The possible future of the U.S. Postal Service is being tested in Texas.
In mid-September, the Postal Service launched a pilot program to offer same-day parcel deliveries between multiple localities within the state. The program, USPS Connect, started in Dallas and Houston and has since been expanded to dozens of locations across Texas.
Postmaster General Louis DeJoy said Wednesday at a Postal Board of Governors meeting that the agency will soon begin filing for rate and service approvals with the goal of rolling out the program nationwide next year.
The program will support local as well as regional deliveries, with regional deliveries to be made the next day, the Postal Service said. Businesses choosing local same-day deliveries must bring their parcels, with prepaid labels, to a designated shipping dock between 5 and 7 a.m. For regional next-day deliveries, parcels can be brought to a postal facility between 7 a.m. and 30 minutes before the dock closes for the day. Returns service will also be available, as will package pickups for next-day deliveries at select locations, according to the Postal Service.
Users of the regional service can book appointments to reduce their drop-off waiting times at the docks, the Postal Service said.
The service will be priced at levels that previously had been available only to high-volume postal customers. Deliveries will be made six days a week, though Sunday deliveries may be made in certain locations for customers selecting the local delivery option, the Postal Service said.
Businesses must sign up before using any of the services, the agency said.
The program has been short on such details as the local distances that would qualify for same-day deliveries. Postal Service officials were not immediately available to comment.
The pilot is part of the Postal Service’s efforts to keep itself relevant in a parcel-delivery world radically transformed by e-commerce, omnichannel fulfillment and distribution, and consumers’ desires for fast and free deliveries. The Postal Service has acknowledged that its future lies with parcel services as first-class mail and marketing mail volumes continue to be eroded by the migration to digital communication and transaction alternatives.
However, the Postal Service confronts a major challenge on the parcel front because two of its three largest customers, FedEx Corp. (NYSE: FDX) and Amazon.com Inc., (NASDAQ: AMZN) have either taken all their postal delivery business in-house, as was the case with FedEx, or have dramatically curtailed their relationship with the agency in favor of diverting more deliveries to an internal network, as is the case with Amazon. Of the three, only UPS Inc. (NYSE: UPS) maintains what could be considered a steady delivery alliance with the Postal Service.
The Postal Service, like FedEx, UPS and Amazon, is competing for the fast-growing small to midsize business e-commerce segment. The Postal Service, which is often the lowest-cost provider, is pushing for more reliable delivery service to enhance its value proposition. The agency’s ultimate goal is to meet or exceed 95% on-time delivery performance for all products, regardless of distance.
DeJoy said on Wednesday that delivery schedules for the agency’s First-Class Parcel Service (FCPS) would be aligned with the new schedules for first-class mail that kicked in Oct. 1. About 30% of mail and parcels moving longer distances will be delivered within five days, instead of two to three. Postal officials said the plan will help it achieve better on-time delivery commitments while reducing costs.
Earlier this year, the Postal Service announced a 10-year initiative designed to get the agency, which has cumulatively lost billions of dollars in recent years, to a break-even operational performance by the end of the period, and to avoid a projected $160 billion in losses by 2030. As part of the plan, called Delivering for America, the Postal Service will spend $40 billion to update its infrastructure and technology. Included in that is a multi billion dollar contract for Oshkosh Truck Corp. (NYSE: OSK) to build as many as 165,000 parcel-friendly delivery vehicles to replace the dated, boxy versions currently in use. Oshkosh is expected to start vehicle production in 2023.
Parcel’s increasing dominance in the Postal Service’s future was evident in its fiscal year 2021 results, which were disclosed on Wednesday. Revenue from the shipping and packages segment rose to more than $32 billion from $28.5 billion in fiscal year 2020, while volumes increased to 7.57 billion packages from 7.32 billion. The shipping and package segment was the only one of six segments to report year-on-year volume increases. The Postal Service’s fiscal year ends on Sept. 30, meaning that the FY 2021 results included unprecedented spikes in parcel volumes from the pandemic-plagued 2020 holiday period and through the first nine months of 2021 when traffic remained historically elevated.
All told, the Postal Service posted an adjusted FY 2021 loss of $6.9 billion on revenue of slightly more than $77 billion. Revenue rose by nearly $4 billion, led by the package segment and by marketing mail, which benefited from an easy comparison over very weak calendar year 2020 volumes and a bump in political mailings in the fiscal first quarter leading up to the 2020 presidential election.