On September 11, USPS declared it would no longer offer discounted rates through Negotiated Service Agreements (NSAs) for packages entered by consolidators at Post Office Delivery Units. This decision affects the decades-old reseller program, which has been in place since 1992.
Postmaster General Louis DeJoy explained that these contracts "no longer reflect operational and financial realities in today's market, the Postal network, or USPS' refreshed product offerings." The move is part of a broader strategy to modernize the USPS network and align product and pricing strategies with its operating model and goals.
This change will have a significant impact on the shipping industry. Consolidators, who move about 2 billion packages through the Postal Service annually —accounting for roughly a quarter of its total parcel volume — will be particularly affected. Major players in this space include DHL eCommerce, OSM Worldwide, and UPS through its SurePost and Mail Innovations services.
A ripple effect:
Impact on the shipping industry
The USPS overhaul has significant implications for the shipping industry, particularly affecting consolidators who move approximately 2 billion packages through the Postal Service annually. This change will likely lead to higher costs for consolidators, who may pass these expenses on to consumers.
The Postal Service aims to boost its own Ground Advantage package shipments and eliminate cheap access to its vast network for the final leg of delivery. Under the new changes, the number of drop-off locations for consolidators will be reduced from about 10,000 to approximately 500 large hubs. This shift could result in higher shipping costs for various products that have previously benefited from the Postal Service network for final deliveries. Some consolidators are already adapting to these changes, including Pitney Bowes filing for bankruptcy protection for its e-commerce division.
The catalyst for the overhaul:
Revamping a struggling agency
Like so many other changes recently made by USPS, the motivation behind these sweeping alterations can be traced back to none other than USPS’s ambitious “Delivering for America” plan. “Delivering for America” is a decade-long initiative to revitalize the agency’s operations financially. By optimizing its network and streamlining package and mail delivery processes, USPS hopes to achieve a more cost-effective and efficient model that aligns with its broader transformation objectives.
A key element of this overhaul is the launch of USPS Ground Advantage, a new shipping offering that provides a simple, reliable, and more affordable way to ship packages in two-to-five business days across the continental United States. This service replaces several existing offerings, including USPS Retail Ground and USPS First-Class Package Service.
The postal service’s perspective:
A transformative journey
From USPS’s vantage point, the changes to its agreements with consolidators represent a crucial step in its transformative journey. By realigning incentives and optimizing network utilization, the agency aims to achieve a more sustainable and cost-effective operating model that ensures its long-term viability in an increasingly competitive and demanding delivery landscape.
“We look forward to talks on a transition plan that will be mutually beneficial while staying consistent with our transformation plan,” stated Postmaster General DeJoy in a letter addressed to consolidators, underscoring the agency’s commitment to finding a balanced and collaborative solution.
However, USPS’s pursuit of operational excellence and financial stability must be carefully weighed against the potential disruptions and cost implications for its shipping partners and, by extension, the businesses and consumers they serve.
Potential implications:
Service disruptions and cost escalations
While USPS’s rationale for these changes is rooted in its desire for operational optimization, industry experts have raised red flags regarding the potential consequences. Derek Lossing, a former Amazon Logistics executive and founder of Cirrus Global Advisors, has bluntly stated, “It will ultimately translate to a price increase for the underlying customer.”
The crux of the issue lies in the fact that by compelling shipping consolidators to introduce package volumes earlier in the USPS network, shipments could become more susceptible to delays and service disruptions — a concerning prospect given the agency’s well-documented struggles with timely deliveries during its ongoing transformation.
Navigating uncharted waters:
The winners and losers
The USPS overhaul has created a complex landscape of winners and losers in the shipping industry. The Postal Service aims to enhance its capacity and ability to deliver packages, viewing the current model as "not a good business strategy." This shift has significant implications for various stakeholders.
Consolidators like DHL eCommerce, OSM Worldwide, and Pitney Bowes face challenges as they may need to explore alternative carrier partnerships or revise pricing structures. The USPS plans to implement Parcel Select price hikes, with shipments entered at delivery units experiencing the highest increase at 43.4% on average.
Regional carriers could emerge as beneficiaries, potentially gaining market share as shippers seek alternatives. The USPS itself aims to boost its Ground Advantage package shipments, positioning itself as a potential winner in the new system.
The congressional side:
Balancing transformation with obligations
As USPS navigates these changes it wants to implement, it must also contend with the watchful eye of Congress. Lawmakers, tasked with safeguarding the agency’s ability to fulfill its universal service mandate, have expressed concerns over potential service lapses and the impact on businesses and consumers.
Changes to consolidator agreements could further exacerbate these concerns, prompting congressional inquiries and potential legislative action to ensure the agency remains accountable to its statutory obligations. The delicate balance between operational efficiency and service reliability will undoubtedly be a focal point for lawmakers as they scrutinize USPS’s plans.
A delicate balancing act:
Cost savings vs. customer satisfaction
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At the core of this debate lies a delicate balancing act — USPS’s pursuit of cost savings and operational efficiency versus the industry’s desire to maintain reliable and affordable shipping services. As the agency navigates between the two, it is wise for USPS to carefully weigh the potential benefits of its network overhaul against the risks of alienating key partners and disrupting well-established supply chains. Only time will tell whether USPS can successfully chart a course that satisfies both its own financial goals and the demands of its shipping partners and the customers they serve.
Exploring alternative options:
Regional carriers & direct relationships
Faced with higher costs and potential service lapses, shipping consolidators may be forced to explore alternative avenues to maintain their competitive edge. Jim Cochrane, CEO of the Package Shippers Association, suggests that regional carriers could emerge as beneficiaries, stating, “Don’t assume that if you make these changes that regional carriers aren’t going to get a lot of [the volume], I think they will.”
Additionally, some industry experts advocate for shippers to consider establishing direct relationships with USPS, thereby circumventing the potential pitfalls associated with the changes to consolidator agreements. However, as Cirrus Global Advisors' Lossing points out, consolidators offer a distinct advantage in terms of agility and expediency, noting, “Pitney Bowes can get a contract over the finish line in a couple of weeks, and you can start shipping with them. That’s not necessarily the case with the Postal Service.”
The path forward:
Collaboration & compromise
As USPS and its shipping partners navigate this complex landscape, the path forward will likely require collaboration and compromise. Ultimately, this transformation's success will hinge on all parties' ability to engage in an open dialogue, prioritize transparency and accountability, and find common ground that makes both sides a winner.
Final thoughts
USPS’s changes to its agreements with shipping consolidators is a pivotal moment in the agency’s transformative journey. As USPS navigates these uncharted waters, it must remain steadfast in its commitment to transparency, collaboration, and accountability. By engaging in open dialogue with industry partners, embracing regulatory oversight, and demonstrating a willingness to find mutually beneficial solutions, USPS can chart a course that balances its financial goals with the operational needs of the broader logistics ecosystem.
Similarly, consolidators, shippers, and any other industry stakeholders must approach this transition with resilience and adaptability. By exploring alternative strategies, embracing technological advancements like shipping management applications, and remaining agile in the face of change, they can position themselves to weather the storm and capitalize on the opportunities that may arise from all of this.
Ultimately, the outcome of this transformation will shape the future of package delivery and logistics for years to come. So, by fostering an environment of collaboration, innovation, and mutual understanding, USPS and its partners can navigate these uncharted waters and emerge stronger, more efficient, and better equipped to meet the evolving needs of businesses and consumers in an increasingly competitive and demanding global marketplace.
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