Doran Robinson previously worked for healthcare information technology vendor athenahealth.
Dealing with declining demand for mail, postal services turn to e-commerce shipments for new life.
When there’s a party in California, Aaron Hall wants to be invited. More often than not, his ticket in is the U.S. Postal Service.
Hall is vice president and head of merchandising at Michigan-based e-retailer PartySuppliesDelivered.com, where timing can mean everything for winning sales. “In my industry getting your order delivered quickly can make or break someone’s event,” he says. “With the size of the West Coast market, particularly California, I can ship an order with the USPS as late as Wednesday and still have it delivered the same week.”
For that and other reasons, like the ability to offer online customers later shipping cutoff times at lower rates for holiday deliveries, Party Supplies Direct often chooses the USPS over other carriers, Hall says.
In Canada, Stephen Gordon often relies on Canada Post, the country’s national postal service, for similar reasons, he says. “The collaboration Canada Post brings helps us improve our business,” says Gordon, director of logistics at Best Buy Canada Ltd. for sister retail chains Future Shop and Best Buy. Canada Post, for example, enabled his retail chains to offer same-day delivery for some online orders during 2013’s peak holiday shopping periods.
From North America to Asia, postal services are responding to the rising demand for e-commerce shipments by expanding the range of services they offer e-retailers for international and domestic deliveries. These services include additional shipping options, including new ones like same-day and Sunday delivery, which are aimed at helping them compete for small parcel deliveries—the bread-and-butter shipping business of retail e-commerce. They hope e-commerce will help them compensate for declining letter mail volumes.
With few exceptions, many national postal services worldwide have experienced declines in letter mail volume in recent years, according to a study of 19 postal services by Accenture, a global management consulting firm. Since peaking in 2007, the annual mail volumes across 19 national postal services declined by a compound annual rate of 5% through 2012, Accenture says. Earnings (before interest and taxes) as a percent of revenue for mail services also declined over the same period, to 6.4% from 7.9%, it adds.
Shipments of small parcels, however, rose in recent years among the same postal services. The Accenture study notes that the postal services showed an average growth rate of 5.8% from 2011 to 2012 in parcel shipping volume, and that parcel-related earnings (before interest and taxes) as a percent of revenue increased to 6.3% in 2012 from 5.5% in 2007. (The study doesn’t provide parcel shipping figures for years earlier than 2011.)
The main growth driver in parcel shipments, the study says, is e-commerce, “which is typically growing in double digits in most countries” studied in the report. The report covers 19 postal services in Australia, Austria, Canada, Finland, France, Germany, India, Italy, Japan, Netherlands, New Zealand, Norway, Portugal, Singapore, Spain, Switzerland, the United Kingdom, the United States, and the Nordic region of Denmark and Sweden.
“As high performers realize they can become a part of the broader e-commerce ecosystem, a new breed of digital postal businesses is born—with the potential to be first in line for the next wave of revenues,” says Brody Buhler, global managing director of Accenture’s postal industry group.
Indeed, a review by Internet Retailer of several postal services found them all sharpening their focus on e-commerce. For online retailers based in the United States and abroad, the expanded services are offering new shipping and delivery options, and offering shippers alternatives to commercial carriers like United Parcel Service Inc. and FedEx Corp. At the same time, however, expanded services and cooperation among the postal services of multiple countries are also raising new challenges for some merchants who feel they’re on the wrong end of these arrangements.
Because the USPS delivers to every residential address in the United States without the delivery surcharges often levied by commercial carriers—and because it now offers services like the parcel shipment-tracking that were once only offered by its commercial carrier competitors—it has positioned itself to appear more attractive to online retailers and to benefit from the increase in e-commerce shipping, says Paula Rosenblum, managing partner with research and advisory firm Retail Systems Research LLC. Moreover, she says, it appears unlikely that the USPS would ignite a rate war with the commercial carriers because there is enough demand in the market for it to absorb first.
However, the USPS still lags behind UPS and FedEx in the number of retailers who list it as a carrier among Internet Retailer Top 1000 merchants—with 296, compared with 316 for FedEx and 409 for UPS. Some retailers say that UPS and FedEx are known for providing more reliable shipping and delivery times, though often at higher rates than the USPS. “We find a carrier like UPS or FedEx is still necessary to ensure a guaranteed two-day or one-day service,” says Derek Gaskins, president of Aleva Stores, an e-retailer of health-related products.
But in many cases the USPS offers comparable service at lower rates, he adds, noting that surcharges from UPS and FedEx can quickly add up, such as those charged to deliver packages to rural addresses.
The USPS, meanwhile, is trying to make the most of the upswing in shipments driven by e-commerce, a major source of recent increases in revenue. For its fiscal year ended Sept. 30, 2013, Postal Service revenue from package shipping increased by $923 million, up 8% year over year, to $12.52 billion—an increase that the USPS attributed largely to its ability to capitalize on the increase in e-commerce shipments.
“We built upon that success and met the growing demand for our package delivery services by introducing a compelling new Priority Mail offering that includes free insurance, improved USPS Tracking and day-specified delivery,” wrote USPS CEO Patrick Donahoe and chairman Mickey Barnett in their December report to the U.S. Congress. “As a result of the immediate popularity of this new offering, we expect to continue building upon the momentum in this product category in 2014.”