USPS finds niche in e-commerce

By Chuck Crumbo
ccrumbo@scbiznews.com
Published March 14, 2012

ATLANTA — Lately, the news hasn’t been too cheery for the folks at the post office.

With people shifting their bill-paying and letter-writing to the Internet, the U.S. Postal Service’s bread-and-butter — first class mail — is melting away.

Consider that in the past two years the Postal Service has finished in the red by $20.7 billion. And, in the last quarter of 2011, it lost $3.3 billion and for the year maxed out its borrowing limit from the U.S. Treasury at $15 billion. For 2012, the postal service is forecasting a $14.1 billion loss.

But the agency is a long way from dying off, said Marc McCrery of the Postal Service’s product group. The source of the post office’s recent financial woes — the Internet — could become its savior.

That’s because one of the post office’s strengths is the ability to efficiently deliver small, light-weight packages — like cell phones and tablets — shipped from fulfillment centers, McCrery said.

“We do have a great sweet spot — a great advantage — when it comes to delivering packages to homes,” McCrery said during a seminar at the recent Modex 2012 supply chain trade show in Atlanta. “We have a carrier going there to 150 million addresses and doing it very efficiently.”

This line of business is starting payoff, McCrery said. Revenue from shipping light-weight products — fewer than five pounds — is up 67% from the previous year, and the post office is taking market share from FedEx and UPS, he said.

“As e-commerce is really starting to take off, we’re riding that wave at some level,” McCrery said, adding that nationally online sales were up 19% in 2011 compared to overall retail sales growth of 4.1%.

McCrery noted 80% to 90% of the packages shipping from fulfillment centers around the United States travel fewer than 150 miles. In response, the post office has been pushing its flat-rate box promotion.

“We have to do this,” McCrery said. “We need to be competitive and keep our prices down for short distances.”

The post office thinks it can be competitive in the small-package business because consumers like “free shipping” offers from retailers. The only way retailers can offer “free shipping” is by keeping its costs down. The post office is a business in transition, he said.

“We need fundamental change,” he said. “We are hindered somewhat by a business model that’s restrictive now, that’s dictated by some of the legislative mandates that specify our ability to close and change our infrastructure.”

The Postal Service plans to trim its annual costs by $20 billion by 2015. To do that, the Postal Service said 12% of post offices must be closed along with some mail processing facilities. Deliveries also will have to be reduced to five days per week with 35,000 jobs axed by 2015, the Postal Service said.

Still, the Postal Service will be one of the nation’s largest companies, McCrery said. Revenues are expected to drop to around $50 billion a year from $70 billion a year in 2011, and it will deliver 30% of the world’s mail instead of 40%.

“We want to and we will, over time, be able to adjust this large organization,” McCrery said. “Maybe it’s a little bit of a burning platform, but we will continue to operate.”

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