USPS Collapse Could Be Nightmare for Some Businesses

As a result of the coronavirus pandemic, the United States Postal Service, which has run at a loss for years, is even more cash-strapped.

Based on USPS projections, it will lose US$2 billion each month during the pandemic. That prompted Postmaster General Megan Brennan to ask Congress for $50 billion in funds — $25 billion to offset lost revenue from declining mail volume due to the pandemic, and another $25 billion for modernization. USPS also requested a new $25 billion treasury loan and a mechanism to pay down $14 billion in existing public debt.

House Democrats warned that without the funding, the USPS might not make it past September without missing payrolls or suffering service interruptions.

“With deliveries down, business mail down, advertisements down, and the shelter-in- place rules, the USPS faces its biggest financial crisis to date,” said Ray Wang, principal analyst at Constellation Research.

“They will need funding,” he told the E-Commerce Times.

However, President Trump threatened to veto the $2.2 trillion Coronavirus Aid, Relief and Economic Security (CARES) Act if it should include any money for the USPS.

GOP lawmakers have been trying for years to privatize the USPS, which has been running at a loss.

“Over the past decade, most of the government subsidies have been reduced or removed,” Wang said.

Sens. Gary Peters, D-Mich., and Ron Johnson, R-Wis., tacked on a last-minute $10 billion Treasury Department loan to the CARES Act to keep the USPS going through the spring months, after Treasury Secretary Steven Mnuchin warned lawmakers against making a $13 billion grant that the USPS would not have to repay.

“UPS has always advocated for a healthy and viable U.S. Postal Service,” said UPS spokesperson Kyle Peterson.

“We have also maintained that any relief package should also be accompanied by financial and transparency reforms that ensure the USPS doesn’t use its universal service obligation to deliver mail across the country to subsidize its competitive offerings in the parcel shipping market,” he told the E-Commerce Times.

There has been a general outcry in favor of saving the USPS, which Pew Research found is favorably viewed by a majority of both Democrat and Republican Americans. Several organizations have launched campaigns to save the service.

Why the USPS Needs a Cash Infusion

During the pandemic, less mail is being sent, and sales of postal supplies are a major source of funds for the service.

Meanwhile, delivering Amazon packages no longer is a good source of income. In April 2018, the USPS handled about 62 percent of all Amazon packages shipped in the U.S.

Now Amazon’s own delivery network, Amazon Logistics, handles between 46 and 50 percent of all Amazon orders in the U.S.

Amazon used USPS to deliver packages at below cost, Wang said. “This is why you see USPS trucks out there on Sunday morning delivering Amazon packages.”

However, Amazon “has built up scale in delivering on the last mile,” he pointed out, “and in a few years will not need the USPS.”

The USPS “is caught between a rock and a hard place,” said Rebecca Wettemann, principal at Valoir.

“Its mandate to provide a service is particularly difficult when it’s expected to compete with the Amazons of the world,” she told the E-Commerce times.

Meanwhile, the service’s costs have gone up because it needs to equip employees with personal protective equipment, and postal service workers are being affected by the pandemic.

More than 6,000 postal workers are in self-quarantine because of exposure. Nearly 500 have tested positive for the coronavirus, while 462 are presumed to have been infected. Nineteen have died.

The USPS and Employment

If the USPS collapses, 630,000 jobs will be at risk, according to Common Dreams.

The service is one of the top five employers in the U.S., Wang noted.

“The USPS is a massively vital service,” he said. “It’s a part of critical infrastructure like interstate highways, the Internet, banking systems and military bases. This is the physical connectivity network.”

Impact on E-Commerce

E-commerce has helped many large brick-and-mortar retailers, whose profiles have risen considerably in the online sales sector.

In February, Walmart ranked second behind Amazon in terms of retail e-commerce sales, while The Home Depot stood at fifth, Best Buy at seventh, Target eighth, Costco ninth, and Macy’s tenth, according to eMarketer.

Large companies with an online presence will not be impacted much if the USPS collapses because their high volumes mean they “will have alternatives and the ability for volume price negotiations,” Valoir’s Wettemann observed.

Further, with store delivery becoming more widespread, “they’re more likely to have the resources, at least in some areas, to deliver to the last mile themselves, as Amazon does already,” she pointed out.

However, USPS “is the most cost-effective option for a lot of smaller firms selling online,” Wettemann noted. “Elimination or reduction of USPS services would make staying in business more costly for them.”

On the other hand, “the SMBs that rely on the USPS also use FedEx and UPS,” Wang pointed out, noting that many SMBs use Amazon Logistics as well.

Consumers won’t be hit by increased shipping costs if the USPS collapses because these are now built into pricing, and there will be competition from new entrants to the courier industry, he said.

In addition to financial assistance, the USPS “will need to charge Amazon more to get to market prices for the last mile,” suggested Wang, “and its critical infrastructure may need reform as mail volumes drop, shipping volumes shift to in-store pickup and contactless delivery, and its pension costs increase.”