Last Friday, the U.S. Postal Service announced that they ended fiscal year 2013 with a net loss of $5 billion – despite revenue growth and record productivity. Considering the Postal Service reported losses of nearly $16 billion in fiscal year 2012, this announcement is not all bad news. However, it does highlight the scope of the Postal Service's challenges. It's tough to report a loss of $5 billion, while also reporting 8% growth in shipping and packages, 3% growth in standard mail, and nearly $1 billion in savings from work hour reductions and optimizing workforce flexibility.
This was the seventh straight year in which the Postal Service has reported a net loss. Unfortunately, it does not appear that they will break this streak anytime soon with debt liabilities exceeding their assets by approximately $40 billion, first class mail continuing its sharp spiral of decline, and a Congressional mandate to make an annual $5.6 billion payment to cover health care costs for future retirees.
The Postal Service openly admits that its business model is broken and has pleaded with Congress to let it implement a range of reforms. The Postmaster General has submitted numerous options to Congress that could help turn around the struggling institution. His efforts to end Saturday mail delivery, close post offices, expand to new products and services such as shipping alcohol, and most importantly, restructuring their health care plan – have all been rejected.
With no legislative fix on the horizon, the Postal Service has embarked on an innovative path to reinvent itself. An organization that counts Benjamin Franklin as its first Postmaster General in 1775, is trying to stay competitive in the 21st Century through win-win partnerships with the private sector.
Sundays with Amazon
The first of these landmark partnerships is with the world's largest online retailer, Amazon.com (AMZN +0.20%). The Postal Service reached a deal with Amazon to deliver its packages on Sundays, creating new growth opportunities for both companies. The Postal Service can gain critical market share in the one sector of mail that is rapidly growing, packages, while establishing a competitive advantage, as FedEx and UPS do not deliver on Sundays. Amazon gains another opportunity to make the online shopping experience similar to in-store shopping, and meet the demands of their customers everywhere, who want their products as soon as possible after they purchase them.
While the financial details of the agreement have yet to be released, this partnership will pilot in New York and Los Angeles this holiday shopping season, and will expand to additional cities in 2014.
Service in Staples
The second innovative partnership that the Postal Service has recently announced is with the world's largest office products company and second largest online retailer, Staples (SPLS +0.00%). The Postal Service is opening service counters within Staples storefronts that provide a wide range of mail services including international, priority, and express mail. This partnership will allow the Postal Service to increase revenue from its mail business with limited overhead as these service counters will be operated by non-Postal Service employees, and do not incur the standard overhead costs of an official post office.
Staples will now be able to offer its customers an in-store mailing solution, a potentially significant competitive advantage over Office Depot, which just acquired Office Max. The partnership between the Postal Service and Staples will initially pilot across select regions before expanding to Staples storefronts nationwide.
It's too early to tell if these partnerships will have a significant impact on the Postal Service's bottom line moving forward, but they do show capacity and imagination by the organization's leadership team to attempt to capture new and innovative revenue streams. While USPS leadership admits that what their struggling business model needs most is comprehensive Congressional reform, these two partnerships with the private sector mark a significant effort by this historic institution to reinvent itself into an enterprise that can compete in the 21st Century.
