Five myths about parcel shipping
President Trump says that Amazon has turned the U.S. Postal Service into its “Delivery Boy.” He also says the Post Office loses money on packages it delivers for the tech company, although it’s not clear whether this is true. (Amazon’s founder, Jeffrey P. Bezos, owns The Washington Post.) In fact, the nation’s shipping industry is plagued by misunderstandings and uncertainties — at a time when shipping is transforming, powered by advances in artificial intelligence, mapping and automation.
Packages are the only growing segment of the postal business, leading some to conclude that an increased focus on package delivery will help the Postal Service survive in the world of decreasing mail volumes. Former postmaster general Jack Potter recently argued that delivering packages for companies such as Amazon is “the solution right now.” Trump claims that the Postal Service needs to charge parcel shippers “MUCH MORE!” to account for it “losing many billions of dollars a year.”
But there is no guarantee that the agency’s package profits will cover its losses as the number of letters being sent declines. And the potential revenue from package delivery simply cannot cure the Postal Service’s greater systemic failures. In 2010, the Government Accountability Office deemed the Postal Service’s business model “not viable” and “high risk.” Much of this was because the agency faces a serious unfunded mandate for the costs of its future retirees. Some reforms — congressional action to change the extremely conservative retirement portfolio rules, or better oversight of USPS contractors — could help. But the fact is that letter shipping has declined by more than 40 percent since its peak in 2001, and it’s unclear whether the USPS can make enough money on packages to account for consumers’ rapid shift away from mail.
Focused narrowly on jobs, business publications and public officials frequently praise holiday hiring. Author Toby Haberkorn notes that seasonal employment is a key tool for older workers to “get a foot in the door.” Increasing, holiday hiring is considered a sign of an improving economy, analyst Patrick O’Keefe told the Associated Press in 2014.
But in conditions of low unemployment rates among lower-skilled workers — such as the market today with near-record low jobless rates for those without high school degrees — holiday hiring can drive up costs as companies raise wages in pursuit of scarce labor. Finding workers for jobs that do not require college degrees has proved challenging for companies, said Roy Maurer of the Society for Human Resource Management. Over the past holiday season, the unemployment rate for these people hit 4.2 percent in December, the lowest rate for that month since 2000. As the Chicago Tribune reported last fall, many retailers cut back on seasonal hiring because so few people were looking for work.
Trucking companies also are struggling to recruit workers. This comes after a December with the highest producer price index for trucking since 2009, when data began being collected. As it becomes more expensive to move goods around, costs for those who produce goods increase. Seasonal cycles are like business cycles, economists Robert B. Barsky and Jeffrey A. Miron noted. Meaning that the thousands who join UPS, FedEx and the U.S. Postal Service each year can make labor even more scarce, pushing consumer prices up further to pay for the higher wages. The workers receive higher salaries, but everyone could end up paying more for shipping when the economy is improving.
“Neither rain nor snow nor heat nor gloom of night,” the Postal Service maxim tells us, “stays these couriers from the swift completion of their appointed rounds.” In other words, only postal workers would go the extra mile to deliver mail, and nobody else is better equipped to deliver packages to every corner of the nation. As Doc Watson recently wrote for the Rio Blanco Herald Times in Colorado, some last-mile deliveries, such as those to P.O. boxes, are postal monopolies. The last mile is the most expensive part of the delivery business, and with the Postal Service’s existing network, “you can’t really beat that,” ShipMatrix President Satish Jindel told the Boston Globe.
Yet where last-mile deliveries pose a problem, such as remote homes, more-specialized private companies — particularly those that specialize in automation — might fare better. This week, for instance, a California company that delivers medical supplies across Rwanda launched the world’s fastest delivery drone. Similar technologies could help parcels reach rural Alaskan outposts, forest villages of Vermont and ranches in the vast Western plains without the need for people to trek across the isolate expanses. Heavier loads could benefit from advances in autonomous trucking to help freight reach remote areas without putting USPS drivers on treacherous roads.
In more urban settings, private companies — which don’t have the Postal Service’s mandate to visit each post box — have more flexibility. Companies such as Swiss Post and Amazon are experimenting with new delivery options, including allowing deliveries to the trunks of cars. Such services can be more convenient for customers and have the potential to make last-mile problems less of an issue. Package lockers can be found in an increasing number of locations. These services, including Amazon’s thousands of parcel lockers, compete directly with parcel delivery to P.O. boxes, weakening the USPS monopoly and putting pickup locations in places where people go already, such as grocery stores.
FedEx and UPS are frequently cast as a duopoly. Shippers complain that “renegotiating rates [with the two companies] has become more difficult due to a lack of competition,” as industry news site FreightWaves noted in December. Rob Martinez, writing for a different parcel news site, points to the dwindling number of national parcel carriers to claim that the companies have “little competition.”
But these businesses face competition domestically and internationally in each of their product lines. Both package companies compete with the Postal Service for domestic deliveries as well as with smaller-scale couriers that move parcels within cities. And abroad, the European parcel market is highly competitive, with privatized and state-owned carriers fighting for market share. Efficient innovations such as automated sorting — at companies such as the Dutch PostNL, Finland’s Posti and the industry-leading Swiss Post — mean they may be able to enter the U.S. market in the coming years. European carriers have fewer facilities spread across smaller nations, which means fewer workers to retrain in new technologies and less need to spend money reconfiguring warehouses. Deutsche Post’s DHL is preparing to reenter the American parcel business right now.
A 2016 poll of Americans by the USPS Office of Inspector General found that 16 percent of people anticipate that drone delivery will either be offered later than 2027 or will never arrive. A similar poll in 2013 found that 10 percent of Americans thought Amazon would never fulfill its plan to complete deliveries using miniature drones, with an additional 9 percent saying that such deliveries were more than 10 years away.
Yet even today, drones are crawling the sidewalks around Dupont Circle, while large logistics companies such as Amazon Prime Air are preparing their own drone delivery services. Not limited to residential parcels, autonomous drone delivery is coming quickly to all modes of shipping, all over the world. Drone trains started hauling ore through the Australian desert last fall. The first drone delivery ships will ply the fjords of Norway by 2020. Amazon and others have said they are poised to test drone deliveries after Federal Aviation Administration rules change in 2019.
Image credit: Narong Jongsirikul
