By: Bill McAllister
If you live in an urban area, you’ve seen them dashing about your town on Sundays. Those little red, white, and blue postal trucks are delivering parcels for Amazon.com. To hear Postmaster General Megan Brennan tell it, those trucks represent the future of the United States Postal Service.
Parcel delivery, Brennan believes, is the future of the USPS. It is the one segment of the mail that has grown dramatically, while first-class letters continue to decline. Fueled by booming Internet sales, Amazon and other retailers are flooding the USPS with parcels.
Two former senior analysts at the Postal Regulatory Commission, however, are raising a red flag over those Sunday deliveries. In a paper presented this past spring at a conference on e-commerce in France, Robert Cohen and John Waller argue that those Sunday deliveries probably are not profitable for the deficit-laden Postal Service. Asked about the paper, postal spokeswoman Sue Brennan defended the Postal Service’s negotiated service agreement with Amazon, which provides deep discounts for the company’s large volume shipping. “We are required by the PRC to be profitable on our competitive negotiated service agreements,” she said. “Our relationship with Amazon has been and continues to be profitable.” Cohen, who was one of the PRC’s most respected analysts, said, “I believe what they say may be true in an overall sense. “That does not mean that each individual activity is profitable. I believe that Sunday delivery is not and that parcel routes, in general, are not.” Parcel routes are routes that carry only parcels and that’s a key difference, according to the Cohen-Waller paper.
“The cost of delivering letters and parcels is much less when delivering them on letter routes than stand-alone parcel routes,” the authors say.
“This is because of the significantly reduced per piece costs that arise from delivering the two products together,” they say. “It is the Postal Service’s major competitive advantage in the parcel business.”
Parcel routes, like the Sunday Amazon routes, are more like pizza delivery routes than the typical mail routes that carry “the vast majority of parcels” delivered by the USPS, the paper says. Parcels must bear the entire costs of trips on parcel-only routes, but on letter routes the costs are shared. Because the Postal Service has classified details of its agreement with Amazon as “proprietary information,” there are no public records detailing how profitable the Amazon-USPS partnership is.
As a result, Cohen and Waller had to speculate as to what it might cost the USPS to deliver parcels for the Seattle-based firm. They estimated it costs the USPS an average of 40¢ to deliver a parcel on a typical letter route, based on the the Postal Service’s fiscal 2015 figures. But on a Sunday parcel delivery route, they put the delivery cost at $2.17. And that’s using the cheap city carrier assistants whose “productive hourly cost” of $19.27 is well below that of regular city letter carriers whose cost is $46.09 an hour, according to their paper.
United Parcel Service funded the paper, but the authors say they are responsible for the views in the paper. There is no doubt that Postmaster General Brennan will continue to press ahead with her vision of a parcel-heavy USPS.
The Postal Service is already getting truck manufacturers to prepare prototypes of a new delivery vehicle that would be designed to carry more parcels than most of the small box trucks the USPS has on most city routes.
For stamp collectors, the bad news in this is that large-scale parcel shippers will use either meters or specially printed indicia on those shipments, instead of stamps.
Author: Bill McAllister