"[T]he USPS is the only delivery service that reaches every address in the nation -- 152 million homes, businesses, and post office boxes."
-- USA Today, Nov 11, 2013
A recent article on Amazon.com (NASDAQ:AMZN) by fellow Fool Brandy Betz did a great job of providing food for thought before our traditional holiday banquet. Thanksgiving kicks off the shopping season -- a make-it-or-break-it period for retailers. Can the equation of Amazon plus the United States Postal Service represent a disruptive threat to some long-standing alliances?
Who else has some long-term skin in the game?
Most folks would immediately think about UPS (NYSE:UPS) and FedEx (NYSE:FDX). Some folks would think about Target, Macy's and Wal-Mart. I have to admit that all of those companies are rattling around in my brain as well. However, my thoughts immediately jumped to Monmouth Real Estate (NYSE:MNR) and its crucial relationship with FedEx. I tend to focus on writing about how real estate plays a role for investors, so Amazon's deal and the potential effects on Monmouth caught my attention big time.
Impressively, Monmouth currently pays investors 6.56%. In a low-interest environment, that is a heck of a yield. But I think an even more impressive metric is that Monmouth has paid investors a dividend for 21 straight years. Monmouth has been a publicly traded REIT since 1968--considering that President Eisenhower signed the bill that created REITs, this company is a REIT pioneer.
Monmouth and FedEx are attached at the hip. No getting around that one. The main reason Monmouth has such a high percentage of investment-grade tenants is that FedEx accounts for about 50% of its entire portfolio. Of course this means that the more FedEx benefits from the growth of e-commerce, the better it is likely to be for Monmouth moving forward.
Food for thought
I don't think the recent Amazon announcement about USPS Sunday delivery is an immediate threat to FedEx or, by extension, to Monmouth. This is an upside, or icing, that neither UPS nor FedEx will get to enjoy in the near term. But I am keenly focused on some of the big-picture numbers that Brandy Betz shared in her article:
The most important I think being relative market share, currently: First-class mail had 2012 revenues of $28.9 billion -- down nearly 4% from the prior year. Standard mail had revenues of $16.4 billion, which was also down about 4%. But the shipping and packages revenue of $11.6 billion was a 9% improvement.
My sense is that this won't move the needle in the short term for competitors and other folks with skin in the game. FedEx and UPS had never factored Sunday package delivery earnings into the mix. It would have been a nice announcement, but it didn't happen for either company -- or indirectly for the folks who provide the facilities.
Package volumes are growing, and the USPS just fired a shot over the bow. This could be a game-changer moving forward. I think Amazon is leveraging the fact that the USPS can reach everybody in the U.S., and if it is at a discount, that's even better.