U.S. Postal Service Tries Hand as Fishmonger, Grocer
Agency ramps up same-day delivery in move to better compete with FedEx, UPS
The U.S. Postal Service uses its carriers and trucks to handle daily water delivery to businesses for Nestlé, whose brands includes Poland Spring, in Manhattan and Brooklyn. PHOTO: KEVIN HAGEN FOR THE WALL STREET JOURNAL
The U.S. Postal Service is ramping up same-day delivery of everything from bottled water to fresh fish as its new postmaster general tries to better compete with FedEx, UPS and even Amazon.com.
In New York City, letter carriers in the early morning hours load boxes of fresh and frozen seafood from Fulton Fish Market onto mail trucks and deliver them to local restaurants by 11 a.m. They collect packages from Internet electronics retailer Newegg Inc. for fast, local afternoon delivery. They’re also doing daily water delivery to businesses for Nestlé SA in Manhattan and Brooklyn.
Same-day delivery is part of a big push by Megan Brennan, the new postmaster general, to make the postal service more competitive.
“Clearly, the consumer demand is such that we all want the package today,” said Ms. Brennan in an interview. “So we’re being responsive to that.”
About six months after taking the top job at the quasigovernmental agency, Ms. Brennan said she’s pushing Congress to green light the shipping of alcoholic beverages. She also wants to expand grocery delivery and offer more Sunday delivery.
‘Clearly, the consumer demand is such that we all want the package today.’
The postal service must grow. Volumes of first-class mail, its most profitable product, fell 2.2% through the first three quarters of the year. It has fallen about 20% over the past decade. While the agency’s package business is growing in double digits, it’s still only about a fifth of total revenue. For fiscal 2014, the agency’s revenue was $67.85 billion.
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There’s “a lot of potential for the organization, particularly when you look at what I’ll call the hyper growth in e-commerce,” Ms. Brennan said.
The change in direction is causing the agency some growing pains, which were evident in its third-quarter results released last week. While shipping and package revenue rose 10.6% to $3.56 billion compared with a year ago, overall labor costs also rose.
Work hours increased by about five million hours for the quarter, and compensation grew about 2.4% to $8.8 billion. USPS Chief Financial Officer Joe Corbett said last week that the extra time it takes to deliver packages contributed to the expense.
Also, the Postal Service will delay until 2016 some of the 82 mail sorting plant closings that had been planned for this year because of service disruptions, which were caused in part by changes to thousands of employee schedules related to plant consolidation, as well as harsh winter weather. The delay was so service levels could be restored, Ms. Brennan said.
A same-day delivery of fish via the U.S. Postal Service arrived last week at New York restaurant Bocca. PHOTO:KEVIN HAGEN FOR THE WALL STREET JOURNAL
Lately, the agency has been on a tear. After launching grocery delivery with Amazon.comInc. a year ago in San Francisco, the Postal Service has added six more delivery markets this year. It began testing same-day delivery in New York this past November. It’s also shopping for 180,000 new trucks that are better designed to hold packages.
The Postal Service cut certain Priority Mail package prices last year by as much as 58% for its largest customers to attract more business. In addition, for an average of about $1.70, according to its financial filings, it will take a parcel from post office to residence for big shippers like United Parcel Service Inc., FedEx Corp. and Amazon, who are willing to sort the packages themselves.
Keith Byrd, co-founder of shipping consultancy Transportation Impact LLC, says more of his customers have either considered or have shifted parts of their package volume to the Postal Service in recent months. “Absolutely [the postal service is] taking market share from the small parcel carriers, especially on the lighter-weight e-commerce,” he added.
Both FedEx and UPS have filed complaints in the past to the postal regulator, arguing that the Postal Service doesn’t charge enough for some of its parcels. “UPS supports a healthy and viable Postal Service, but we believe that the USPS, like any other business, needs to understand the true costs for offering and expanding competitive services,” a UPS spokeswoman said. FedEx said it can’t speculate on specific pricing decisions of other carriers.
By law, the Postal Service is mandated to charge the cost of delivering a package, plus at least 5.5%. Ms. Brennan says that Postal Service packages are priced properly, but she’s considering raising rates—simply because the demand is there. She said that it’s important to ensure the Postal Service is generating more robust profit on top of revenue.
Ms. Brennan would also like to expand what the Postal Service is allowed to deliver. One of her first legislative pushes will be to gain congressional approval for shipping alcohol, she said. “Clearly, there are some who would like to see us stay in our lane if you will, but we obviously think there is opportunity for us to expand,” she said.
Last month, three bills were introduced in Congress, two in the House and one in the Senate, all with the aim of lifting the Prohibition-era ban on the Postal Service shipping alcohol. One of the legislators said the move could provide the Postal Service with an additional $50 million annually.
Ms. Brennan said she also hopes to make progress on introducing a bill to remove a congressional requirement that the agency must pay its retiree health-care benefits ahead of schedule, to the tune of more than $5 billion annually. The payment continually pushes the agency into the red.
Without that payment and workers’ compensation items, the Postal Service said it would have recorded a profit of $1.4 billion last year. It doesn’t receive direct taxpayer subsidies, but it reached its $15 billion credit limit with the Treasury Department in 2012 and also receives compensation for some services including mail for the blind.
