Tech

USPS delays threaten a key backbone of online sales for Amazon, eBay and more

Key Points
  • The U.S. Postal Service is one of the key backbones for small businesses and big retailers that sell products online.
  • Recent delivery delays and operational changes have created hurdles for businesses that rely on the USPS. 
  • E-commerce companies like Amazon, EBay and Etsy continue to lobby lawmakers on Capitol Hill about the need to keep the Postal Service affordable and reliable.
A US Postal worker delivers Amazon boxes outside of the New York Stock Exchange (NYSE) on October 11, 2018 in New York City.
Spencer Platt | Getty Images

In early July, business owner Zach Williams found himself in search of 200 packages, which were lost in Detroit's U.S. Postal Service distribution hub. 

Normally, it would take a day for the shipment to get checked into the facility, but this time, it took three weeks, said Williams, whose Maryland-based business, Flashback Limited, sells video game accessories. Growing frustrated, he got in touch with a Post Office supervisor, who told him the packages were accidentally left behind on a semi truck in the Detroit facility. Shortly after, the items were shipped out. 

Williams attributes the mishap to ongoing delays created by the pandemic, which have hampered the USPS and other carriers. "Every once in a while something gets missed, but that's the first time that happened to me to that degree," he added. 

The incident is an example of what could become a recurring headache for small and big online businesses if problems with the U.S. Postal Service persist. 

The Postal Service faces a tough road ahead. Its financial woes were exacerbated by the pandemic, and critical funding is tied up in the latest coronavirus relief package, which President Donald Trump has rejected as part of his fight against mail-in voting. The USPS also faces operational challenges after recently installed Postmaster General Louis DeJoy limited overtime and prohibited workers from making late delivery trips. On Tuesday, Reuters reported that DeJoy would pause the roll out of those initiatives until after the November presidential election.

The changes instituted by DeJoy, in addition to the coronavirus pandemic, have coincided with reports of widespread mail delays like those experienced by Williams. Still, the Postal Service is largely operating without delays for many Americans nationwide.

In June, USPS delivered 93.7% of first-class mail packages on time, according to ShipMatrix, a software provider that analyzes shipping data. That's in line with or better than UPS or FedEx, which reported on-time delivery rates of 94% and 91.5%, respectively, during the same period. However, it's still down from May, when the USPS delivered 94.9% of packages on time.

"Even at 93.7%, that 6.3% can be hundreds of thousands of packages," said Satish Jindel, founder of ShipMatrix. "It's not a great number, but they're moving tens of millions of packages per day, and you're not going to hear about the good cases."

A 'key enabler' of e-commerce

The USPS is relied upon not only by small businesses who sell goods via their own websites, but also sprawling online marketplaces operated by Amazon, EBay, Etsy, as well as major retailers like Walmart and Target. Growth in package shipping from online retailers like Amazon has consistently been a bright spot in the Post Office's financial results, amid declines in shipments of letters and magazines.

Amazon has built up a vast logistics and fulfillment operation across the country, but it still relies on the Postal Service to handle some last-mile deliveries when it's not using its own contractors. An Amazon spokesperson declined to comment on what percentage of its packages are delivered by USPS, but some analysts estimate the Postal Service delivers 40% of Amazon's orders. 

UPS, DHL and FedEx also rely on the Postal Service to handle a portion of their last-mile deliveries via the same Parcel Select service used by Amazon. The service allows carriers and companies like Amazon to handle the long distance portion of the delivery process, then drop packages off at local Post Offices, where employees handle last-mile deliveries within a certain radius. 

"In cases where it's not actually profitable for Amazon, UPS, FedEx or DHL to make the delivery, they actually rely on USPS," said Mario Paganini, head of marketing at Shippo, which provides software to connect businesses with shipping services. "It's much more cost effective to bring a large volume of halfway or all the way across the country and then have the USPS do the last-mile delivery."

For small business owners, the USPS is often the most affordable and reliable shipping option available. Roughly 89% of the small- and medium-sized businesses that use Shippo select the USPS as their primary carrier, Paganini said. Shippo doesn't disclose how many SMBs use its services, but they make up the majority of the services' 50,000-plus active customers.

"[The USPS] is a pretty key enabler of small business," Paganini said. "This is something that a lot of people overlook and take for granted."

John Von Colln, founder of on-demand poster printing company Shortrunposters.com, said the Postal Service typically charges about $5 per order for first-class mail, while UPS's shipping rates can cost more than double that price. 

Von Colln said it's important that his company offer affordable shipping costs for cheap, lightweight items like posters to keep customers happy. "People don't want to pay more for shipping than the product itself," Von Colln added. 

Push to raise prices 

Delivery delays aren't the only concern weighing on business owners' minds. They also worry about the possibility that the Postal Service will be pressured to raise shipping prices as a way to shore up its finances.

President Trump has repeatedly called for the Postal Service to quadruple its package delivery services, claiming the Postal Service has charged online retailers too little to deliver packages. Trump has long held, without evidence, that Amazon is being subsidized by the Postal Service, once saying that Amazon uses the USPS as its "delivery boy."

The Postal Service on Friday announced it would raise the price of commercial shipments during the peak holiday shopping period, but the rate increase is temporary, ending Dec. 27. UPS and FedEx have since announced similar price hikes. 

John Webber, founder of Carved, which designs and manufactures wooden smartphone cases, said that if the USPS raises prices, it would not only hurt his business' bottom line, but it would most likely mean he'd pass the cost onto consumers. He estimates that the Postal Service manages more than 90% of his company's domestic package volume. 

The Postal Service's affordable prices have become even more critical during the pandemic and the broader economic downturn, which has forced many businesses to look for ways to cut costs.

What's more, if the USPS aggressively hiked its shipping prices like Trump has suggested, some businesses might turn to competing carriers like UPS and FedEx, causing it to lose market share.

Calls to keep Postal Service prices affordable have garnered support from a growing number of e-commerce companies and retailers. The Package Coalition, a lobbying group backed by Amazon and eBay, among others, has urged lawmakers to keep the service "affordable and reliable."

In May, the retail coalition launched a series of television ads in a number of states opposing efforts to impose rate hikes on the Postal Service. The group also continues to lobby the Senate to provide emergency relief for the Post Service, fearing it will run out of cash in the "not too distant future," said John McHugh, chairman of the Package Coalition.

"This is not a 'maybe it'll happen,' it's 'when will [it] happen,'" McHugh said. "We've really been going full boar in attempting to help lawmakers and their key staff." 

Etsy and EBay have advocated directly for the need for additional USPS funding on behalf of the business owners that make up their marketplaces. 

Late last month, Etsy CEO Josh Silverman wrote to Congress, urging lawmakers to provide emergency funding for the Postal Service and expand coronavirus relief for small businesses. 

"The vast majority of U.S. Etsy sellers — 91% — rely on USPS to deliver their packages to consumers," Silverman wrote. "USPS is particularly important for our sellers who live in rural communities, where USPS may be the only carrier available to them."

EBay's public policy team has also urged Congress to support a "strong and viable" Postal Service. EBay sellers also meet with lawmakers in Washington, D.C. each year to discuss issues impacting their business. Williams, who is a part of eBay's small business ambassador network, attended last year's meeting and said the Postal Service was one of several issues discussed.

"We talked to them about insuring that the USPS remains a public service and ensuring that it can provide service to rural areas at affordable rates," Williams said, adding that eBay remains actively engaged in these issues with lawmakers.

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Trump: Post Office needs to raise prices for Amazon