The U.S. Postal Service announced Wednesday it will solicit bids from small and large retailers, and logistics companies, interested in the carrier for the final delivery leg to individual homes and businesses, part of new Postmaster General David Steiner’s strategy to restore financial viability by substantially raising revenue.
A number of parcel industry analysts expressed skepticism about reopening its last-mile service, saying the economics don’t work for smaller shippers.
The Postal Service posted a $2.8 billion operating loss and a net loss of $9.5 billion during the fiscal year ended Sept. 30. Steiner told Reuters that the organization would likely run out of cash by early 2027. He said last month that the national post couldn’t just rely on cost cutting to turn around the financial direction.
The Postal Service has sold delivery service direct from post offices for years, but it has been limited to very large customers, like Amazon. There are more than 18,000 destination delivery units (DDU), the technical term for post offices. Leadership now wants to open the business to a broader customer case.
Steiner’s predecessor, Louis DeJoy, felt it was more profitable to provide end-to-end package service after beefing up middle-mile infrastructure. Instead of allowing large e-commerce and logistics companies to sort packages by five-digit zip codes and inject them at the corresponding DDU, DeJoy forced bulk shippers to deliver mail and parcels to upstream distribution centers, where higher rates are charged and only sorting to the three-digit zip code level is required. The Postal Service sorts the packages itself and then transports them to the DDU for final delivery. Parcel experts say self-sorting allows the organization’s sorting machines to operate more efficiently, but that DDU pricing is better than the bundled service. The current system is only open to direct shippers, not logistics providers.
The new pricing structure led UPS to drop the Parcel Select program in January and make home deliveries of economy parcels on its own. After Steiner took office, UPS began renegotiating its workshare contract with the Postal Service. The company last month said it is finalizing an agreement for the USPS to provide last-mile delivery for its low-cost Ground Saver shipping service, with the partnership now expected to resume in January.
The Postal Service said it will begin accepting bids in late January or early February for same-day and next-day service.
Shippers who wish to access the DDU network can propose a combination of volume, pricing and tender times at each location, with deliveries for successful bidders being made by USPS the same day or next day, at the customer’s preference.
“In the logistics business, the most expensive part of delivery is generally the ‘last mile’ portion of a route. As part of our universal service obligation, we deliver to more than 170 million addresses at least six days a week, so we are the natural leader in last-mile delivery. We want to make this valuable service available to a wide range of customers that see the worth of last mile access — other logistics companies and retailers large and small,” said Steiner in a news release.
“We see this initiative as a compelling value proposition for many shippers who we know are wrestling with the need to deliver to their customer as quickly and reliably as possible. Our solution is to establish a fair bidding process that enables the marketplace to find the best mix of local shipping attributes for the best volume-driven pricing. Because our delivery operations are already visiting every home and business daily, we can help shippers reduce their costs while generating much-needed revenue for the Postal Service.”
The Postal Service will engage shippers to discuss the procedure, gauge interest in participation, and fine-tune the bidding process before setting up the digital application platform.
“We want to allow customers to custom-build their last mile solution. We want to make the service as convenient, cost-effective and efficient as possible. We have achieved impeccable service performance scores for our last mile, which reflects the simple, quick-turn processing that occurs at a local DDU,” said Steiner.
The Postal Service said it expects to formalize accepted bids for the direct Parcel Select product through a negotiated service agreement contract. Winners will be notified in the second calendar quarter, and service under those NSAs will likely begin in the third quarter of 2026.
Will it work?
Nate Skiver, a parcel consultant and head of LPF Spend Management, said on LinkedIn that the postal network has always been open to shippers of all sizes, “but very few have enough volume density to efficiently leverage it. It rarely makes sense for retailers, outside of the very largest, to directly induct into the USPS network” because of sortation requirements, challenges managing the first and last mile, the availability of many cost-effective alternative carriers and the package tracking capabilities of private couriers.
The Postal Service should monetize its valuable last-mile network, but Skiver said trying to get shippers to compete with each other for service won’t work.
Satish Jindel, a veteran parcel industry executive and president of ShipMatrix Inc., said the U.S. Postal Service will undercut its Ground Advantage and Priority Mail parcel products, and enable competitors by providing last-mile delivery. It should go all-in on last-mile delivery and stop accepting packages at the regional distribution centers if it wants to maximize revenue potential, he said in an interview.
Amazon and the U.S. Postal Service have been negotiating an extension of their $6 billion contract before it expires in October, but Steiner’s new plan has raised the retailer’s concerns about higher prices after a year of talks, according to multiple media accounts.
The Government Accountability Office on Tuesday said the Postal Service has lost money nearly every fiscal year since 2007, totaling $118 billion, as first-class mail has fallen to its lowest volume since 1967.
Click here for more FreightWaves stories by Eric Kulisch.
Sign up for the biweekly PostalMag newsletter The Delivery here.
RECOMMENDED READING:
USPS reports 5.7% decline in parcel volumes, $9B loss
UPS, Postal Service to reunite for delivery of low-budget shipments
