The U.S. Postal Service (USPS) has reached an agreement with transport consultancy ShipMatrix Inc. to provide high-volume parcel shippers with badly needed delivery capacity heading into a space-constrained peak holiday shipping cycle, ShipMatrix said Monday.
Under the initiative, which kicks off Monday, Warrendale, Pennsylvania-based ShipMatrix will connect its universe of large shippers and third-party logistics (3PL) providers to the USPS’ vast transportation infrastructure in an effort to assure capacity for all parcel users during the peak period. The program, called ShipMatrix First Class Parcel Service, will be available to e-commerce shippers using USPS’ door-to-door delivery products such as its First Class Parcel Service (FCPS) and Priority Mail, ShipMatrix said. USPS manages the entire delivery process for both products.
The new program will focus on small, lightweight parcels that can be placed inside mailboxes, where USPS has a monopoly. Satish Jindel, founder and CEO of ShipMatrix, has long advocated that USPS restrict its parcel deliveries to pieces weighing less than 5 pounds and are small enough to fit inside a mailbox. About two-thirds of all residential parcels fit that physical profile, according to ShipMatrix data.
Deliveries that require letter carriers to leave their vehicles to drop off larger parcels on a customer’s property are a waste of time and money, and are not the types of packages USPS should accept, Jindel has said.
ShipMatrix will supply the marketing, customer communication and IT visibility to support USPS deliveries, Jindel said in an interview on Friday. ShipMatrix’s role will be similar to that of a truck broker sourcing carrier capacity for large shippers, he said. Known primarily as a consultancy, ShipMatrix also has access and insight into parcel supply and demand through its many customer relationships.
The program includes money-back guarantees on all packages that are not delivered within five days, Jindel said. ShipMatrix will audit all deliveries and automatically issue refunds to shippers in the event of service failures, he said. Private carriers like FedEx Corp. (NYSE:FDX) and UPS Inc. (NYSE:UPS) suspended their money-back guarantees earlier this year after the COVID-19 pandemic sent delivery demand surging and threw carrier networks out of kilter.
In addition, there will be no peak-season surcharges other than the relatively modest peak charges that USPS imposed Oct. 18 and will remove on Dec. 27. The USPS levies, which will amount to a 6% to 8% increase on the typical large parcel user, are below the levies the private carriers plan to impose on their high-volume users.
The largest FedEx and UPS accounts could face peak surcharges of as much as $5 per package due to the unprecedented demand surge and the unwillingness of the big carriers to handle all the parcels its shippers want delivered. According to numerous industry watchers, FedEx and UPS are also “capping” peak-season volumes for certain high-volume carriers with deep discounts that don’t generate acceptable profit margins for the carriers.
ShipMatrix will price the new service higher than what a parcel shipper would normally pay if it approached USPS directly, Jindel said. Still, USPS’ relatively low shipping rates and the absence of the multiple delivery surcharges should allow the combination to underprice private-sector rivals, he said.
The USPS-ShipMatrix initiative comes at the front end of what is widely seen as a peak shipping season for the ages. E-commerce demand will rise to unprecedented levels as the seasonal buying surge converges with consumers’ health-related concerns about gathering in crowded retail stores. According to ShipMatrix data, current capacity levels will be short by about 7.2 million parcels per day between Black Friday and Christmas Eve. No one has disputed that figure, according to Jindel.
Shippers with huge demand needs that have been rebuffed by FedEx and UPS will have few options this holiday. DHL E-commerce, the e-commerce unit of Deutsche Post DHL, stopped accepting new peak business in October. Regional parcel-delivery carriers like OnTrac, LSO and LaserShip long ago stopped taking peak business and are already seeing their first-quarter 2021 order books quickly fill up. Amazon.com Inc. (NASDAQ:AMZN), which is scrambling to add transport and warehouse capacity for the peak period, currently just handles deliveries for its own U.S. customers, whether they are merchants using Amazon for their fulfillment and distribution or consumers buying directly from Amazon’s online store.
That leaves USPS. Jindel, whose company has worked with USPS since the early 1990s, said he was confident in the quasi-governmental agency’s ability to meet peak service commitments, as long as the deliveries are confined to those placed inside mailboxes. By law, USPS must serve every U.S. address, including P.O. boxes.
According to ShipMatrix data, USPS’ First-Class Parcel Select’s on-time delivery performance in October stood at 96.6%, better than FedEx’s on-time rate of 94.8% and below UPS’ 97.9%. This comes amid continuing massive spikes in USPS delivery demand due to the COVID-19 pandemic.
If the program fails, it will not be due to the lack of USPS’ delivery scope. Its more than 290,000 drivers make 159 million stops a day, Jindel said. That is more than FedEx and UPS combined, he said.
Yet USPS struggles with the customer-facing and IT requirements needed to maximize the value of its parcel-delivery network, Jindel said. For example, USPS doesn’t promote the competitive benefits of its door-to-door products to big shippers, Jindel said. Nor are there any internal USPS levers to facilitate customer communication, he said. Those skills, combined with ShipMatrix’s IT platform, are what his company is bringing to the table, according to Jindel.
ShipMatrix is “closing the gap between the needs of the shippers and USPS’ capabilities, while doing a better job of promoting competitive advantages of USPS for lightweight parcels,” Jindel said. This peak season, shippers want delivery predictability more than speed, he added.
For several years, USPS’ parcel-delivery business has been a bright spot as traditional core segments like First-Class and Marketing Mail have declined due to mail digitization. However, its parcel business is under attack as never before. FedEx and UPS are aggressively targeting the small to mid-size customer base that have long been heavy users of USPS’ door-to-door delivery services.
What’s more, USPS’ parcel-induction service, where high-volume users like Amazon, FedEx, UPS and an array of parcel consolidators dump large volumes into the postal network for last-mile deliveries, has experienced major defections. FedEx has shifted most of those parcels in-house. Amazon, the largest user of the service and a very profitable USPS customer, is now handling much of the high-density urban deliveries that it used to give USPS. According to a published report, Amazon is looking to develop a rural delivery network supported by its own distribution and delivery operations. This, too, would siphon business from USPS.
ShipMatrix plans to extend the new program into 2021 as overall parcel-delivery demand, though leveling off somewhat from the peak period, is not expected to abate much, Jindel said. Regional parcel-delivery carriers have expressed interest in the program, he said.
