A couple months ago, I wrote about the impact that an executive order for the USPS would have on small businesses across the U.S.  Last week, the Trump administration proposed to restructure the USPS with the intention of taking it private.

Why is this happening? In a heated tweet, President Trump previously accused Amazon of costing taxpayers a lot of money for treating the USPS as its own "Delivery Boy". The attack also raised questions about the USPS' ability to compete in an increasingly digital world, all while having to operate under outdated mandates that strain its bottom line. Since 2008, USPS revenues have fallen by 35 percent, and the service last made a profit in 2006.

Among its financial problems, here are several of the key drivers:

  • Postal carriers are required to visit every U.S. address six days a week, a "universal service obligation."

  • It cannot increase the price of First Class Mail, which is the mail class for postage stamps, beyond the rate of inflation, which is worsened by the decline in volume as people opt for email over letters.

  • It's required to pre-fund retirement benefits for its employees, a burden which no private-sector company has to bear.

Privatization sparks competition and innovation

E-commerce is the fastest growing trillion dollar market in the US, but direct-to-home shipping and postage costs are as much as three times the cost of store-based sales. The reliance on fast and affordable shipping services isn't going away any time soon.

Privatization would force the USPS to raise prices in line with the cost of its services, especially for e-commerce businesses that rely on it for the delivery of parcels. While increasing costs of its services would eventually put the USPS on par with other large shipping providers in terms of revenue, it would also prompt businesses to seek new approaches to help e-commerce stores transport goods to the doorsteps of customers.

This trend would yield opportunities for new types of delivery services, including those that provide first and last mile coverage. In the UK, Nimber is a marketplace to match a person who has something they want to be delivered with someone going in the same direction. Here in the US, Lugg offers a connection with local movers who will meet you at a pick-up site in around 20 minutes with their own vehicle equipped to handle pick up and deliver an item.

To meet the demand for expedited last mile delivery, even established shipping providers like DHL have been testing services that engage drivers through crowd-sourced applications for deliveries within a few hours. They tap into local couriers and delivery companies for one- and two-day deliveries, using their own warehouse facilities to consolidate orders.

And finally, there's Amazon itself, who just announced today that they are building a new program dubbed Delivery Service Partners, designed to let entrepreneurs run their own local delivery networks of up to 40 vans. Reliance on fast and scalable delivery solutions are at their highest -- innovators and established behemoths alike are racing to meet core demands for last mile coverage. 

Why privatization won't happen anytime soon

Congress has been largely unable to manage the changes that the USPS needs. In recent years, plans to close obsolete facilities and end costly Saturday deliveries have failed. Congress has even struggled with relatively simple tasks for the USPS, such as filling seats on the board.

As they struggle to pass even minor changes with the USPS, there is even less hope that they will pass a sweeping one.

While the White House and Congress will continue to mull over proposed changes, consumer expectations around fast and free shipping are here to stay. According to tot he Wall Street Journal, rising e-commerce sales, which grew 15.5 percent year over year to $448 billion in 2017, drove up parcel delivery costs for businesses to $99 billion, a rise of 7 percent from 2016. These staggering costs are working opposite of consumer expectations on cost, timing, return policies and processes. 

In the meantime, USPS continues to support smaller and growing businesses by providing a wide array of affordable shipping options for e-commerce. By abiding by their universal service mandate, they continue to be experts in last mile delivery and deliver to more places than other carriers like FedEx and UPS.

Published on: Jun 28, 2018