Amazon Sunday Packages Won’t Stem Postal Losses

Amazon.com Inc. (AMZN)’s new deal with the U.S. Postal Service will put diapers and books into the hands of its customers on Sundays. Postal Service officials want it to pave the way for similar deals in the future.

While the Amazon arrangement will offer a limited financial boost, Postmaster General Patrick Donahoe said in an interview that he wants to expand the service to other retailers. Amazon doesn’t have an exclusive deal for Sunday delivery.

“We are certainly, as we always do, talking with other people in this market,” Donahoe said. “We think we offer very reasonable prices and assurances with scanning that customers like.” He wouldn’t name names.

The arrangement may become a template for similar delivery contracts with Best Buy Co., EBay Inc., LL Bean Inc., Sears Holdings Corp., Target Corp. and Wal-Mart Stores Inc., said Gene Del Polito, president of the Association for Postal Commerce. The Alexandria, Virginia-based group’s members include Bank of America Corp. and JPMorgan Chase & Co.

Weekend and custom deliveries are nothing new for the Postal Service, which trails FedEx Corp. (FDX) and United Parcel Service Inc. (UPS) in express delivery. UPS has 51 percent of the U.S. small-package shipping market, followed by 34 percent for FedEx and 15 percent for the Postal Service, according to a Bloomberg Industries report.

Photographer: David Paul Morris/Bloomberg

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Photographer: David Paul Morris/Bloomberg

Employees load a truck with boxes to be shipped at the Amazon.com Inc. distribution center in Phoenix, Arizona.

It already offers a Sunday delivery option for Priority Mail Express, its fastest service, and had 378 negotiated service contracts in the fiscal year that ended Sept. 30, according to a regulatory filing. It considers the contracts proprietary information so doesn’t release the terms.

Flower Deliveries

The Amazon Sunday deliveries have started for customers in New York and Los Angeles. Amazon said in a statement Nov. 11 the offering will expand to cities including Dallas, Houston, Phoenix, New Orleans next year. Amazon said shipping prices will be the same for its Sunday-delivery customers.

Delivering Amazon’s packages on Sundays may add only $1 million in revenue for the Postal Service for rest of this year, said Satish Jindel, president of SJ Consulting Group, a logistics advisory firm based in Sewickley, Pennsylvania. Jindal said the number is a guess as it is too small to be worthwhile to calculate. The service had $66 billion in revenue last fiscal year and lost about $13.7 million a day.

In December 2012, the Postal Service announced an agreement with 1-800-FLOWERS.com for a trial of same-day delivery in San Francisco.

“While the USPS will benefit from increased network density, it’s unclear how the deal will affect its weak financial footing,” Lee Klaskow, a Bloomberg Industries analyst, said in a Nov. 13 report.

Bill Needed

The service’s ability to find new sources of revenue, even if they aren’t large, may have unintentionally made it harder to convince Congress to pass legislation changing the postal business model, Del Polito said.

The Postal Service, while reporting an annual loss of $5 billion on Nov. 15, said it increased revenue for the first time since 2008.

“Clearly it’s not going to have the urgency the Postal Service deserves because Congress loves having the heat taken off them,” Del Polito said in a phone interview.

“A lot of people are going to be asking why do we need to do this complicated bill, which makes a number of changes various people don’t like, when the Postal Service has found a way to make money?”

Donahoe said the service still needs Congress to change payments for future retiree health-care costs, a $5.6 billion-a-year obligation that causes most of the service’s losses, and to cut Saturday letter delivery. Legislation to allow those changes has stalled in the past two sessions of Congress.

The service has also asked for more leeway from Congress to expand into new lines of business. Yesterday, the Postal Service announced a deal with office-supply company Staples Inc. (SPLS) to sell postal products and services at some of its stores.

“If you take a look at our balance sheet right now, the Congress should have no comfort with anything that’s on there,” Donahoe said in a phone interview.

“It’s nice to have a positive trend that we’ve seen in the past year, but I think it would be a big mistake for anyone to sit back and think the problems would be solved.”

To contact the reporter on this story: Angela Greiling Keane in Washington at agreilingkea@bloomberg.net

To contact the editor responsible for this story: Bernard Kohn at bkohn2@bloomberg.net

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