For many years, a major contract with Amazon was one of the sole bright spots in the finances of the United States Postal Service. But now, USPS intends to offer these latest services to additional patrons to stave off ongoing billion-dollar deficits—a move that risks alienating its biggest client.
USPS is facing a tight situation. With fewer mail users, it has been losing more and more funds: $9 billion in the 12 months ending in September alone.
“We certainly have a precarious cash position. You know, in about 12 to 24 months, we will run out of money,” USPS commissioner David Steiner stated in a recent Reuters interview. According to him, simply taking extra steps to reduce expenses will not resolve the difficulty.
The contract with Amazon reportedly brings the agency around $6 billion annually—money it cannot afford to lose.
But now the post office plans to solicit bids from other shippers for access to the service’s distribution hubs—though Amazon asserts this could cause it to significantly reduce its reliance on USPS.
“We have been working for almost a year on expanding our partnership, which began over 30 years ago,” commented Amazon representative Steve Kelly.
“We were surprised to learn they want to hold an auction after nearly a year of discussions, and given the shift in direction and the instability this introduces into our delivery network, we are evaluating all our choices that will enable us to keep providing services to our customers.”
Universal Service
The very thing that makes the postal service so appealing to Amazon is also why the agency so urgently needs extra funds: universal service.
The Postal Service is legally obligated to deliver mail across the entire United States for the same rate, known as universal delivery. This covers rural, remote, or hard-to-reach locations—costly spots for carriers.
For Amazon, this means it is sometimes more economical to employ USPS for the final leg of delivery to a customer’s door.
A patron uses a self-service kiosk to mail parcels at a post office in Gardena, California.
A patron uses a self-service kiosk to mail parcels at a post office in Gardena, California. Patrick T. Fallon/AFP/Getty Images
But while this arrangement is vital for USPS, it is not sufficient.
“We may not have adequate liquidity to meet all existing statutory obligations on time, while repaying retired debt and making critical infrastructure investments… without placing our ability to fulfill this core mission at undue risk,” the agency stated in its most recent annual report.
The attempt to attract further clients who deliver pre-sorted parcels in bulk directly into the USPS system makes sense, said Elena Patel, a senior fellow for economic studies at the Brookings Institution and an expert on Postal Service finances. But she pointed out that there is a hazard if negotiations with smaller shippers cause Amazon to stop using USPS as frequently as before.
“I don’t know the status of the discussions, but for the postal service’s financial standing, the negotiations with Amazon certainly couldn’t be going better,” she remarked.
Parcels move along a conveyor belt at the Los Angeles Postal Service Processing and Distribution Center.
Parcels move along a conveyor belt at the Los Angeles Postal Service Processing and Distribution Center. Daniel Cole/Reuters
USPS has already begun to witness a decline in parcel volume after years of expansion fueled by consumer online shopping. Total mail and parcel volume fell nearly 6% in the last fiscal year. However, parcel volume is still up nearly 500% compared to twenty years ago, while first-class letter volume has sharply decreased over the same period.
Patel noted that it is in the national interest for the government to continue supporting universal service, even if it necessitates $6 to $10 billion in annual Congressional appropriations to USPS.
“The essence (of USPS) is that it will deliver things everywhere at an affordable price, and we will let you keep the monopoly on letters to pay for it,” she asserted. “Well, the second half of that is broken. It doesn’t make sense in the digital communications era.”
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