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.
The Postal Service is also working on mobile applications and online services to help it provide customers with more control over their parcel deliveries. It's developing new parcel delivery lockers and bigger mailboxes for some customers to accommodate parcel delivery in an effort to reduce the dreaded "notice left" slips that often force customers to drive to their local post office to pick up parcels when delivery was attempted but no one was home.
And What About Pie?
While the USPS pursues a bigger piece of the parcel market pie, it may also be delivering real pie! The USPS has partnered with Amazon to expand the retailer's pilot testing of grocery delivery in select urban markets. The PRC has just granted the USPS's request to conduct a two-year test of "customized delivery," which includes the grocery pilot with Amazon but could also include other items. The deliveries are made in the early morning hours when vehicles typically are idle, and are handled by the Postal Service's carriers.
How Far Can the USPS Go?
Those familiar with the laws that govern the Postal Service, most notably the Postal Accountability and Enhancement Act (PAEA), which was signed into law in 2006, know that the USPS can only go so far in terms of the "nonpostal" products and services it can offer. Nonpostal generally means those products and services that aren't directly related to the delivery of letters, printed matter or mailable packages.
The PAEA repealed the USPS's previously unlimited authority to offer nonpostal services, and prohibited it from offering new nonpostal services. There were 12 nonpostal services the USPS was already offering at the time the PAEA was enacted that were grandfathered into the legislation — e.g., passport photo services, sale of advertising to support change-of-address processing, and others. Beyond that, the Postal Service must request approval from the PRC to offer experimental products, which it has done for numerous products since PAEA was enacted. It also performs discretionary services for federal agencies, such as accepting passport applications for the State Department.
The USPS can't, however, offer nonpostal products that aren't related to the delivery of letters, printed matter or mailable packages, "including the acceptance, collection, sorting, transportation, or other functions ancillary thereto," per the PAEA. Those include potential revenue streams discussed in the past few years such as banking services and insurance.
Within the legislative definition of what constitutes "postal" products and services, however, there's a lot of opportunity for the USPS to introduce new products/services. For example, it can introduce new or experimental services as extensions of existing products/services, such as the "customized delivery" experimental product it currently is testing with Amazon grocery delivery. Furthermore, the USPS now has a two-year period approved where it can expand the service to other retailers with prepackaged products for delivery.
The bottom line is that all eyes will be on how the Postal Service performs with its package delivery side of its business through the holiday season, as well as its new forays into delivery of other retail items such as groceries.