Thursday, November 21, 2013

Let them have books on Sunday

Three years ago the Postal Service was threatening to cut Saturday mail. Just last week they announced they'll start delivering packages on Sunday. What's going on?

For one, it appears they've woken up to the fact that they can't save their way out of a revenue problem. It's a concept I claim no credit for inventing, but I will take a moment to tactfully clear my throat and point to a 2009 post titled "Why doesn't the post office deliver on Sundays?" Maybe someone at the USPS was reading?

Probably not. I'm sure something far more powerful happened: came calling. Right now Sunday deliveries are only for Amazon packages (sorry every other business in the country). It's also limited to LA and NYC for now, but if it works for those two cities that will surely change.

(Despite the recent holiday we've all had razzing the federal government for its roll-outs it's worth noting the USPS announced this on a Monday and that weekend I got two boxes delivered on Sunday. Delivering things—that's one roll-out the USPS does really well. )

So what's in it for Amazon? So far people have focused on how Amazon is giving customers a service that no one else competes on. That's true, and in the century-old business of mail order where there are very few new tricks for us old dogs, it's a big one. Amazon will get more orders. It also earns Amazon some good will since they look like they're helping out a grand old American institution that's been having a hard time.

Few have written how it benefits Amazon logistically, though, and that's where I think the more interesting story lies. Without USPS, Amazon is limited to just two suppliers for what is one of its most critical business needs: delivering the stuff it sells. It's UPS or FedEx or go home. Between the two, UPS is a much stronger competitor and does the lion's share of Amazon's deliveries. In my experience UPS and FedEx work as a tacitly cooperating duopoly, though, which is to say they don't really compete with each other. Their rates are nearly identical and, strangely, seem to go up 5% each year in lock step. Neither offers services the other doesn't. Think about Sunday delivery. FedEx could have started that at any time to steal business from UPS, but it didn't.

The USPS can be a real competitor to this two member cartel. Presumably, if Sunday delivery goes nationwide, it could take one seventh (14%) of Amazon's business by doing nothing more than opening its doors one more day a week than its competitors do. It's got all the infrastructure: people, trucks, plains, trains, offices. All it needs is the will to make it happen. Speaking for a business that spends 25% of our revenue on a UPS that only works five days a week, I welcome a competitive USPS into the mix. Now let the rest of us get in on the Sunday action, please.

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