Goodbye to Saturday mail delivery

The US Postal Service (USPS) has announced its plan to end Saturday delivery of first class mail in August 2013. While this should not come as a surprise, as the Postmaster General has been advocating this plan for over a year now, the American Postal Workers Union President announced his opposition to the plan, as he believes a solution must come from Congress. Some lawmakers also appeared to have been a bit surprised as one Senator noted that the Postal Service should have allowed Congress more time to find a legislative solution. Sadly, the US Postal Service is running out of options as it lost almost $16bn during its last fiscal year and defaulted on Congress-mandated pension payments. Waiting for Congress to act will surely result in bankruptcy for the US Postal Service which does not accept tax dollars to operate.

Under the plan, post office hours will not change and post office boxes will continue to receive Saturday delivery. Although there will be no first class mail delivery, there will be parcel delivery services. The Post Office is banking on e-commerce growth and parcels to bring the beleaguered group back into the black.

The volume of parcels has indeed grown over the past three years at 14.6%, while First Class Mail has declined 11.5% for the same period. In terms of revenue, the parcels segment has increased by more than 14% over the past three years and in 2012, it represented 18% of total USPS revenue. However, parcel’s contribution to total revenue has increased only 3% from 2010; therefore it has a long way to go if it is to become a major competitive threat against UPS, FedEx and the regional parcel providers.

Still, Saturday parcel delivery would be a competitive advantage for the US Postal Service. FedEx and UPS also deliver on Saturdays, but at a higher price in many cases. In addition, its relationship with UPS’s SurePost and FedEx’s SmartPost has been and will likely continue to be financially beneficial for each of the providers. But it does make one wonder if, and how, the relationships between the three will change based on the US Postal Services emphasis on e-commerce and parcels.

Postmaster General Donahoe answered his critics to this controversial plan by saying, “America’s mailing habits are changing. This makes common sense.” True, but it will be a long road to recovery for the US Postal Service.