Could Same-Day Delivery Save the Post Office?

US Postal officeThe bills just keep piling up at the U.S. Post Office.

Recently clocking in at $8.5 billion in annual losses, USPS announced a massive $15.9 billion loss earlier this month, and the problem's getting worse, not better.

According to official estimates, by 2015 USPS is expected to be losing money at a rate of $20 billion a year. Can anything stop the bleeding?

Yes ... Maybe

The Post Office sure hopes so. In fact, it's got a pilot project under way that aims to do just this -- stop, or at least slow down, the rate at which USPS loses money.

In San Francisco, USPS is going to begin doing business a bit more like its archrivals in the private sector, FedEx (FDX) and UPS (UPS).

Specifically, on Dec. 12, USPS will start up a new "same-day delivery" service in San Francisco, called "Metro Post." Order a product online at any of several major retailers (they're still working on the list of who's participating) by 2 p.m. or 3 p.m. (yeah, they're working out those details, too), and USPS will guarantee delivery from a local warehouse to your doorstep by the end of the day.

It's not exactly a new idea. Amazon.com (AMZN) has a project of its own like this under way in 10 pilot cities, charging $8.99 plus $0.99 per item ordered under its Local Express Delivery Service. Walmart (WMT) is testing a Walmart To Go service in at least five cities that's similar, or even cheaper, at a flat $10 fee for same-day delivery.

Still, seeing the Post Office try to think outside the box with a plan like this is heartening. That's not to say the idea will work, though.

Another Budget Balancing Idea Where the Math Just Doesn't Work

If USPS's aim in setting up Metro Post is to bring its business into the black, it's almost certainly doomed to fail.

Here's why: According to regulatory filings, USPS thinks it can generate $10 million to $50 million in additional revenue from running Metro Post in San Francisco over the course of the next year. If that project proves a success, USPS plans to further expand the program into nine more cities.

Best case, therefore, USPS is looking at $500 million in additional annual revenue, which works out to just 3.1 percent of its budget deficit.

One might think that if running Metro Post in one city brings in $X, and running it in 10 cities brings in $10-times-X, then running it in every city in the U.S. would result in USPS bringing in so much extra revenue that its deficit problems become a thing of the past.

Wrong. The problem here is that there just aren't that many cities of San Francisco's size where $50 million in potential revenues are to be had. In fact, there are only 13 cities with populations greater than San Francisco's 813,000.

Worse, even if Metro Post were expanded to cover all 13 of these cities -- Austin, Texas; Indianapolis; Jacksonville, Fla.; San Jose, Calif.; Dallas; San Diego; San Antonio; Phoenix; Philadelphia; Houston; Chicago; Los Angeles; and New York -- that's still just 27.3 million people, or 33.5 times San Francisco's own population, total. Logically, therefore, the most money USPS could make from such an expansion is 33.5 times $50 million, or $1.675 billion -- 10.5 percent of USPS's annual deficit.

Add in the next 20 cities, smaller than San Francisco but with populations greater than 500,000, and you close the gap by another 4 percent.

As you can probably imagine, at that point, the returns are going down rapidly with each new city added, given the increase in logistical hurdles and costs of running the program.

USPS has made a valiant effort to think like a private business and create a service for which people might want to pay a little more. Sadly, the Metro Post idea is too small to fix the problem. Whether Metro Post succeeds or fails as a concept, we're still in for a future of continued postal rate hikes, service cuts, and post office closings.

Anyone who tells you different might as well be telling you "the check's in the mail."


Motley Fool contributor Rich Smith has no positions in the stocks mentioned above. The Motley Fool owns shares of Amazon.com. Motley Fool newsletter services recommend Amazon.com, FedEx, and United Parcel Service.

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88 Comments

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richperry05

first eliminate saturday delivery. then give it to an adult who knows what business is about, not the government. they have never earned a dime in all there years of being. we need people that have to be succesful to earn a living.....

