Can Amazon Save the U.S. Postal Service?

Source: courtesy of USPS

The U.S. Postal Service (USPS) on Friday reported a net loss of $1.9 billion in the second quarter of its 2014 fiscal year. The total is equal to almost half the USPS’s reported loss for the first nine months of the 2013 fiscal year, and marks the 20th loss in the past 22 quarters.

Operating revenue rose 2.3% year-over-year to $16.7 billion while total mail volume fell from 38.8 billion pieces to 38.1 billion pieces. First-class mail volume declined 4.1% while standard mail and package and shipping volumes increased by 0.5% and 7.3%, respectively. Operating expenses, excluding Workers’ Compensation expenses of $1.02 billion, fell from $17.74 billion to $17.54 billion.

Revenue rose and expenses fell — the results should perhaps have been better. And they were in one area — package delivery service where revenue rose by $252 million or 8% to $3.38 billion and volume rose 7.3% to 986 million packages. The USPS may have hit upon a way to improve its fortunes, and the key may be in a deal it has with Amazon.com Inc. (NASDAQ: AMZN).

The USPS is responsible for the Sunday delivery service that Amazon just expanded to cover 17 U.S. cities. In its Form 10-Q filing Friday, the postal service noted that its shipping and package revenue grew “as a result of our successful efforts to compete in the ground shipping services and ‘last-mile’ e-commerce fulfillment markets.”

Amazon has been moving aggressively to expand its own delivery services, with its Amazon Fresh same-day delivery service and other trials. Most of us assume that the company will eventually decide that the whole delivery job is just too expensive and give up the idea. But what if Amazon didn’t have to buy trucks, hire drivers, and fight with unions? What if the company could just contract it out and have the delivery services available all across the country virtually overnight?

It is absolutely conceivable that Amazon could reach a deal with the USPS that would both save the post office and take a whack at the very companies — FedEx Corp. (NYSE: FDX) and United Parcel Service Inc. (NYSE: UPS) — that took so much of the high margin package delivery business away from the postal service all those years ago? Even the threat that Amazon might do something like that should keep FedEx and UPS executives awake at night.

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