The U.S. Postal Service faces a set of conditions that no other business in the U.S. confronts on a daily basis, and it isn’t helping that its potential and actual competitors get a seat at the table in determining its fate.
That was the view of Gordon Glazer, a senior consultant with Shipware LLC and a specialist on the Postal Service. Glazer was interviewed by FreightWaves senior writer Mark Solomon Thursday as part of the FreightWaves Last Mile Logistics Summit.
Glazer took aim at the criticism of the USPS’ losses and political pressure but noted that it has never been an agency that has full ability to adjust to shifts in the market — not with so many outside entities looking over its shoulder.
“Unfortunately, they have to work through the Postal Rate Commission and the Board of Governors,” Glazer said about the restrictive conditions that the USPS faces. “And that’s an avenue for the competitors to come in and argue whether they are properly pricing. So it’s not like a typical company that can just make a decision on prices.”
Then there’s the role of Congress and the president, whether it’s a chief executive like Donald Trump who has been critical of the USPS or some other resident of the White House. “How many other businesses have all these different entities getting in their face and telling them how to set pricing?” Glazer asked.
“Consolidators depend on the Postal Service for the final mile,” Glazer said. “Nobody can beat the post office pricing for smaller first-class package and parcel by weight, which is what the consolidators use.”
When UPS and FedEx make their case before the PRC on postal rates, they are doing so as what Glazer called a “duopoly of competitors.” Both package delivery companies are using the Postal Service for high-cost deliveries in low-density areas while trying to keep those deliveries that they can make profitably themselves.
As Solomon noted, FedEx in particular is trying to move all of its deliveries in house, substituting its current “postal injection” SmartPost service with a FedEx economy service instead.
“They are an emerging network,” Glazer said.
By contrast, he noted that UPS is “doubling down” on use of the Postal Service. “They are continuing to use the Postal Service to deliver the packages that they don’t want to deliver while keeping about 35% in house,” he said.
Given that some level of USPS business is going to disappear with moves by users like FedEx, the Postal Service should be able to “to do some things to help their future business growth like any business,” Glazer said. He cited on two separate occasions the ability to offer postal banking, where the USPS provides banking services to areas that are underserved by existing banks. But Glazer noted that earlier attempts to do so have been stopped in Congress, under lobbying pressure from the banking community.
Glazer also cited the inability of the Postal Service to cut back non-parcel deliveries to five days from six days, or consolidate some facilities, as other examples of the USPS being unable to take the types of decisions that other businesses can. Congress often gets in the way of that, he noted.
The USPS has extensive history and knowledge that its rates are highly elastic. Higher rates do result in a drop in volumes, Glazer said. He discussed President Trump’s call for a quadrupling of package rates, which Glazer said would be an “absolute catastrophe” for the USPS.
Given that the assumption is that the Trump call for higher rates was targeted at Amazon, Glazer noted that USPS profits from its service with Amazon are anywhere from $1.5 billion to $1.7 billion. And that is being pocketed even as Amazon is looking to reduce the amount of business it does with the USPS and take more of the delivery business in house.
With some of their big users looking to move away, Glazer was asked whether the USPS can “fill the hole” left by the loss of these customers. Glazer was optimistic.
Pricing will have to reflect a competitive market, he said. But he came back to some of the advantages — or what some might view as burdens — that the USPS has always had. “Remember, they are at every door every day and the other carriers aren’t,” he said, adding that the Postal Service will always be the “carrier of choice” for the “least desirable routes.”
UPS and FedEx will go after the high-density areas, “where they can get cheap economies of scale” and that will hurt USPS volume, he said. But overall parcel volume is rising and balancing those trends will be “a juggling act,” Glazer added. “It doesn’t happen overnight.”
Another advantage the USPS has, according to Glazer, is it’s a solid career. “They’re not going to have the same issues attracting labor as other folks who have to compete with unemployment payments and everything else,” he said.
Glazer is clearly no fan of Louis DeJoy, the former logistics executive who is now postmaster general. DeJoy’s attempts at rapid change in the Postal Service came under heavy criticism earlier this year, and Glazer warned there would be more to come.
“Americans are not going to stand for anybody messing with the post office,” Glazer said. “This is going to pass. He is going to get straight or he is going to be pushed out.”