The U.S. Postal Service announced on Wednesday the cessation of discounts previously offered to shipping consolidators, a strategic decision aimed at curbing financial losses. This move is expected to raise costs for consumers who rely on services provided by major shipping consolidators.
Shipping consolidators handle approximately 2 billion packages annually via the Postal Service, making up about 25% of the overall parcel volume. U.S. Postmaster General Louis DeJoy emphasized that this policy shift is designed to enhance postal revenues and operational efficiency, ultimately guiding shippers to utilize the Postal Service’s own offerings, such as Ground Advantage.
The intent behind this change is rooted in financial sustainability, even though it may lead to a competitive advantage for the Postal Service and increased costs for consolidators, which may then be transferred to consumers. “This isn’t an effort to dominate the package business; it’s about preserving the mail business,” DeJoy stated.
DeJoy highlighted that this change is long overdue as the Postal Service grapples with an 80% decline in first-class mail volume since 1997. He clarified that some consolidator contracts have already been restructured while others will be reassessed as they expire over the next year.
“Reevaluating these business arrangements is essential for the Postal Service and the American public. We are open to negotiating with consolidators who agree to more efficient use of our network, ensuring mutual benefits,” he remarked.
These adjustments align with the Postal Service’s ongoing initiative to promote its Ground Advantage package services while limiting inexpensive access to its extensive delivery network, which services 167 million addresses six days per week.
This policy primarily impacts consolidators that deliver substantial volumes of packages to about 10,000 locations nationwide, which will be reduced to approximately 500 major hubs capable of accommodating the workflow.
This strategic decision is part of DeJoy’s comprehensive 10-year plan focused on budget management and enhancing operational efficiency to achieve long-term financial stability. While this change does not directly affect large shippers that negotiate terms with the Postal Service, it may lead to increased shipping costs for products distributed through consolidators that previously benefitted from lower prices utilizing the Postal Service network.
Experts believe that the rising costs associated with accessing the Postal Service’s extensive delivery network spell trouble for consolidators, unless they can procure local delivery services or contract workers to manage last-mile deliveries at competitive rates.
Additionally, some shipping consolidators are already facing challenges, as seen with Pitney Bowes, which has announced plans to file for bankruptcy protection for its e-commerce division. FedEx is also transitioning away from its FedEx Smart Post service—previously reliant on the Postal Service—toward its own delivery options.
