The U.S. Postal Service receives plenty of criticism whenever it makes service changes, but for small and midsize businesses, an upcoming change may actually turn into something positive.
The Postal Service announced over the summer that it was shuttering its reseller program. The program, which allowed companies to resell Postal Service postage offerings (namely commercial rates) to customers, is ending on Oct. 1.
Basically the program helped lower rates for many SMBs that do not have the volumes necessary to get the best rates from the Postal Service or FedEx (NYSE: FDX) and UPS (NYSE: UPS). The reseller program, in a nutshell, allowed a third-party company to get a commercial rate from the Postal Service and then sell that rate, with a margin built in, to the SMB, for postal services.
In July, Linn’s Stamp News confirmed the Postal Service was planning to end the program. Linn’s first raised questions about the viability and profitability of the program back in 2017.
In a statement to Linn’s, David Partenheimer, a U.S. Postal Service spokesman, said the program would end after an internal review.
“The Postal Service undertook an evaluation of its reseller program and has determined that the program as currently structured is not resulting in the customer benefits and efficiencies that were originally envisioned, has caused difficulties in monitoring compliance with pricing and other terms and should be discontinued,” Partenheimer said in the statement.
While it may initially appear that SMBs could potentially face higher postage rates, Nima Elyassi-Rad, head of business development at Shippo, said that is unlikely to be the case.
“Some of the other large platforms, someone like an Etsy or an Amazon, have a direct NSA (negotiated service agreement) with the postal service. We have a direct NSA with the Postal Service,” Elyassi-Rad told Modern Shipper. “The program has been around for over three decades. Some of these programs last because no one has asked why. The Postal Service has been looking at the value chain in its ecosystem and the value they provide.”
Last month, the Postal Service asked the Postal Regulatory Commission for permission to remove its Parcel Return Service (PRS) from its product list. The service would still be offered through NSAs. There have also been announcements in the past few months of combined services, such as combining Retail Ground and Parcel Select Ground products, in which parcels weighing up to 70 pounds are shipped with two- to five-day transit times, with First Class Package Service (FCPS), which covers shipments weighing up to 1 pound and has a similar time-in-transit window, and increased shipping prices as Postmaster General Louis DeJoy seeks to trim losses and move the Postal Service closer to profitability.
Elyassi-Rad said the reseller program does not affect any Shippo customers and won’t affect most larger sellers. In most cases, larger sellers or those that use platforms such as Shippo already benefit from NSAs. For SMBs that may have used a reseller, if they don’t want to partner with Shippo or another platform, they should reach out to the Postal Service directly and see if they can negotiate an NSA, Elyassi-Rad said.
“Their intention is to work much more closely with their customers, so those customers could be the retailers or the platforms that share the technologies,” he said.
Elyassi-Rad said COVID helped bring out competition among the last mile, but that also meant the Postal Service saw an expansion of its reseller program, even though the profitability for the program was likely not there.
“The high-volume brand, the omnichannel retailer, in all likelihood is using a mix of carriers that includes next-day and same-day service … but the SMB doesn’t really have access to those because they don’t have volumes,” he said. “This move I don’t think will have a material impact on large retailers. I think it is sort of a win for small businesses. Priority mail rates will be attractive. … For the ounce-based parcels, there really isn’t any competition. UPS doesn’t have a comparable product yet. FedEx doesn’t have a comparable product yet. To get the best deals for ounce-based shipping, under a pound, the Postal Service is still the best option.”
The only SMBs that will see changes are those that had relationships with resellers, Elyassi-Rad said. But if there is enough volume, the SMB may be able to strike a similar, or even better deal, with the Postal Service directly, he noted.
“What you and I would pay if we were using Shippo.com will stay the same. In some cases it might get better,” Elyassi-Rad noted. “Commercially, though, where previously that [margin] spread went to the reseller, now somebody that is large enough that they hold that NSA directly, that spread would be going to them. Long term, this is a positive. Short term, depending on who you ask, we are either in peak or moving into peak, the timing is a bit challenging for everyone involved. But long term, I’m bullish on this.”
Elyassi-Rad added that most brands are probably already, or will be, getting commercial postal rates from a Shippo or Stamps.com. The difference now is that the Postal Service will be reclaiming the margin it was giving away to resellers.
“There was a wholesale layer that is basically going away, so they are going to own that space now,” he said. “We all need the Postal Service to be in its healthiest form. It’s easy to forget the Postal Service does $77 billion a year and delivers to [every address in America]. No one else does that.”
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