Can the Package Business Save the U.S. Postal Service?

Feb 19 2014, 12:28pm CST | by

Billions of dollars in the red, the U.S. Postal Service is looking to the package business to make up for a steep decline in revenues from First-Class Mail.

The Postal Service lost $5 billion in the fiscal year ending Sept. 30, 2013, its seventh straight year of losses. First-Class Mail volume, its most profitable product, plummeted by 2.8 billion pieces.

Now the Postal Service is hoping to reverse the trend, in part by stepping up the battle with parcel giants UPS and FedEx.

Package volume was up 8 percent in fiscal 2013, to 210 million pieces. The agency’s Shipping and Package Services currently generate $12.5 billion in revenues, around 19 percent of its total.

The internet might be killing First-Class letters, but it has been a boon to parcels. Two years ago, the Postal Service made a conscious decision to ramp up efforts in that area. “We saw a tremendous shift in consumer behavior to e-commerce,” said chief marketing and sales officer Nagisa Manabe.

“We’re trying to simplify our product and sharpen our pricing to be competitive,” Manabe said. At the same time, the Postal Service is talking to customers around the country in an effort to customize its offering.

The 2013 holiday shopping season was an opportunity to pick up new business. Both UPS and FedEx were criticized for failing to meet some delivery targets in the final days before Christmas. One reason for the service lapse was unrealistic promises by online sellers. Another was severe winter weather. Still, the sheer volume of parcels moving in those few crucial weeks appeared to take the big carriers by surprise.

The Postal Service wasn’t immune. “I would be doing the operations team a great disservice if I didn’t say there were many challenges during the holiday,” said Manabe.

At the same time, she claimed that Postal Service employees “performed beautifully” during the peak. She called the decision to deliver every Sunday in December “a huge deal.”

Targeting the huge post-holiday returns business, the Postal Service pushed its flat-rate service for boxes moving by Priority Mail. In a bid to match the service features of UPS and FedEx, it added free insurance, day-specific delivery and free tracking to the Priority Mail offering.

It was rewarded with a record number of packages during the holiday season, and a 19% jump over the same period of 2012. The Postal Service averaged 10 million packages a day, delivering nearly 90 million in the week before Christmas.

This year, it plans to upgrade the entire tracking network, with 75,000 new handheld devices coming into service by late spring. Even with the use of existing devices, it can provide 11 points of scanning over the course of a delivery, Manabe said.

The Postal Service’s biggest marketing leap over the past year has been the introduction of same-day service, dubbed Metro Post, for urban centers. A pilot program launched in San Francisco in early 2013 failed to generate much interest from e-commerce retailers. In December, it was extended to New York City.

Postal Service officials say they have high hopes of capturing the growing market for same-day delivery of items ordered online or through physical stores. But they’ll have to contend with a growing number of nimble rivals, including eBay, and Google – not to mention the more seasoned networks of UPS and FedEx.

As it plays catch-up with those market leaders, the Postal Service continues to suffer from a public perception of being slow and bureaucratic. Manabe claimed the agency’s image is changing rapidly, as it deploys mobile point-of-sale devices which speed up lines and, in some cases, even serve waiting customers in the parking lot.

“This is the flattest, fastest-moving organization that I’ve ever worked for,” Manabe said.

None of the Postal Service’s rivals suffers from being a quasi-public organization that must fund operations entirely from products and services, yet is required to serve every address in the U.S. The agency contends that it’s further hampered by excessive costs for healthcare, workers’ compensation and retirement. At the same time, it lacks the freedom of private-sector rivals to explore creative new offerings./>/>

Debate continues to rage over a proposal to eliminate Saturday mail delivery (although package service apparently would not be affected). Supporters say the move is essential to reining in costs, while critics argue that it would result in the loss of far more revenue than it would save in overhead.

Perhaps the agency’s biggest immediate challenge is the Postal Reform Act of 2013. Introduced as S. 1486 and H.R.  2478, the proposed legislation would permit the phase-out of Saturday mail delivery, raise workers’ health and life insurance premiums, and possibly eliminate “to-the-door” service in certain rural areas. It would also require the Postmaster General to submit to the Board of Governors a plan for “long-term solvency.” Union leaders are adamantly opposed to the measure.

Meanwhile, the Postal Service continues to vie with private-sector rivals, especially for commercial business. “We want our customers to help us to innovate, to come up with new ways that we can improve the package-delivery market,” said Manabe.

Source: Forbes Business


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