The US Postal Service has far exceeded its holiday peak-season package delivery projections,apparently gaining market share as it delivered around 524 million packages in December – an 18%
increase over last year.USPS had originally forecast a 12% increase on last year’s holiday season, with the expectationthat it would deliver around 470 million packages between Thanksgiving on 27 November and ChristmasEve. The postal operator’s December package growth performance also far outstripped the growthexpectations of UPS and FedEx, with UPS forecasting an 11% year-on-year rise to a total of 585million packages during December and FedEx expecting an 8.8% year-on-year rise to 290 millionshipments between ‘Black Friday’ on 28 November and Christmas Eve.
USPS told CEP-Research that its exceptional package volume growth reflected a number of factorsincluding the continuing expansion of online retail but also improvements to its own serviceoffering and preparations it had made for high peak-season volumes. “The Postal Service exceededprojections in its package business this holiday season due to continued e-commerce growth andimprovements to its Priority Mail product line,” said spokeswoman Zy Richardson.
She said other initiatives included the Postal Service delivering packages seven days a week inmajor cities and high volume areas from 17 November until Christmas Day, in response to theexpected double-digit package volume growth. “The Postal Service added package delivery on Sundaysduring the holidays to prepare for the heavy shipping season,” she said.
Other key factors in preparing for holiday delivery demand included improving tracking andreliability for customers, and in advance of the holidays, the Postal Service also lowered someprices for businesses and frequent shippers, USPS said.
These price changes had been approved in August by the US Postal Regulatory Commission (PRC),despite objections from FedEx and UPS. Although the changes to USPS’s Priority Mail products wereprice neutral overall, the PRC acknowledged that some of the rate decreases were “designed toenhance Priority Mail’s market position by attracting ground volume in the 6-20-pound weight cells”.
In its objection to the price changes last year, FedEx said: “What USPS is proposing is anaggressive push to gain market share in the fast-growing business of e-commerce distributionservices. To this end, USPS is proposing reductions of 30 to 55% in prices for commercial shippersin the weight categories most used by e-commerce. Price reductions of such magnitude willsubstantially affect competing service providers and the market as a whole.”
However, USPS has insisted that the successful growth in its package business was due to anumber of factors, not just price. The company has acknowledged that, as another measure to boostbusiness, USPS had lowered some of its prices for businesses and frequent shippers while itscompetitors had recently announced price increases. It said its new Priority Mail pricing offeredaffordable shipping options along with improved tracking and reliability for businesscustomers.
USPS also ran a holiday advertising campaign this year with various media activities rangingfrom direct mail to television and print advertisements, to social media and digital promotion.Nagisa Manabe, chief marketing and sales officer at USPS, said the holiday marketing effort wasbuilt around the idea that the Postal Service had been planning all year for this season.
Richardson added: “The Postal Service sees the greatest potential for growth from the e-commerceboom in packages and we have worked hard to increase our presence in the package business.”
Commenting on the company’s peak-season performance, Postmaster General and Chief ExecutiveOfficer Patrick Donahoe said: “The volume this holiday season demonstrates that retailers andconsumers increasingly are turning to the Postal Service to deliver their packages. We know howmuch our customers count on us to make sure cards, letters and gifts make it home, and I’m proudthat we delivered on our promise.”
But while the 18% surge in holiday package delivery boosted US Postal Service revenues, it wasnot enough to cover the money owed for retiree health benefits and other “irrational” requirementsmade of the company, Donahoe said in a speech yesterday to the National Press Club.
The news came a day after the Postal Service enacted cuts that will slow delivery for 14 billionpieces of First Class mail from overnight to two-day service. The Postal Service says the deliverystandard cuts will help close a gap between revenue and expenses, including a congressionallymandated requirement to pre-pay billions of dollars in retiree health care costs.
Donahoe said if the Postal Service did not have to pay the congressional mandates it would havereported a $1.4 billion operating profit this year. Instead, it owed $5.7 billion to the retireebenefits fund. Over the past three years, the Postal Service has defaulted on about $22 billion inpayments, with Donahoe repeatedly asking Congress to change the requirements.
“Can the Postal Service operate profitably far into the future? Absolutely,” Donahoe said. “Canit do these things within its current business model? Not likely.”
Donahoe said USPS’s wider financial problems “could be fixed immediately with legislation”, butprogress was being held up by “Myopia… short-sightedness”.
He continued: “We’ve been trying to get postal reform legislation passed for the past fouryears. As much as we try to have an elevated conversation about the future of the organization, wenever get beyond the narrow set of interests that are determined to preserve the status quo.”
He insisted that the Postal Service had put together a smart, comprehensive business plan andmade recommendations about legislative changes to get the company back on a sound financialfooting, but he regretted that he didn’t get much support from the company’s unions or the mailingindustry – “because it threatened the status quo”.
Donahoe continued: “The mailing industry views the future of the Postal Service mostly throughthe lens of pricing – so they don’t want the Postal Service to have greater product and pricingflexibility. I’ve always found this very odd, because the on-going lack of reform creates morepressure to raise prices – which is what happened this past year.
“Our labour unions view the future of the organization mostly through the lens of preservingjobs and benefits as they currently exist. Technology is driving dramatic changes in deliveryservices – just look at how Amazon is offering one-hour delivery in New York City. The PostalService needs the flexibility to be a part of those changes – and more importantly, to shape thosechanges.”
Donahoe, who retires next month, said his hope now was that the new Congress – which from thisweek has a Republican majority in both the House and the Senate – will find ways to buildconsensus.
“It has to start with a real willingness on the part of all stakeholders to takea longer-term view of the organization,” he stressed. “The narrow interests can’t continue to get in the way of the broader national interest.”
To save nearly $16 billion, USPS said it had consolidated 305 mail-processing plants, shortenedwindow hours at 13,000 post offices, eliminated 23,000 delivery routes and cut 212,000 jobs since2006. The latest cuts will increase average mail delivery times from 1.8 days to 2.1 days, thePostal Service said, although it stressed that the new standards would not affect packages andPriority Mail, such as medicine and most advertising materials.
Donahoe, who will retire in February after 39 years at USPS, urged his successor Megan Brennan,the current chief operating officer, to continue the push for five-day mail service by eliminatingSaturday delivery.
“Attitudes have to change, and I hope they will,” Donahoe said. “We made a lot of toughdecisions that were based on a long-term view of what was right for the organisation.”
