Wednesday, February 6, 2013

Goodbye to Saturday mail delivery

The US Postal Service announced its plan to end Saturday delivery of first class mail in August 2013. While this should not have come to a surprise as the Postmaster General has been advocating this plan for over a year now, the American Postal Workers Union president announced his opposition saying a solution must come from Congress. Some lawmakers also appeared to have been a bit surprised as one Senator noted that the Postal Service should have allowed Congress more time to find a legislative solution. Sadly, the US Postal Service is running out of options as it lost almost $16bn during its last fiscal year as well as defaulted on Congress-mandated pension payments. Waiting for Congress to act will surely result in bankruptcy for the US Postal Service, which, by the way, does not accept tax dollars to operate.

Under the plan, post office hours will not change and post office boxes will continue to receive Saturday delivery. Although there will be no first class mail delivery, there will be parcel delivery. The Post Office is banking on ecommerce growth and parcels to bring the beleaguered group back into the black.

Volume growth of parcels has indeed grown over the past 3 years at 14.6% while First Class Mail has declined 11.5% for the same period. Revenue-wise, parcels have seen over a 14% increase over the past three years and in 2012, it represented 18% of total revenue. However, parcel’s contribution to total revenue has increased only 3% from 2010 - it has a long way to go to becoming a major competitive threat against UPS, FedEx and the regional parcel providers.

Still, Saturday parcel delivery would be a competitive advantage for the US Postal Service. FedEx and UPS also deliver on Saturdays but at a higher price in many cases. Plus, its relationship with UPS’ and FedEx’s SurePost and SmartPost have been and will likely continue to be financially beneficial for each of the providers. But it does make one wonder if and how the relationships between the three will change based on the US Postal Services emphasis on ecommerce and parcels.

Postmaster General Donahoe answered his critics to this controversial plan by saying, “America’s mailing habits are changing. This makes common sense.” True but it will be a long road for the US Postal Service.