Why the U.S. Postal Service Can Win the Battle for the Same-Day Delivery Market
Despite a slow start to its same-day delivery program for e-commerce purchases, the U.S. Postal Service is in a strong position to challenge FedEx, UPS and other competitors in that potentially lucrative market.
USPS began testing same-day delivery, under the brand name of Metro Post, in San Francisco at the beginning of 2013. It promised delivery by 8 p.m. of packages tendered by 2 p.m. on that day. In December, it extended the pilot to New York City.
The San Francisco launch did not generate much excitement. "We found only a dozen or so folks willing to go with it," said Harry Whitehouse, chief technology officer and co-founder of Endicia, a provider of electronic postage and shipping services through the U.S. postal system.
Whitehouse said success of the new service requires a change in thinking by potential customers and e-tailers. "You have to modify your website and some of your behavior."
Same-day delivery promises to be a fierce battleground for carriers and online merchants. It is already being offered in the Bay Area and elsewhere by FedEx, UPS, Amazon.com, eBay and Google Shopping Express, among others, but demand remains tepid.
Logistical problems -- even without Amazon's promised used of drones -- remain to be worked out. Google's fleet consists of about 5o Priuses. EBay also uses small cars, and recently bought Shutl, a U.K.-based provider of same-day delivery. FedEx and UPS, of course, already have huge numbers of vans on the streets.
But the Postal Service might be in the best position to fulfill the physical requirements of same-day service, according to Whitehouse. "Starting around 4 p.m., it has vehicles largely sitting in parking lots," he said. Google and eBay, by contrast, have had to invest in cars and staff their fleets with new hires.
In addition to its existing fleet and experience in reaching every residential address, the Postal Service is not tied to any particular seller. "It has the ability to be a player whenever this market opens up," Whitehouse said.
Metro Post offers an $8 flat fee for packages up to 25 pounds. USPS begins picking up shipments after 2 p.m., then uses dynamic routing techniques to determine whether to deliver direct to destination, or run the items through a consolidation center.
The service has seen a handful of successes. One of Endicia's customers, a maker of high-end gloves, features the Metro Post option on the seller's website. "He's delighted with it, and so are his customers," said Whitehouse. Another sells leather computer cases to visitors in San Francisco hotels, who get their orders by 8 p.m.
Grocery probably has the strongest potential for tapping into the same-day delivery market. There have been many attempts to launch online grocery services since the days of Webvan and Peapod in the late 1990s. Today, major retail chains such as Safeway have their own van fleets, although delivery charges can be substantial. In addition, Amazon and other e-tailers have jumped into the game, hoping to succeed where previous attempts have failed.
Handling groceries could prove problematic for USPS, which would need specialized equipment to carry perishable items and other sensitive food products. But the experiment appears to be working in a few other countries. Grocery is reportedly the fastest-growing source of business for Posten AB, the postal service of Sweden, which delivers evening meals in special containers. Belgium's bpost has also embraced the sector.
Same-day delivery could even mean the salvation of USPS, which lost $5 billion in fiscal 2013. (The silver lining: It lost $15.9 billion in fiscal 2012.) With its first-class letter business plummeting in the age of e-mail, it is desperate for new sources of revenue. In recent years, it has begun paying more attention to parcels, offering discounts for commercial customers and matching the shipment-tracking capabilities of UPS and FedEx. The Postal Service's flat-rate box and competitive pricing have helped to cut into the market share of those parcel-handling giants, Whitehouse said. An electronic-postage provider like Endicia can generate a detailed shipping label that eliminates the need for postage meters and visits to the post office.
At a time when USPS is struggling to cut costs and attempting to eliminate Saturday service for letters, the same-day market offers a rare chance for growth. "If this becomes a major paradigm shift," Whitehouse said, "they're the ones that will win."