The Postal Service Is Overhauling Its Surface Transportation System – And It’s A Big Deal

November 11, 2022

Since the Delivering for America plan was published by the United States Postal Service (USPS) in March 2021, much has been written about price increases and changes to delivery standards. That is not surprising. For most, including USPS enterprise customers, their relationship with the Postal Service turns on cost and delivery expectations.

What may be surprising, however, is that another significant change has been in development for at least the past 18 months. Its accelerating implementation will have profound implications for the continued relevance of this uniquely American institution in the decades ahead.

Today, mail and packages move through USPS’s national network of facilities comprised of at least 86 annexes, 71 terminal handling service facilities, 236 processing and distribution centers, 21 national distribution centers, and 13 surface transfer centers. These facilities—some of which share the same responsibilities—process, sort, and distribute mail and packages before they reach the 19,000 delivery units and their final destination.

This inter-facility volume is primarily transported by approximately 1,700 surface contract transportation or highway contract route (HCR) suppliers on which the Postal Service spends between $5 billion and $6 billion annually. HCR suppliers operate several different types of contracts including long-haul, short-haul, and regional contracts. A significant number of those contracts are operated by small HCR suppliers.

The surface transportation operation today is the product of successive efforts by previous USPS administrations to address the growth of mail throughout the 1990s and, more recently, the emergence of the package and ecommerce market.

Even considering USPS’s incomparable obligation to deliver to and pick-up from 163 million locations six days a week, its current operations can be dizzying. Mail has to be transported to multiple facilities before advancing through the network, facilities can be poorly designed or under-utilized, and HCR suppliers’ trucks are operating less than full. It would be hard to find a transportation network of similar complexity and delivery demand in the world.

It is also about to change.

Under Postmaster General DeJoy’s Delivering for America plan the surface transportation network will be optimized in way which it has not been for decades—perhaps ever. New or repurposed facilities will be designed to efficiently process and distribute mail and packages in a logical flow that will enable USPS to deliver to most of America in two days.

Enterprise customers will be able to better leverage USPS’s unmatched distribution network by entering volumes at various downstream facilities. And the improved network design will simultaneously ensure the full utilization of HCR suppliers: trucks will be full and unnecessary trips eliminated. The facilities at the core of this redesign are being established now.

But new facilities and network design alone will not ensure the Postal Service’s continued ability to provide reliable, valuable service to the nation, or compete for ecommerce market share. Adding more or different facilities has been tried before.

Here is where the Delivering for America plan is most different. It embraces the objective of making USPS a market-leading logistics operation. It has already taken significant steps in that direction.

USPS is in the process of rolling out a state-of-the-art technology platform to provide end-to-end execution of a unified logistics operation. For the first time in Postal Service history, it will have complete, real-time visibility into its surface transportation network. That visibility will enable better transportation and facility planning and management. It will also enable the Postal Service to dynamically respond to customer needs, volume volatility, and supply-chain challenges.

Still, it is not yet time to chill the champagne. The successful execution of the network redesign and the leveraging of new logistics capabilities turns on one additional factor: transportation industry buy-in.

A modernized surface transportation network requires modernized, technologically sophisticated surface transportation suppliers. Maintaining partnerships with those types of companies has not been something the Postal Service has had to do.

Instead, previous USPS administrations have relied upon a uniquely dedicated network of diverse trucking companies, many of which exclusively contracted with the Postal Service. While some of these companies have been leaders in the broader transportation industry, it was never a prerequisite.

The Delivering for America plan demands more from its HCR suppliers.

Both longstanding and new suppliers will have significantly different operations empowered by technology and data. That modernization will help USPS achieve its transformative objectives, but it may also open the door to an unanticipated consequence: greater volatility in the HCR supplier network.

Longstanding suppliers, some of which could have been characterized as captive fleets for USPS, will be better situated to diversify their business away from moving the mail. And while it will be easier for new suppliers to integrate with the Postal Service’s modernized, logistics network, those companies can also easily disengage.

HCR supplier network volatility could come with both financial and operational costs. Those potential costs, however, can be mitigated by USPS with steps it can take today that do not turn on the new logistics platform or forthcoming network redesign.

By being a world-class leader—more than just adopting prevailing transportation industry practices—in contracting processes and supplier engagement, the Postal Service could become the most desirable shipping service partner in the nation. The consistency of contracting opportunities already set it apart. HCR suppliers, both existing and prospective, would be reluctant to lose or release contracts with the Postal Service knowing that it would be difficult to achieve the same degree of stability with other customers.

Improvements in solicitation transparency, supplier evaluations, contract dispute resolution, and contract negotiation processes would mutually benefit both HCR suppliers and USPS with reduced costs, better service, and increased operational efficiency.

Fortunately, today’s USPS leadership knows this after having designed successful transportation networks and strategies for some of the nation’s leading logistics and shipping companies. Improvements in these areas, at least some of which are already underway, would eliminate unnecessary headwinds as USPS implements the Delivering for America plan.

Perhaps even more so than pricing issues or changing delivery expectations, the impact of the Postal Service’s transformation of its surface transportation network will reverberate for decades. The Delivering for America plan, with the transportation industry’s support, will reinvigorate the mailing industry and change the ecommerce landscape. What is being built today is not just a fix targeted at today’s challenges, it is also the future of the United States Postal Service. A holistic approach promises that its future will be bright.

About the Author: Greg Reed is Executive Director of The National Star Route Mail Contractors Association, the trade association for transportation companies that contract with the U.S. Postal Service.