The U.S. Postal Service said Wednesday it would end the discounts that delivery companies like UPS and DHL use to deliver packages to the nation’s doorsteps. The move is intended to limit the Postal Service’s losses, but it could also mean higher costs are passed on to consumers.
Consolidators move about 2 billion packages through the Postal Service each year, about a quarter of total package volume. The change will increase postal revenue and efficiency and encourage shippers to simply use Postal Service services such as Ground Advantage, U.S. Postmaster General Louis DeJoy told The Associated Press.
He stressed that the measure is aimed at financial sustainability, even though it could increase the postal service’s market share and increase costs for intermediaries, who could pass the costs on to consumers.
“I’m not trying to take over the parcel business. I’m just trying to save the postal business,” he said.
The change is long overdue, DeJoy said, as the Postal Service tries to limit losses and to deal with changing shipping habits after an 80% decline in first-class mail since 1997. Some consolidation agreements have already been renegotiated, while others will be redrafted as contracts expire in the coming year, he said.
“Reevaluating these business arrangements is the right thing to do for the Postal Service and the American people. And of course, we will reach agreements with consolidators who are willing to negotiate deals based on a more rational use of our network in a manner that is mutually beneficial,” he said.
The changes are part of the Postal Service’s efforts to boost its own Ground Advantage parcel shipments and eliminate low-cost access to its extensive network for the most expensive leg of the shipment: the final leg, in which mail carriers deliver six days a week to 167 million addresses nationwide, DeJoy said.
It affects shipping consolidators that deliver large numbers of packages to about 10,000 locations across the country. Under the new changes, the number of locations will be reduced to about 500 large hubs equipped to handle the volume, he said.
The move, announced in a filing with the Postal Regulatory Commission in June, is part of DeJoy’s ongoing efforts to close budget deficits and improve efficiency as part of a 10-year plan to achieve financial sustainability.
It won’t affect large shippers like Amazon, which negotiate deals directly with the Postal Service. But it could mean higher shipping costs for all sorts of products shipped by consolidators that have saved money by using the Postal Service’s network for final deliveries. Some of the big ones include DHL eCommerce and OSM Worldwide. UPS is another consolidator through SurePost and Mail Innovations.
According to Satish Jindel, president of ShipMatrix, a shipping software company, the higher costs of using the Postal Service’s extensive network are bad news for consolidators, who are forced to find cheaper options. They risk being written off by companies that choose to ship directly through the Postal Service and other carriers.
“Their days are numbered,” he said of consolidators.
Some consolidators are already seeing changes.
Pitney Bowes has filed for bankruptcy protection, which will begin next month for its e-commerce division. FedEx is eliminating its FedEx Smart Post, which used the postal network, and converting it to FedEx Economy Ground using its own trucks and contractors.