Partnership Between Amazon and USPS Raises Questions

Spend Matters welcomes another guest post from Jim Haller of NPI, a spend management consultancy focused on eliminating overspending on IT, telecom and shipping.

When announced earlier this week that it will deliver packages on Sunday via the U.S. Postal Service, the market was shocked. Amazon is one of the greatest retail success stories of all time, while the USPS is a very troubled government venture. An unlikely partnership to say the least, and one that has raised several questions:

Will the USPS partner with other retailers for Sunday delivery? Possibly. According to Sue Brennan, a USPS spokesperson, more retailer partnerships aren’t out of the question. The response is overtly cautious, as evidenced by an article by Mark Solomon at DCVelocity: “The new Amazon relationship is a contractual agreement, however, and does not signal the launch of a concerted marketing campaign.”

Why partner with USPS instead of UPS or FedEx? Amazon claims its technology was more compatible with the government agency, and that played a large role. It doesn’t hurt that Amazon already uses USPS to deliver its packages Monday-Saturday. Intelligent speculation also indicates that USPS probably offered the best deal to the cost-conscious retailer. Sunday deliveries by the USPS during holiday season crunch time have been a reality for some time, providing a working model and infrastructure – and little upfront investment from the USPS compared to UPS and FedEx.

Will this save the USPS? Not singlehandedly. The USPS is expected to lose $6 billion in 2013, and it will take more than a partnership with Amazon to tackle that problem. But, if the agency can offer the service profitably, it will have a significant impact – especially if success generates new large retail contracts. Keep in mind that the USPS has been steadily growing package delivery volume – by 14% since 2010. Its parcel/package delivery volume accounted for 2.2% of total volume in 2012 and 17.8% of total revenue.

How will this impact UPS and FedEx? At first, the impact will be minimal. But, that could change. UPS and FedEx will be closely watching the Amazon/USPS partnership, and keeping a pulse on whether other large retailers express interest. Depending on the outcome, a Sunday delivery offering from FedEx and UPS could be a possibility. If that happens, shippers can fully expect UPS and FedEx to cover their costs and allow for a sizeable margin.

It’s important to note that the Amazon partnership showcases a bit of unexpected savvy from the USPS. In recent years, the agency has made itself an attractive partner to UPS and FedEx, both of whom offer hybrid delivery methods that leverage the USPS infrastructure. It’s also capitalizing on an opportunity that UPS and FedEx have left untouched for decades: Sunday delivery. Their response will be telling in 2014. Meanwhile, the USPS will continue to make strides where few thought it could.

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