Video from 9/2/20)

Mr. DeJoy’s predecessor had sought similar legislative changes. Despite some bipartisan support, none have advanced in Congress. The retiree changes alone would account for about $58 billion of the $160 billion hole that Mr. DeJoy is seeking to plug over the next decade.

“We’ve been having good conversations with both sides of the aisle and hopefully with this plan, we will get more and more support,” Mr. DeJoy said. “I’m counting on that.”

Mr. DeJoy said some of the initiatives in the plan, which was hashed out over eight months during the pandemic, aren’t too far off from what the Postal Service has sought to enact in previous years but never took on.

“Legacy thinking has kept the Postal Service where it is and not evolving,” Mr. DeJoy said. “This plan is about evolving.”

Write to Paul Ziobro at [email protected] and Jennifer Smith at [email protected]

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