E-commerce May Not Be Enough to Save USPS

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E-commerce May Not Be Enough to Save USPS

By Mike Troy - 11/16/2020
Digital has been the undoing of the USPS, reducing the need for first class mail while the surge in e-commerce package volume is expected to diminish over time due to alternative distribution networks.

Consumer demand for e-commerce saw the number of packages delivered by the United States Postal Service increase 18.8%, or 1.2 billion pieces, to 7.3 billion total pieces, during the organization’s fiscal year ended Sept. 30. The surge also caused revenue in the segment, which supplanted first class mail last year to become USPS’ largest segment, to increase 25.3% to $28.5 billion.

Despite the growth, driven in large measure by Amazon, UPS and FedEx, volumes and revenues in the five other USPS segments declined, causing total revenues to decline to $73.1 billion, while operating expenses increased to $82.3 billion, resulting in a net loss of $9.2 billion.

"There continues to be great uncertainty over the future impacts of the pandemic on the Postal Service," said USPS CFO Joseph Corbett. "Given the lasting declines in mail that accompanied the 2007-2009 Great Recession, the Postal Service expects that the COVID-19 crisis may have similar effects on mail volume going forward and that it may never recover to its pre-pandemic levels. Further, while we do believe that our package volumes will remain higher given what looks to be a potential permanent shift in consumer behavior, we do not expect our package revenue growth over the medium-to-long term to make up for our losses in mail service revenue caused by COVID-19."

The growth of e-commerce that caused USPS shipping and package revenue to swell, came as the volume of first class mail was reduced by digital communication methods and related revenue declined. The categories of marketing mail, international and periodicals all saw declines.

Postmaster General and CEO Louis DeJoy described 2020 as an extraordinary year for the Postal Service and the nation, citing the tumult of the COVID-19 pandemic, challenges of the election, workforce disruptions, rapid marketplace changes and long-term financial distress.

"We remain committed to our mission of service in every American community - delivering the medicine, supplies, benefit checks and important correspondence the public depends upon," said DeJoy. "We are likewise committed to addressing our significant financial imbalances - which were exacerbated by COVID this year and will cause lasting impacts - through a combination of management actions, and legislative and regulatory reforms."

While USPS faces plenty of near term issues, its role in the e-commerce fulfillment ecosystem is unique and problematic over the longer term. Shipping and package revenue grew to 39% of total revenue in the recently ended year, compared to 30.4% of revenue two years ago. Although the Postal Service's volumes have increased, this increase is largely due to significant volume growth from three major customers, all of which continue to build the delivery capability that reduces their reliance on USPS.

“The growth in our competitive service volumes over the past five years is largely attributable to three of our largest customers. Several of these customers continue to build delivery capability enabling them to divert volume away from the Postal Service over time. As these customers divert significant volume away from the Postal Service, the growth in our competitive service volumes may not continue,” according to USPS.