Back in February of 2017, USPS sent a warning regarding its one consistently successful product. In a government filing, USPS stated that the multi-year growth of its shipping and package operations could be threatened if the three customers most responsible for the business, those being FedEx, Amazon, and UPS, continued to expand their own shipping infrastructure, diverting business away from the United States Postal Service.
Nearly two years later, it seems that this prediction may have been unfortunately accurate. In the fiscal third quarter results that USPS released last week, they said that quarterly package and shipping volumes fell year-over-year for the first time nearly a decade. According to USPS, the reason for this decline of the delivery service called “Parcel Select,” USPS last-mile delivery service. The idea was that private sector partners would induct and ship parcels far into the postal infrastructure for cheap last-mile deliveries. Shipping and parcel revenue increased year-on-year due to thanks to gains in priority mail and parcel post volumes.
The current declines in this quarter could be just the beginning for USPS. Its three rivals are expanding their transportation infrastructure at an alarming rate, and they are also advancing towards the last-mile delivery that they had outsourced to USPS in the past. In June, FedEx claimed that it would handle the twenty million daily parcels it tenders by 2020, having already redirected twenty percent of the packages it had once outsourced. While UPS hasn’t announced any further plans, they too have internalized about 35% of what they used to outsource to the US Postal Service. Furthermore, both UPS and FedEx will launch seven day ground delivery by 2020.
And of course, Amazon has been pouring a lot of its resources into improving its transportation infrastructure, allowing it to deliver to high-density markets once handled primarily by USPS. The US Postal Service is being pushed out of its geographical margins by the e-commerce giant.
Courts are debating whether or not FedEx can build operating efficiencies that that lower its cost below what they would usually pay USPS. With two million added parcels a day, they would need more vehicles, drivers, road time, and more time per stop. One extra minute a stop would ultimately result in 33,333 new daily hours.
Unfortunately for USPS, it has no choice but to raise rates on its services in order to compensate for the business it is losing, but at the same time, that makes it less likely that it will retain customers. How they seek to rectify the situation is a mystery, considering that they are just well and truly between a rock and a hard place.
