Could private partnership be the answer to the USPS woes?

Financial woes continue for the US Post Office (USPS) as costs climb and the US government refuses to do what is needed to turn the beleaguered independent government agency around. For twenty of the past twenty-two financial quarters a loss has been recorded with the most recent for the period ending March 31 being $1.9bn.

It’s the same story quarter after quarter – first class mail volumes, the most profitable division, is in decline while the shipping and packaging business volumes are increasing. In addition is the 2006 government requirement for the US Post Office to make payments into its future retiree’s health fund.

The Postmaster General has outlined measures to set the post office back on track however the measures seem to continuously run up against a major road block – politics. One example is that to end Saturday delivery of first class mail. Estimated at possibly saving the post office $2bn a year, the measure was defeated by US Congress with such reasons as job losses, unfair to elderly and rural postal customers and according to one legislator, “should we have a cyber-attack in some part of the country, we’ll always have mail as a backup.”

Another measure that is possibly facing political challenges is that of alternative forms of delivery locations. In late May, the U.S. House of Representatives Oversight and Government Reform Committee approved the Secure Delivery for America Act of 2014. It is now headed for a vote by the full House, and if finally approved, the bill would require the conversion of 15m at-the-door mailboxes to other forms of delivery, such as curbside units or centralized “cluster boxes,” within a decade. According to the Committee, the USPS would recover the $73 per address cost of these alternate forms of delivery locations after five months due to lower delivery costs. Not surprising, one of the postal unions noted “it would inconvenience millions of Americans and small businesses and it would weaken the personal contact between residents and letter carriers”.

So, in order to keep delivery going six days a week (and in some locations seven days a week with its partner Amazon) along with possibly continued delivering to each home, business and door mailbox, a proper fleet of trucks is needed. According to the Inspector General of the USPS, there are over 190,000 vehicles consisting of delivery vans that are between 20 and 27 years old. It is estimated that it will take $452m to replace the entire fleet – money the agency does not have.

Perhaps it’s time to think private investment.

Amazon would certainly make for a good partner. The USPS already has formed an agreement with Amazon to delivery Sunday parcels in almost 20 US cities. It also factors into Amazon’s rumored US network redesign that supposedly cuts out UPS and FedEx. In fact, there may be evidence of this shift away from the duopoly as noted in FedEx’s recent financial earnings release. Average daily volumes of its SmartPost product, of which USPS performs the last mile delivery, declined 8.0% year-over-year due to one customer opting to go directly to the USPS instead. That customer is rumored to be Amazon.

Another possible investment partnership could be DHL. Forget for a moment the company is based in Germany and its last venture into the US domestic US market was a painful $10bn loss. It has recently reorganized its former mail division and renamed it Post-eCommerce-Parcel and is targeting cross-border logistics for the e-commerce sector on key international trade lanes, and has plans to bring its German e-commerce parcel “success model” to other countries in Europe, Asia and the Americas. According to its CEO, Deutsche Post’s DHL express courier business exited domestic delivery in some countries in Europe such as France and Britain because of the substantial losses it had racked up there. “We will now examine whether it makes sense to enter again these markets,” he said, adding, “Time will tell whether we want to have our own activities or whether we will offer them together with partners.”

Could this include the US as well?

Competition is needed in the domestic market. Even though regional small parcel providers are certainly making their mark on parcel delivery, these providers still represent a small percentage of the overall market. A provider with deep financial pockets, strong IT systems and supply chain know-how is needed to compete effectively and with a US e-commerce market growing in double-digits; there are plenty of parcels to be shared among providers. A partnership with a provider with these credentials could certainly help the USPS become a major competitor in this fast growing market.