What is the future of e-commerce and the USPS?12 April 2020
The fate of the United States Postal Service has become an increased focus over the last week, as Trump has threatened to veto any further stimulus that would bailout the USPS. With businesses closing their doors, mail volumes are down and the USPS is projecting approximately $13 billion in losses. Additionally, previous legislation that opponents claimed was intentionally designed to bankrupt the USPS and force privatization, legislated that the USPS had to finance their pension for a quizzically long 70 years and prepay 10 years of expected retiree healthcare, further hurting their economic position. Without these provisions, the USPS would be turning a profit according to Trump’s own Treasury Department task force, even as the Trump administration openly advocated for privatization. Some are arguing that the GOP is looking forward to mail disruptions to prevent voting by mail that might hurt their chances in November. Additionally, the USPS enjoys a 90% approval rate, by far the highest rating of any agency ahead of the Parks Service and NASA. The USPS is to commerce as roads are to cars.
Advocates for the USPS explain that USPS is guaranteed in Article 1 Section 8 of the US Constitution and should not be privatized or service will skyrocket in price, especially for delivery to rural areas, which are loss leaders because of lack of residential density. This would disproportionately hurt Americans outside of cities, where tier 2 and 3 malls and retail are already hurting. Furthermore, because profitability is highly impacted by volume, we can expect larger businesses to negotiate far better rates than SMBs, disproportionately affecting the engine of innovation and job growth in the US. It seems reckless to privatize and let the market declare winners and losers, especially with private options such as UPS and FedEx readily available.
If the USPS is privatized and prices rise considerably, it will only further the advantages of brick-and-mortar retail over eCommerce in terms of customer profitability. eCommerce orders would become more expensive, free shipping would have to be absorbed in higher prices or membership fees if not revoked and return orders will become an even bigger problem, since eCommerce customers return 3-4x the rate of in-store, generating $550 billion in returns per year!
Amazon considered privatization and the specter of the Trump administration raising rates on eCommerce delivery such a threat to their core business that they began building their own delivery service. They recently announced they are pausing the service they were piloting in several markets in the face of workforce shortages during the Coronavirus. That said, it’s notable that Amazon’s delivery was focused on cities rather than rural areas, again because that’s where volume and profitability lie.
USPS privatization will likely accelerate electronic communications and payments even as it guts the economics of eCommerce delivery and will have far-reaching implications for all of us. We should also expect rising prices from FedEx and UPS and expansion into letter delivery.