USPS Losses Threaten Ecommerce Shipping

The U.S. Postal Service is in need of significant changes to meet its obligation to serve all American households, as stated by Postmaster General David Steiner.

Speaking before the U.S. House Subcommittee on Government Operations on March 17, Steiner painted a bleak picture of the USPS’s deteriorating financial situation.

He attributed this crisis to a sharp decline in mail volume from 213 billion pieces per year to 109 billion, resulting in an estimated $81 billion loss in income at current rates.

Steiner remarked, “No company could withstand such a substantial revenue decrease.”

He emphasized the lack of options available to the USPS compared to private companies, stating, “We don’t have options. We have mandates.”

This warning is not new, as the USPS has been reporting losses for years, prompting various reform efforts.

The urgency surrounding the situation is now more prominent, with talks of reducing delivery days and tightening operations indicating a shift from long-term concerns to immediate risks.

For online retailers, the declining condition of the USPS raises concerns. What if the USPS becomes slower, more expensive, or less reliable?

Additional Challenges

Shortly after the hearing, the USPS faced more challenges. Several news outlets, including The Wall Street Journal, reported that Amazon planned to significantly decrease its use of the USPS for parcel deliveries.

In a blog post on March 18, Amazon stated, “Our goal was to increase our volumes with USPS, not reduce them — until USPS abruptly walked away at the eleventh hour in December.”

Amazon’s current agreement with the USPS is set to expire in September.

Importance of USPS

Despite financial struggles, the USPS remains a vital player in the ecommerce industry.

It often offers the most cost-effective option for lightweight parcels and reaches every address in the U.S. without additional fees.

Private carriers rely on the USPS for “last-mile” delivery through programs like UPS’s SurePost and FedEx’s SmartPost.

Instead of competing with UPS, FedEx, or Amazon’s Prime Delivery, the USPS provides essential support to a significant portion of the ecommerce industry’s shipping infrastructure.

Proposed USPS Changes

The Postmaster General has put forth several suggestions to ensure the agency’s financial stability.

• Reduced delivery days. Steiner advocates for cutting mail delivery from six to five days per week, potentially saving billions annually but affecting delivery speed.

• Closure of post offices. With around 60% of post offices operating at a loss, there is a proposal to close some locations, particularly in rural areas, to reduce costs.

• Price hikes. Steiner hints at possible increases in postage rates, including the price of a First Class stamp, to generate additional revenue, even though it may raise shipping costs for businesses and consumers.

• Regulatory and policy adjustments. There is a focus on addressing financial challenges stemming from regulatory constraints like pricing limits and pension obligations, which may require legislative or regulatory actions.

• Borrowing. The USPS has already reached its borrowing limit of $15 billion, set decades ago. Increasing this limit could provide short-term liquidity while long-term reforms are debated.

Implementing these options is complex, as cutting services could impact the USPS’s value proposition, price hikes could decrease volume, and policy changes rely on political consensus.

While the USPS cannot fail like a private enterprise due to its constitutional mandate, it is open to change. The nature of these changes, whether as suggested by Steiner or more radical, remains to be seen as the ecommerce industry observes developments.