Dive Brief:
- The U.S. Postal Service is gearing up for peak season by accelerating investments in sortation equipment and annex facilities, according to an announcement Wednesday.
- USPS plans to buy a number of processing machines over the next 18 months, including 138 package processing sorters that would be operational ahead of peak, the announcement said. The agency also plans to lease 45 additional annex facilities for package overflow.
- As part of the investment, USPS will resume the removal of mail-processing equipment at 18 facilities to make room for parcel equipment, a process paused in 2015. That activity will follow USPS' existing contractual process, it said, and is set to be completed by November.
Dive Insight:
USPS' preparations for peak follow record-breaking 25% growth in holiday shipping and package volumes during peak season, compared to 2019's peak.
"This optimization will lead to more efficient and reliable performance in our plants, which in turn will enhance our ability to predictably and reliably deliver mail," Postmaster General and CEO Louis DeJoy said in the press release announcing the investments.
USPS' on-time performance climbed to 90% in March — near where it was in March 2020 — after hovering around 80% in January and February, according to numbers from Convey. However, on-time performance had dropped to 78% during the last week of November 2020, alongside FedEx (75%) and UPS (80%).
On-time delivery is important to small shippers, which tend to use USPS more frequently than other carriers. Delivery performance is also critical for services such as UPS SurePost, which transfers parcels to the Postal Service for last-mile logistics. FedEx recently rebranded its SmartPost service to Ground Economy as it insources volumes that previously went through USPS for home delivery.
The Postal Service's moves to bulk package-processing capacity, and remove or relocate letter and flat sorting equipment that USPS deems "unnecessary," should allow for greater throughput.
The investments are part of USPS' 10-year plan to avoid the $160 billion in losses it was projected to suffer by 2030. USPS' revenue was up $2.1 billion YoY in Q1 2021 (October through December 2020). But operating expenses were up 5.3% YoY for the agency, infamous for its financial woes. It aims to achieve positive net income within three years, as well as break-even operating performance over the next decade.
Shippers are sensitive to any potential slowdown in the mail and the snowball effect it might have on parcel.
"Moving, removing, and repurposing mail processing equipment and operations or 'operational mail moves' is an ongoing Postal Service strategy dating back decades that allows for more efficient, timely delivery of mail and packages," USPS said in the press release.
Efficient and timely delivery is on the minds of many logistics providers and shippers, as e-commerce growth and consumer spending show little sign of slowing. UPS is focused on productivity in its network as volumes remain elevated. The National Retail Federation expects retail sales will grow up to 8% this year to more than $4.33 trillion.
The time for shippers to award contracts for peak season is drawing closer and should be done no later than July, LPF Spend Management Founder Nate Skiver wrote in a LinkedIn post.
"Peak 2021 will likely present many of the same challenges as 2020, but I'm not seeing much urgency to add/change parcel carriers," Skiver wrote this month in a separate post.
Diversifying the carrier mix was an important theme during the build-up to peak season 2020, and regional parcel carriers saw a surge in demand for their services as UPS and FedEx capped volumes. Online styling service Stitch Fix even said in March that it learned its lesson from peak last year, when clogged logistics networks led to longer cycle times. Its primary carrier was USPS, but the company plans to focus more on diversifying its carriers.
Shefali Kapadia contributed to this report.
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