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Good news for commerce! Starting in 2020, FedEx will offer home package deliveries seven days a week to consumers in densely populated areas. This highlights the dynamism of e-commerce and win-win opportunities for online and brink-and-mortar stores. However, it also highlights the folly of the Trump administration’s pressure on the U.S. Postal Service to raise its package delivery rates.
In 2018, consumers purchased $517 billion in merchandise from American companies online. Amazon constituted a whopping 40 percent of that total. E-commerce now accounts for 14.3 percent of retail sales, up from only 5.1 percent in 2007. Indeed, more than half of retail sales growth in the past year came via e-commerce.
Undoubtedly, this transformation of the retail landscape has been dependent on reliable delivery of packages to your door, and USPS has played a crucial role in. USPS has a legal mandate to deliver to all addresses six days per week. But it has lost significant first-class mail business to the internet — we all pay most bills online now rather than dropping the check in the mail, don’t we? That trend is irreversible, and USPS has tried to adjust to the new reality. For instance, it has downsized its labor force from about 800,000 in 1999 to about 500,000 today. It also uses work-sharing and outsourcing for sortation and transportation to contain costs.
The one thing it does well is carry mail and packages that “last mile” to your door, and USPS revenues from package deliveries last year hit $23.1 billion thanks to e-commerce. By law, USPS charges rates to deliver packages that cover its direct costs — the carrier’s time coming to your door — and overhead — your local post office and its management. A 2018 task force on “United States Postal Service: A Sustainable Path Forward,” commissioned by the Trump administration, acknowledged that USPS package rates comply with the law, but nevertheless urged rates be raised even above the legal requirements to cover USPS deficits.
The FedEx announcement of seven-day-per-week delivery means higher USPS rates would likely drive business (and revenue) away from USPS and that, if anything, USPS rates might already be too high (otherwise, why would FedEx make this decision?). FedEx also announced it cut back on its current practice of dropping off most of its FedEx SmartPost packages at local post offices to be carried that last mile to the customer’s door. FedEx will shift about 2 million packages per day onto FedEx ground delivery trucks instead.
FedEx is also building out its own last-mile system by tapping into efforts by traditional brick-and-mortar stores to compete with e-commerce by allowing customers to place orders online and either pick up merchandise at stores or have them delivered to their door. If an Uber driver can deliver a Big Mac to your hungry house as quickly as you can drive to McDonalds to pick it up yourself, why not a FedEx truck picking up some garden tools at Walmart when you see the sun come out and the weather finally the right temperature to do that weekend yard work you keep putting off? Brick-and-mortar stores challenged by e-commerce are, in part, joining e-commerce.
Amazon, in partnership with USPS, as well as using its own expanding truck fleet, does offer Sunday deliveries and now is moving from free two-day delivery to free one-day delivery for its Prime customers. Delivery providers (including Amazon) are also working on drone and driverless vehicle deliveries.
The dynamic e-commerce market is win-win all around. Innovative ways to order, sell and deliver are being devised, tested and refined. Customers and merchants, especially small businesses in America’s heartland, benefit. This is why the administration should abandon its foolish notion that it can cover USPS deficits by having it raise package rates.
In essence, this would simply reduce competition, limiting choices for rural Americans especially, and cost them more. The ultra-dynamic e-commerce market is evidence of the fair competition that exists today, and inserting politics here will only hurt consumers.
[Originally Published at Inside Sources]