December 05 2012 at 12:37 PM Report abuse +1 rate up rate down Reply
Ronald

The unions and management must work together to make the USPO a viable entity. It is obvious that many workers need to be retired/fired. Reorganize, innovate,hire qualified personnel at the top level,raise the cost of stamps to reflect reality. demand greater production, and compete with progressive companies for consumers' businesses. All employees of the USPO must wake up. Your bread and butter are on the line.

December 04 2012 at 3:55 PM Report abuse rate up rate down Reply
kimberliwilson

It is time to move this problem away from Congress because they cannot offer a long term stable plan for the Post Office in a timely manner and are not being held accountable. How many people in Congress even have a Business Degree, that would collectively make them qualified, in large enough of a group, containing the proper intellect, to even be making this decision? If they wanted to be anything other than a drama queen reality show they would have already stopped Saturday delivery, would be selling lottery tickets and gift cards and sell advertisement on a big screen TV and add coke machines for a starter. Congress has an approval rating very close to "0" according to the Huffington Post. If Congress cannot solve the internal problems in Congress then how can they solve our nations problems? It is time to move the Post Office to another government organization like the CFPB that is based on long term solutions not a do nothing drama show. What kind of professional negotiation formal training is required of Congress prior to attending meetings? You know how extensive is their training for the most important negotiation job that can sink a post office and an entire country over time with limited accomplishment?

December 04 2012 at 2:55 PM Report abuse rate up rate down Reply
1 reply to kimberliwilson's comment
.

No, It's time to move the post office to Fed-ex or UPS! Shut them down now and stop the bloodletting!
They said they were going to try same day delivery! What a joke, as they should have said same week delivery!

December 04 2012 at 3:55 PM Report abuse rate up rate down Reply
dkwither

Almost nobody needs to get all this junk every day.
Cut the mail to every other day, 1/2 the customers mon,wed fri. other half tue,thurs,sat. Would cut the number of people needed in half, and they would still get 6 day work week. Most of the cuts could come from retirement. The loss of jobs would hurt short term but as it stands now there is no long term future for the USPS.

December 04 2012 at 1:36 PM Report abuse rate up rate down Reply
tokenfan

Sorry for typo, I meant that I frankly think that they don't,,,,,,

December 04 2012 at 1:16 PM Report abuse rate up rate down Reply
tokenfan

I frankly don't think that post office management does not possess the brains or inclination to innovate and operate a profitable product. And the postal labor union goons would sabotage any plan before it got started. I don't believe there is any hope at all so pull the plug on this loser before they waste any more money.

December 04 2012 at 1:13 PM Report abuse rate up rate down Reply
Ken

Why is the Post Office still delivering mail to homes on Saturday, what a wast of tax payers money.

December 04 2012 at 1:10 PM Report abuse +1 rate up rate down Reply
1 reply to Ken's comment
Welcome Zzanis

Thats not tax payers money, post office get no funds fron tax payers, post office is the ony ones who have to put up $5 billions per year for health care while congress get theirs off tax payers for life after a short term.

December 04 2012 at 1:30 PM Report abuse +2 rate up rate down Reply
1 reply to Welcome Zzanis's comment
.

Who in the world do you think pays the Govt. so they can give money to the USPS? The TOOTH FAIRY??? Do you think it just magically appears? Cmon wake up pal!

December 04 2012 at 3:59 PM Report abuse +1 rate up rate down
hallgif336

It's the Republicans who will destroy the post office and all their workers.
Know why, because there are unions in the postal system and they don't like it.
So they will destroy it.
You don't hear them complaining about their Doctor who belongs to the
American medical association or the American dentail or the American Bar assocition.

December 04 2012 at 12:53 PM Report abuse -2 rate up rate down Reply
hemipwr54

De-unionize.

December 04 2012 at 12:51 PM Report abuse +1 rate up rate down Reply
findrobin

crash and burn...

December 04 2012 at 12:50 PM Report abuse rate up rate down Reply