The Effects of USPS Losing Parcel Select Business
Revenue declines from lower Parcel Select delivery volume can't compare to losses USPS suffers due to 2006 pre-funding legislation
There’s been talk recently about USPS losing Parcel Select business as other carriers develop their own networks. Other carriers such as UPS and FedEx are starting to inject last mile parcels on routes where their drivers are already making deliveries. This move on the chess board creates massive package density for the other carriers. As a result, it drives down their costs. However, while all of this is in fact happening, the loss in volume may not hurt USPS all that much.
What is Parcel Select Service?
Parcel Select Service is USPS’ ground service that they offer commercial partners like the other major shipping carriers for a small fee to carry out last mile delivery. In a nutshell, this process works in two steps. First, customers inject large package volumes deep into USPS’ network. Next, USPS’ letter carriers execute the final delivery to residences and businesses.
USPS is able to offer this service at such low rates because the law requires them to serve every address in the country, and because it has fixed-cost routes.
Why the Other Carriers Have Relied on Parcel Select Service for So Long
Other major players outsourced to Parcel Select for a variety of reasons…and it worked well. With Parcel Select service, partners such as FedEx, UPS, and Amazon can touch every address in the country without deploying their own equipment and drivers. This service also allows online retailers to offer free (or very low-cost) shipping to their customers.
Parcel Select service hasn’t just benefited USPS’ partners since its inception. It has also boosted USPS’ revenue while First-Class and Marketing Mail volume continues to decline. For context, First-Class and Marketing Mail have been the Postal Service’s two most profitable services for years.
USPS Shouldn’t Sweat the Lower Volumes
USPS isn’t sweating that it may lose parcel select business to other carriers. On Wednesday, October 2nd, the Postal Service explained why in an official statement.
“We continue to attract eCommerce customers and business partners because our customers see the value of our predictable service, enhanced visibility and reasonable pricing,” the statement said. “Our unparalleled delivery network coupled with the quality and professionalism of our workforce enables us to provide a value proposition unique in the shipping marketplace that even the largest eCommerce players cannot match.”
The Real Problem is the Pre-Funding Legislation
Of course, the real problem isn’t losing last mile delivery volume, but the burden of bad legislation. In 2006, Congress enacted a mandate that required USPS to set aside billions of dollars each year to pre-fund future employees’ health and retirement benefits. Simply put, that pre-funding legislation is the main reason why USPS keeps losing so much money every year.
Moving forward, making up for lost Parcel Select business isn’t what’s going to keep USPS afloat. Repealing the onerous pre-funding legislation is what will save the US Postal Service.
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