Understanding Postal: Not Your Father's Postal Service

I still remember when Oldsmobile ran its memorable ad series using the "it's not your father's Oldsmobile," in an attempt to attract younger buyers and change its image. Watching the U.S. Postal Service lately makes me think of that ad because it's also looking to attract the next generation of customers and change its image. Gone are the days when the Postal Service was all about mail and little else. As First Class mail volumes — the Postal Service's high-profit margin bread and butter — continue to decline, the USPS is looking hard at other sources of revenue.

A Bigger Piece of the Parcel Pie
One area that the USPS has aggressively pursued in the last couple of years is growing its parcel delivery business. While the USPS doesn't have as large a share of the overall parcel market as competitors UPS and FedEx, it's tops for some weights/distances, particularly the lightweight parcel market.

According to the USPS's Household Diary Study, which it conducts each year with over 5,000 U.S. households recording information on their incoming and outgoing mail, households in 2013 received about 3.5 billion packages delivered by the USPS, and sent about 0.8 billion packages via the USPS. This volume doesn't include packages sent or received by businesses. The USPS report said its volume of household packages was relatively the same as the previous year, but noted that internet access plays an important role in package volume sent/received by households. It reported that in 2013, households with broadband internet access sent five times as many packages and received over two times as many packages as households without internet access.

The USPS's efforts to increase its parcel market share have included a redesign of its Priority Mail and Priority Mail Express parcel services, a revamp of many of its Special Services for parcels, testing of same-day delivery and Sunday delivery in select markets, delivery of parcels into GoPost and Amazon.com parcel lockers, and a variety of enhancements around its returns services.

Recently, the USPS has reduced some of its commercial Priority Mail prices, announced it won't move to dimensional weight pricing like UPS and FedEx will, and is holding off an annual price increase for package services that would have taken effect in January 2015. Between the USPS's recent pricing moves and its growing relationship with Amazon, competitors UPS and FedEx seem to be paying more attention. For example, when the USPS filed its request with the Postal Regulatory Commission (PRC) to drop some Priority Mail prices in September, UPS and FedEx alleged that the USPS was abusing its monopoly status to unfairly compete. The USPS argued that its prices were too high for some categories and not competitive.

The delivery issues experienced by UPS and FedEx customers during last year's holiday season have added fuel to the fire for Amazon and other e-tailers to give the Postal Service another look. Combine that with its recent pricing strategies designed to attract online retailers looking for more cost-effective shipping solutions, and it's likely the USPS will see significant increases this holiday season in packages volume. Timely delivery will never be more important to the USPS than it will over this holiday season.