Agency
ramps up same-day delivery in move to better compete with FedEx, UPS
The U.S. Postal Service uses
its carriers and trucks to handle daily water delivery to businesses for
Nestlé, whose brands includes Poland Spring, in Manhattan and Brooklyn. PHOTO: KEVIN HAGEN FOR THE WALL STREET
JOURNAL
By
LAURA STEVENS
Updated Aug. 17, 2015 8:08 p.m. ET
The U.S. Postal Service
is ramping up same-day delivery of everything from bottled water to fresh fish
as its new postmaster general tries to better compete with FedEx, UPS and even Amazon.com.
In New York City, letter
carriers in the early morning hours load boxes of fresh and frozen seafood from
Fulton Fish Market onto mail trucks and deliver them to local restaurants by 11
a.m. They collect packages from Internet electronics retailer Newegg Inc. for
fast, local afternoon delivery. They’re also doing daily water delivery to
businesses for Nestlé SA in Manhattan and Brooklyn.
Same-day delivery is part
of a big push by Megan Brennan, the new postmaster general, to make
the postal service more competitive.
“Clearly, the consumer
demand is such that we all want the package today,” said Ms. Brennan in an
interview. “So we’re being responsive to that.”
About six months after
taking the top job at the quasigovernmental agency, Ms. Brennan said she’s pushing
Congress to green light the shipping of alcoholic beverages. She also wants to
expand grocery delivery and offer more Sunday delivery.
The postal service must
grow. Volumes of first-class mail, its most profitable product, fell 2.2%
through the first three quarters of the year. It has fallen about 20% over the
past decade. While the agency’s package business is growing in double digits,
it’s still only about a fifth of total revenue. For fiscal 2014, the agency’s
revenue was $67.85 billion.
There’s “a lot of
potential for the organization, particularly when you look at what I’ll call
the hyper growth in e-commerce,” Ms. Brennan said.
The change in direction
is causing the agency some growing pains, which were evident in its third-quarter results released last week.
While shipping and package revenue rose 10.6% to $3.56 billion compared with a
year ago, overall labor costs also rose.
Work hours increased by
about five million hours for the quarter, and compensation grew about 2.4% to
$8.8 billion. USPS Chief Financial Officer Joe Corbett said last week
that the extra time it takes to deliver packages contributed to the expense.
Also, the Postal Service
will delay until 2016 some of the 82 mail sorting plant closings that had been
planned for this year because of service disruptions, which were caused in part
by changes to thousands of employee schedules related to plant consolidation,
as well as harsh winter weather. The delay was so service levels could be
restored, Ms. Brennan said.
Lately, the agency has
been on a tear. After launching grocery delivery with Amazon.comInc. a year ago in
San Francisco, the Postal Service has added six more delivery markets this
year. It began testing same-day delivery in New York this past November. It’s
also shopping for 180,000 new trucks that are better designed to hold packages.
The Postal Service cut
certain Priority Mail package prices last year by as much as 58% for its
largest customers to attract more business. In addition, for an average of
about $1.70, according to its financial filings, it will take a parcel from
post office to residence for big shippers like United Parcel Service Inc., FedEx
Corp. and Amazon, who are willing to sort the packages themselves.
Keith Byrd, co-founder
of shipping consultancy Transportation Impact LLC, says more of his customers
have either considered or have shifted parts of their package volume to the
Postal Service in recent months. “Absolutely [the postal service is] taking
market share from the small parcel carriers, especially on the lighter-weight
e-commerce,” he added.
Both FedEx and UPS have
filed complaints in the past to the postal regulator, arguing that the Postal
Service doesn’t charge enough for some of its parcels. “UPS supports a healthy
and viable Postal Service, but we believe that the USPS, like any other
business, needs to understand the true costs for offering and expanding
competitive services,” a UPS spokeswoman said. FedEx said it can’t speculate on
specific pricing decisions of other carriers.
By law, the Postal
Service is mandated to charge the cost of delivering a package, plus at least
5.5%. Ms. Brennan says that Postal Service packages are priced properly, but
she’s considering raising rates—simply because the demand is there. She said
that it’s important to ensure the Postal Service is generating more robust
profit on top of revenue.
Ms. Brennan would also
like to expand what the Postal Service is allowed to deliver. One of her first
legislative pushes will be to gain congressional approval for shipping alcohol,
she said. “Clearly, there are some who would like to see us stay in our lane if
you will, but we obviously think there is opportunity for us to expand,” she
said.
Last month, three bills
were introduced in Congress, two in the House and one in the Senate, all with
the aim of lifting the Prohibition-era ban on the Postal Service shipping
alcohol. One of the legislators said the move could provide the Postal Service
with an additional $50 million annually.
Ms. Brennan said she also
hopes to make progress on introducing a bill to remove a congressional
requirement that the agency must pay its retiree health-care benefits ahead of
schedule, to the tune of more than $5 billion annually. The payment continually
pushes the agency into the red.
Without that payment and
workers’ compensation items, the Postal Service said it would have recorded a
profit of $1.4 billion last year. It doesn’t receive direct taxpayer subsidies,
but it reached its $15 billion credit limit with the Treasury Department in
2012 and also receives compensation for some services including mail for the
blind.
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