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May 28, 2024

USPS Overhaul: Shipping Partners Brace for Potential Turbulence

USPS plans major changes to shipping consolidator agreements, sparking concerns in the industry. Read to learn more.

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USPS Gears Up for Major Overhaul:

In a move that could reshape the package delivery landscape, the United States Postal Service (USPS) is actively pursuing substantial modifications to its long-standing agreements with key shipping consolidators. These consolidators, including DHL eCommerce, OSM Worldwide, and Pitney Bowes, play a crucial role in facilitating the seamless transportation of parcels to USPS facilities for the vital last-mile delivery.

what’s last mile delivery? 

Last mile delivery, or the last mile of logistics, refers to the process of getting goods from a destination hub to the final delivery destination, aka the customer’s hands. The main goal of last mile delivery is to get the package to the customer as quickly, accurately, and affordably as possible.


 Understandably, USPS’s proposed changes have sparked concerns within the industry, with experts even warning of “potential service disruptions” and “escalating delivery costs for businesses and consumers alike.” 

In this article, we will uncover the catalyst for this major overhaul and its implications. Read on to learn about alternative options, adapting to a shifting landscape, and more. 

 

The catalyst:
Revamping a struggling agency

the mail never stops - Newman - meme

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. 

So, with that in mind, and under the leadership of Postmaster General Louis DeJoy,  USPS has set its sights on amending the lucrative Parcel Select contracts that govern its relationships with shipping consolidators. Specifically, USPS seeks to eliminate the discounts traditionally offered for volume injected at local delivery units, thereby incentivizing consolidators to route packages through upstream facilities like sectional centers or sorting and delivery hubs.


The postal service’s perspective:
A transformative journey

From USPS’s vantage point, the proposed 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:
Legal challenges 

While USPS’s proposal has undoubtedly stirred the pot, industry insiders suggest that any impending changes are unlikely. Kevin Collins, president of USPS's workshare partner ACI Logistix, emphasizes the potential for legal challenges, congressional inquiries, and regulatory oversight from the Postal Regulatory Commission – factors that could delay or reshape the agency’s plans. 

Furthermore, USPS itself has remained tight-lipped about the specifics of its proposal, declining to comment when approached by Supply Chain Dive. This silence only adds to the uncertainty surrounding the proposed changes and potential consequences.  


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. 

Proposed 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. 

 

Regulatory oversight:
The Postal Regulatory Commission’s role

In addition to the potential congressional scrutiny, USPS’s proposed changes could also face regulatory hurdles from the good ol’ Postal Regulatory Commission (PRC). 

What’s the Postal Regulatory Commission (PRC)? 


The Postal Regulatory Commission is an independent federal agency tasked with overseeing the Postal Service’s operations and ensuring transparency and accountability. The PRC wields significant influence over the agency’s strategic decisions.


Therefore, any significant alterations to USPS’s agreements with consolidators could trigger the PRC's review process, which could impose conditions or modifications to safeguard the interests of businesses, consumers, and the broader mailing community. The agency’s ability to navigate the regulatory landscape will be crucial in determining its proposed changes' ultimate shape and implementation timeline. 

 

A delicate balancing act:
Cost savings vs. customer satisfaction

[I can't get no] customer satisfaction

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.

The outcome of these negotiations will undoubtedly have far-reaching implications, reverberating through the intricate web of logistics and delivery networks that support commerce today. 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. 


Consolidators’ conundrum:
Adapting to a shifting landscape

USPS's proposed changes present a complex challenge for shipping consolidators like DHL eCommerce, OSM Worldwide, and Pitney Bowes. On one hand, these companies have built successful business models around leveraging the agency’s delivery network. So, any alterations to the established process could bring on significant operational and strategic shifts. 

“We are in the early stages of our discussions with USPS on how we can continue working with them to achieve their goals and maintain the same level of service for our customers,” shared Andrea Scarpulla of DHL eCommerce, echoing the feeling shared by many consolidators. 

Faced with the prospect of higher costs and potential service disruptions, these companies may need to explore alternative carrier partnerships, revise pricing structures, or even consider diversifying their service offerings to remain competitive and meet customer expectations. 

 

Exploring alternative options:
Regional carriers & direct relationships

Faced with the prospect of 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 proposed 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

When you control the mail, you control information - meme

As USPS and its shipping partners navigate this complex landscape, the path forward will likely require collaboration and compromise. Both parties will need to approach the negotiating table with a willingness to understand each other’s perspectives and find a solution that benefits them both. 

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 proposed changes to its agreements with shipping consolidators is a pivotal moment in the agency’s transformative journey. While the potential implications for service levels, delivery costs, and industry dynamics are significant, this period of uncertainty also presents an opportunity for innovation and adaptation. 

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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