DC Velocity - March 2017

16 DC VELOCITY MARCH 2017 www.dcvelocity.com newsworthy

The U.S. Postal Service (USPS) has warned that the multiyear growth of its shipping and package operations could be derailed if the three customers responsible for most of the business continue to expand their shipping capabilities and divert traffic from USPS.

USPS, which made the comments in a quarterly government filing that included its fiscal first-quarter results, did not identify the customers. However, they are believed to be Seattle-based Amazon.com Inc., Memphis, Tenn.-based FedEx Corp., and Atlanta-based UPS.

The three are big users of a USPS service known as “Parcel Select,” where companies induct packages deep into the postal system for last-mile deliveries to residences. In the Postal Service’s 2016 fiscal year, about 2. 5 billion packages moved under Parcel Select, according to consultancy “parcel consolidators” that aggregate packages from multiple shippers for tender to USPS.

USPS prices the service cheaply, in part because it is already required by law to serve every U.S. address and P.O. box. Parcel Select is extremely popular with FedEx and UPS customers selling into the business-to-consumer (B2C) channel. In addition, FedEx and UPS have long relied on Parcel Select to meet service commitments without the expense of deploying their own vehicles and drivers to residences.

COMPETITION HEATS UP

Revenue for USPS’s “parcel services” operation, which includes Parcel Select, rose 27. 7 percent in the quarter compared with the prior-year period, while volume increased

18. 2 percent year over year, USPS said. The quasi-gov-
ernment agency’s shipping growth has been fueled by the
continued surge in deliveries of goods ordered either online
or via mobile devices. It has been a consistent bright spot
in an otherwise difficult climate in which USPS’s core first-
class mail business continues to lose share to digital mail
alternatives, a trend that is likely irreversible.

However, soaring e-commerce volumes have given FedEx and UPS the confidence that they can build the package density necessary to more cost-effectively handle shipments themselves rather than turn them over to USPS. FedEx and UPS don’t generate much revenue from their current postal products relative to the rest of their portfolios, and they must share what they bring in with USPS.

Today, about 35 percent of SurePost packages move on UPS’s system, and that ratio is growing, according to Rob UPS has built a network of about 8,000 U.S. “access points,” commercial establishments in residential neighborhoods where packages are dropped off for customers to pick up on their way home. Customers enrolled in the company’s “My In addition, UPS has expanded its “Synchronized Delivery Solutions” capability, which allows it to create “synthetic density” to speed up or slow down package deliveries so multiple packages get delivered at the same time, according to Martinez.

At FedEx, the level of diversion is nowhere near as high. However, the company has been working to consolidate traffic moving on its FedEx Ground, FedEx Home Delivery, and SmartPost services in an effort to improve density on its residential routes.