Postal Service to Make Sunday Deliveries for Amazon

November 11, 2013

Postal Service to Make Sunday Deliveries for Amazon

By RON NIXON

WASHINGTON — The cash-short United States Postal Service, which has failed to win congressional approval to stop delivering mail on Saturdays to save money, has struck a deal with the online retailer Amazon.com to deliver the company’s packages on Sundays — a first for both, with obvious advantages for each. For the Postal Service, which lost nearly $16 billion last year, first-class mail delivery, particularly on Saturdays, is often a money loser, whereas package delivery is profitable.The deal, announced on Sunday and taking effect immediately, in time for the holiday shopping season, gives the Postal Service a chance to take some business from United Parcel Service and FedEx, which do not deliver on Sundays. Now, some orders that would have been handled by either of those carriers for Monday delivery will go through the Postal Service and arrive on Sunday.

The Postal Service said it expected to make more such deals with other merchants, seeking a larger role in the $186 billion e-commerce market. Amazon.com would not say if it would try to arrange Sunday deliveries with other parcel carriers.

For this holiday shopping season, Sunday delivery of Amazon products will be limited to the Los Angeles and New York metropolitan areas, which in New York’s case includes parts of New Jersey and Connecticut. In 2014 it is expected to expand to other cities including Dallas, Houston, New Orleans and Phoenix.

Among the primary beneficiaries of the new delivery schedule will be Amazon Prime members, who pay an annual fee for premium services including free two-day shipping for certain items, said Kelly Cheeseman, a spokeswoman for Amazon. “Now every day can be an Amazon delivery day,” Ms. Cheeseman said.

Postal Service officials called the agreement an important step in diversifying its services and expanding those that make a profit. “Consumers have shown that there is a market for package deliveries seven days a week, and we are glad to be in a position to partner with Amazon on providing this service,” said Patrick R. Donahoe, the postmaster general.

Neither Amazon nor the Postal Service would disclose financial arrangements or discuss the volume or revenue they expected to generate from Sunday deliveries. The Postal Service already delivers some packages on Sundays and holidays for an extra fee.

Shipping and package services have been one of the few bright spots for the beleaguered Postal Service. First-class mail, its main source of revenue, declined to almost 69 billion pieces last year from nearly 92 billion in 2008.

That contributed to a decline in revenue to $65 billion in the fiscal year that ended Sept. 30, 2012, from nearly $75 billion in 2008. Shipping and package volume has increased to about 3.5 billion pieces since 2008, and accounts for about $11.6 billion in revenue for the agency.

Mr. Donahoe, the postmaster general, said the deal with Amazon was part of the Postal Service’s attempt to alter its business model. That effort includes increasing package delivery to take advantage of the growth of e-commerce, streamlining the work force and eliminating mail delivery on Saturdays.

Though the Postal Service would continue to deliver packages on Saturdays, the proposal to halt Saturday delivery has met resistance from the business sector and some members of Congress. A move to cut Saturday delivery would save about $2 billion annually, postal officials said.

The agency faces myriad problems that have led to its financial decline. It faces legal constraints that prevent it from diversifying into certain lines of business. It is also barred from raising postage prices faster than the rate of inflation.

But an even bigger cause of the financial decline is a 2006 law that requires the Postal Service, unlike any other government agency, to pay $5.5 billion a year into a health fund for its future retirees. The majority of the agency’s losses since 2007, about $32 billion, result from the health funding requirement, financial documents show.

As a result of its financial troubles, the Postal Service has defaulted on three annual $5.5 billion payments into the health care fund. It has also exhausted its $15 billion borrowing limit from the Treasury Department. More recently the agency has asked for permission to raise its postage prices to help cover costs.

Congress is considering legislation that would overhaul the agency and ease the financial constraints, but few anticipate a bill passing this year as lawmakers continue to wrestle with broader budget issues.

“We’ve got to get this done,” Mr. Donahoe said. “The faster we can get it done, the faster we can focus attention away from all the negative attention about our financial situation and onto the positive things we do, like this new agreement with Amazon.”

Amazon Puts Shippers Behind Freight Ball

Decision to Begin Sunday Deliveries Through the Postal Service Could Signal a Shift Away From Reliance on UPS and FedEx

JUSTIN LAHART

Updated Nov. 11, 2013 5:52 p.m. ET

Any smart retailer knows it is good when suppliers have some competition. Amazon.comAMZN +1.16%

is a smart retailer, and it relies heavily on two companies, United Parcel Service UPS -0.34% and FedEx, FDX -0.04% to supply its delivery service.

That context is important when considering the online merchant’s announcement that it is offering Sunday delivery to customers in New York and Los Angeles through the U.S. Postal Service, with more cities to follow next year. Not only does the move help Amazon make further inroads into traditional brick-and-mortar retailers’ sales, it is also giving a boost to an important (if beleaguered) competitor for UPS’s and FedEx’s business.

Initially, any impact should be small. Wolfe Research estimates Amazon accounts for about 3% of revenue for both UPS and FedEx. So if Amazon extended its Sunday service to the entire country (an aggressive assumption), and a seventh of its deliveries fell on a Sunday, it would shave about 0.4 percentage point off what the two shippers’ revenues might have been. The underlying growth in Amazon’s business would mask that to the point that investors in UPS or FedEx might not even notice.

But the move to Sunday deliveries comes at a time when Amazon, having yielded on sales taxes—the majority of U.S. consumers now pay sales tax on Amazon purchases—is broadly rethinking how it delivers products. It has been building out regional distribution centers to reduce the distance between warehouse and customer.

If Sunday deliveries work out, Amazon may decide there is a larger role for the Postal Service to play. Amazon has also been experimenting with grocery deliveries in some cities, which entails running its own fleets—and there is no rule that says the truck that delivers the bread can’t deliver a book.

Investors who think UPS and FedEx can always rely on Amazon’s business for growth may find the check is in the mail.