WASHINGTON — The U.S. Postal Service may have an opportunity to expand its presence in the reverse logistics market and take on 3PLs as well as commercial rivals UPS and FedEx, according to a federal watchdog.
The Postal Service has been increasing its presence in the package returns market since 2018 by introducing services that vary based on speed, volume and shippers’ logistics capabilities.
But a new white paper by the agency’s Office of Inspector General (OIG) titled “Sending It Back: Reverse Logistics and the U.S. Postal Service” concludes that more opportunities could be available to the agency to grow further.
“By its sheer size, [the Postal Service’s] retail and transportation network may be well-suited to support the reverse logistics marketplace,” according to the paper. “In addition to visiting nearly every delivery location six days a week, the USPS has a nationwide network of physical locations in communities large and small.”
The agency faces challenges as well, the OIG notes. “The costs and complexity of reverse logistics are generally greater than those for forward logistics. The industry is competitive, including a number of smaller, nimble start-ups who may be focusing on only a few specific parts of the reverse logistics chain. There is also continued competition from established carriers who have made acquisitions to expand their capability to handle returns and recently launched new services.”
That expansion is fueled by the increasing demand for services that cater to the consumers who have been returning packages at record levels since the start of the pandemic. The OIG cites data showing that U.S. shoppers were expected to return $173 billion worth of purchases made in the 2023 holiday season alone, a 28% increase from the previous year.
The OIG points out that while the Postal Service transports the highest volume of packages overall among U.S. carriers, UPS (NYSE: UPS) is the dominant player in the returns market, estimated to have handled about half of U.S. returns volume among carriers in the second half of fiscal year 2023, followed by the Postal Service and FedEx (NYSE: FDX).
“In addition to carriers competing for returns market share, 3PL providers compete for business from those retailers who wish to contract out some portion of their returns logistics operations,” the white paper states.
Future opportunities
In gathering data on the latest trends in reverse logistics, OIG analysts were informed by industry experts that Postal Service facilities “could be well positioned to serve as ‘commerce hubs’ by transforming post offices into retail hubs, including for returns services.
“Beyond current pick-up/drop-off and delivery offerings, post offices could potentially play a role in front-end triage; personnel could quickly evaluate returned products, ensuring that they are what the sender claims they are, and even doing a quick evaluation of item condition. This third-party verification would serve to help minimize returns fraud.”
Before expanding into product evaluation, however, the agency would need to evaluate potential liability issues, as well as the cost of developing the employee skills necessary for evaluating package returns, the OIG asserted.
There is also a potential role for the Postal Service in facilitating returns of hazardous materials such as old cellphones and used nickel cadmium batteries, the OIG assessment found.
“Currently, telecom service providers accept these items, but their locations and hours may not be convenient for consumers,” the white paper stated. “Postal facilities, on the other hand, are located in virtually every community in the nation and some lobbies are open 24 hours. Bins could be set up at some select facilities to accept these items, and the telecom service providers could collect them on a regular basis.
“Assuming these items could be safely stored within the postal facility, such a program would provide a valuable service to postal customers, as well as helping to safeguard the environment by keeping them from ending up in a landfill. Prior to implementation of any such undertaking, however, evaluation of the risks inherent to staging and delivering hazardous materials would be necessary.”
