As a recent Wall Street Journal article reported, the U.S. Postal Service (USPS) is embarking on a new business strategy and entering the same-day delivery industry. The USPS is ill-equipped to effectively execute on this new competitive strategy and compete in the highly innovative same-day delivery industry. To see why this competitive strategy is ill-conceived, we must examine four key factors.
First, what inherent advantages does the USPS have that will enable it to succeed in the same day delivery market? The USPS has an expansive distribution channel, numerous physical locations, and a sophisticated delivery infrastructure throughout the country. For example, the USPS has 31,662 retail offices nationwide and 211,264 delivery vehicles at its disposal. Clearly, the USPS has the resources to succeed in the same-day delivery industry.
Delivering mail isn't the same as delivering fish
However, the same-day delivery industry is markedly different from the USPS’s traditional business model. This brings us to the second factor: the same-day delivery industry is based on delivering actual products, not letters or bills, the USPS’s bread and butter for decades. Successful participants must be able to quickly and safely delivery frozen fish, groceries, and other highly perishable products and provide robust timing and delivery guarantees.
Entering this market puts the USPS in direct competition with FedEx and UPS’s industry divisions, which specialize in fast and effective delivery of fragile, perishable and time-sensitive products for the healthcare, pharmaceutical, food, retail, and aerospace and defense industries. While the USPS has the resources to compete in same-day delivery industry, this industry requires a different type of expertise, a sophisticated IT infrastructure, and other specialized skills, packaging and equipment that the USPS’s competitors have spent decades developing.
Will innovation be stymied by regulatory tangle?
Another unavoidable factor in assessing the merits of the USPS’s new strategy is its status as a quasi-governmental agency. Its organization and legal status are major concerns, as they make the USPS more rigid than its competitors. For example, the USPS still cannot deliver alcohol due to a Prohibition-era ban, and any change to this ban requires an act of Congress. If the agency is still hampered by 90-year-old rules, how can it compete with companies like Amazon and other fast moving e-commerce companies?
Unlike many private companies, the USPS is also saddled with enormous pension, healthcare, and workers’ compensation liabilities. As of the end of 2013, the GAO reported that the USPS had $48B in unfunded retiree health liabilities. The USPS has also become a political target recently, with Republicans in Congress attempting to score political points by attacking it. Ultimately, having to work with and rely on the US Congress, in its current state, is not a recipe for success and given the speed and flexibility required to compete in the same-day delivery industry, the USPS’s attachment to Congress could severely undermine its ability to execute on this new strategy.
The industry is moving fast, can the USPS keep up?
Finally, it is also important to assess the overall prospects for the same-day delivery industry. The industry is on the verge of a significant disruption as companies like Uber, Lyft, Amazon, and other leaders of the sharing economy enter the market. Uber recently launched their UberRUSH service in New York City, which provides convenient and quick same-day delivery for everything from food to dry cleaning to signed documents. An expansion into same-day delivery for packages is a logical next step.
Compounding the challenges for the USPS, Amazon unveiled “On My Way,” a service specifically designed to provide same-day delivery capabilities. The service leverages an “Uber-like app that uses people as delivery drivers” and is part of Amazon’s larger strategy of offering same-day delivery as a standard option. Personal task and delivery services, like TaskRabbit, could also disrupt the delivery space. The competition dynamics are changing and the USPS will no longer be competing with just FedEx and UPS, but will also have to compete with a plethora of a highly innovative, aggressive, and nimble new market entrants.
More distant threats come from Google’s self-driving car, which could revolutionize the same-day delivery industry, leaving little room for lumbering giants like the USPS. Amazon’s much-hyped drone service, Prime Air, could also revolutionize the wider delivery industry, not just same-day deliveries. 3-D printing could offer new ways for some of the USPS’s current same-day delivery customers, such as Newegg, to get products to customers. Ultimately, the same-day delivery industry, and potentially the larger delivery industry, is rife for disruption and unless the USPS is prepared for these disruptions, their foray into this industry could be short-lived.