The United States Postal Service (USPS) relies heavily on a major contract with Amazon, which has served as one of the few areas of financial stability for the agency amid persistent monetary losses. However, the USPS's recent initiative to extend last-mile delivery services beyond Amazon by inviting bids from other shippers poses a considerable risk to this crucial partnership. This move comes as the agency grapples with a deteriorating financial condition characterized by widespread declines in mail usage and escalating operating deficits.
In the 12 months ending September, the USPS incurred a staggering loss amounting to $9 billion. As Commissioner David Steiner highlighted in a recent Reuters interview, the Postal Service's cash position is precarious, with projections indicating that available funds might be depleted within 12 to 24 months. He emphasized that mere cost reductions would be insufficient to remedy the circumscribed fiscal outlook, signaling the need for fresh revenue strategies.
Amazon represents a significant revenue source for the USPS, reportedly accounting for approximately $6 billion annually, a sum vital to offsetting some of the agency's operational expenses. Despite collaborative negotiations spanning nearly a year to extend their historical 30-year partnership, the USPS has surprised Amazon by announcing the decision to open its distribution centers to competitive bidding. This abrupt strategic alteration has prompted Amazon to express concern over potential disruptions to its delivery network and to reassess ongoing engagement with the postal service.
As Steve Kelly, a spokesperson for Amazon, stated, the company was taken aback by the USPS's move to initiate an auction after prolonged talks. The uncertainty introduced by this change has led Amazon to explore multiple contingency plans to safeguard its capacity to deliver packages efficiently to customers.
The enduring appeal of the USPS to Amazon stems from the agency's mandate of universal service—an obligation to deliver mail to every address across the United States at uniform pricing. This includes servicing rural, remote, or otherwise challenging locations where delivery costs are inherently high. For Amazon, contracting USPS for last-mile delivery in these areas is often more cost-effective than alternative options.
Despite the critical revenue from Amazon, USPS's leadership acknowledges that this income alone falls short of addressing its broader fiscal challenges. In its latest annual report, the agency disclosed concerns regarding liquidity, highlighting potential insufficiencies to meet existing obligations, repay debts, and invest in essential infrastructure without jeopardizing its principal mission of universal delivery.
Attempts to attract additional customers capable of delivering pre-sorted packages in bulk directly into the USPS network align logically with operational efficiencies, according to Elena Patel, senior fellow in economic studies at the Brookings Institution and an expert on postal finances. Nonetheless, she cautioned that jeopardizing the longstanding relationship with Amazon could have detrimental financial ramifications.
The USPS recently observed a decline in package volumes, down nearly 6% in the most recent fiscal year after years of growth propelled by e-commerce trends. However, shipment volumes remain substantially higher than two decades ago, with a near 500% increase in package deliveries juxtaposed against a marked decrease in first-class letter mail during the same timeframe.
Given the USPS's statutory mission to ensure affordable mail delivery nationwide, Patel contended that government support through congressional appropriations—potentially ranging from $6 billion to $10 billion annually—is in the national interest to sustain universal service. She remarked that the traditional business model that granted USPS a letter delivery monopoly to subsidize this service is fundamentally undermined in the context of digital communications and declining letter volumes.
In summary, the USPS's plan to diversify its last-mile delivery clientele in response to long-standing financial pressures presents a delicate balancing act. While seeking new customers might bolster revenue streams, the strategic shift risks unsettling its most prominent client, Amazon, and may have far-reaching implications for the agency's fiscal and operational viability.