Will Amazon's Sunday Shipping Save the Postal Service?

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Amazon Post Office Sunday Delivery
AP
On Monday, investors learned that Amazon.com (AMZN) is beefing up its shipment schedules in key markets by offering Sunday deliveries to its Amazon Prime customers. The Postal Service was a surprising choice given that FedEx (FDX) and UPS (UPS) were also in the running for Amazon's extended parcel delivery service business.

While the new plan nice for customers, the biggest beneficiary may be the United States Postal Service. So now let's get into what this could mean for the struggling Postal Service.

Dead Letters

It wasn't that long ago that the U.S. Postal Service system was doing so badly that it was entertaining massive layoffs and ending Saturday deliveries. Things are starting to get better for it as the economic recovery shows signs of strengthening, but the Post Office is still losing a lot of money.

The Postal Service generated $16.2 billion in revenue in its quarter ending in June, but that was more than offset by $16.9 billion in expenses. The $740 million loss is actually a dramatic improvement, and it would have been an actual profit if it wasn't for Congress-mandated health fund payments. (And who knows what its P&L statement might look like if Congress allowed the Post Office to charge enough for postage to cover its costs?)

It may surprise some to see that revenue actually increased by nearly 4 percent during the period, but the growth isn't coming from traditional first-class mail. That business continues to slide as folks use e-mail, smartphones, and faxes to communicate without having to deal with postage stamped communiques.

However, if the lines at the Post Office don't seem to be getting any shorter, it's because e-commerce is keeping postal workers busy.

Less Mail in Our Boxes, More Mailed Boxes

Revenue from package deliveries climbed nearly 9 percent during the June quarter, and at $2.9 billion now accounts for 18 percent of the Postal Service's total revenue.

Amazon's move to start to sending Sunday deliveries through the Postal Service will generate it some serious revenue. It will also likely improve the agency's employment picture, as the Postal Service had only limited Sunday operations in the past.

Amazon's a leader, and it wouldn't be a surprise if smaller Web-based retailers have little choice but to also team up with the Postal Service to keep up.

Sunday is the New Monday

Amazon and the Postal Service aren't disclosing the costs or the length of the contract. They also are not disclosing volume projections. Los Angeles and New York City will begin offering deliveries as soon as this Sunday. Other cities expected to be added soon include Dallas, New Orleans, Houston and Phoenix, according to The Wall Street Journal.

Amazon will simply have to make sure that its packages are delivered to the Postal Service locations by Sunday morning, and the USPS will handle the rest of the fulfillment process.

Amazon will not charge extra for the service if it's available. In fact, Amazon surely wants the Sunday business to take off because it could be a strong catalyst for Friday orders.

Putting Friday Shopping In Play

There are an estimated 10 million customers paying $79 a year for Amazon Prime, which offers free two-day deliveries of Amazon-warehoused goods. Placing an order on Friday used to mean waiting until Monday, and that may have been enough to dissuade some shoppers from just buying what they needed locally over the weekend. Sunday deliveries would alter that dynamic.

Another important factor here is that it will set Amazon apart from the competition this holiday shopping season -- the most important time of the year for retailers. Analysts already foresaw Amazon ringing up more than $26 billion in sales during the quarter, and that number could inch higher with Sunday deliveries making Amazon even more popular than it already is with Web-savvy consumers.

However, the U.S. Postal Service will be the big winner here. As long as it doesn't let Amazon down, it will enhance its reputation as a speedy parcel-delivery option for folks who often lean on FedEx or UPS first for package shipments.

There's money to be made. There's an image to be spruced up. Something as simple as this could turn a money-losing service into a profitable winner. And that is first-class potential.



Motley Fool contributor Rick Munarriz has no position in any stocks mentioned. The Motley Fool recommends Amazon.com, FedEx, and United Parcel Service. The Motley Fool owns shares of Amazon.com. Try any of our newsletter services free for 30 days.

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dweeeb.buster

This may actually be one of the first pieces of good news to come out of the USPS in............well.............forever.

First class mail won't be the the first or the last good or service that goes the way of the do-do bird due to creative destruction. The question is whether the USPS

November 13 2013 at 3:56 PM Report abuse rate up rate down Reply
1 reply to dweeeb.buster's comment
dweeeb.buster

will be able to adapt to the new environment in which market participants increasingly replace snail-mail with newer more efficient means of communications, while similar technologies in the retail sector simultaneously create increased demand for parcel delivery.

Whether it's enough to save the USPS remains to be seen, but it's a whole lot better strategy than repeated attempts to raise the price on a dying service.

November 13 2013 at 4:00 PM Report abuse rate up rate down Reply
Raymond Smith

It will take more than one seasonal jaunt by the USPS to cure a $8-$9 billion dollar shortage each year. The real resolution for the USPS is to take away its protections, let it compete with private vendors and may the best business win. Just get the taxpayers out of the equation of keeping this albatross afloat.

November 13 2013 at 1:23 PM Report abuse rate up rate down Reply