Amazon, Postal Service Set Deal to Start Sunday Package Deliveries

This story appears in the Nov. 18 print edition of Transport Topics.

Online sales giant Amazon.com said it has crafted a deal that has the U.S. Postal Service delivering its packages on Sundays in a few areas, a move the company said would speed shipments and help the retailer compete for customers who might otherwise go to brick-and-mortar stores. The program will expand to more cities next year.

The arrangement also provides an opportunity for the Postal Service to take back some business from parcel carriers UPS Inc. and FedEx Corp., which do not deliver on Sundays. USPS officials have been seeking ways to boost the service’s package delivery business to offset a decline in first-class mail volume.

“I think it is a big deal,” said Jim Tompkins, CEO of Tompkins International, a transportation consulting firm based in Raleigh, N.C. “The Achilles’ heel of the online business model is delivery to homes, and the company with the best local delivery business in the world is the USPS.”

Tompkins said the addition of Sunday delivery will boost Amazon’s delivery capacity by 14%, which could be important during the upcoming holiday season when capacity from other parcel carriers is more limited.

Amazon said it launched the new delivery service in Los Angeles and New York City on Nov. 10, and plans to roll out Sunday deliveries to a large portion of the U.S. population in 2014, including Dallas, Houston, New Orleans and Phoenix.

Amazon is the nation’s largest online retailer, with revenue of $61 billion in 2012. The Seattle-based company has been building a network of regional warehouses — called Amazon Fulfillment — as a way to reduce the time and distance needed to get products to customers.

While Amazon uses a variety of package carriers and local couriers, in addition to the Postal Service, to deliver packages, the company operates its own fleet of trucks to delivery groceries and other products to customers in Seattle and Los Angeles.

Amazon officials said they expect the Sunday delivery option to increase the appeal of Amazon Prime, a service that provides unlimited, two-day shipping for $79 a year.

“If you’re an Amazon Prime member, you can order a backpack for your child on Friday and be packing it for them Sunday night,” said Dave Clark, Amazon’s vice president of worldwide operations and customer service.

Postmaster General Patrick Donahoe said the Postal Service is happy to offer shippers such as Amazon the option of having packages delivered on Sunday “as online shopping continues to increase.”

In 2012, the Postal Service set up Metro Post to provide same-day delivery in select cities for goods purchased online.

The Postal Service collected $11.6 billion from shipping and package services in 2012, amounting to about 18% of total revenue of $65.2 billion. The Postal Service delivered 3.5 billion packages in 2012, up from 3.3 billion in 2011.

By contrast, total first-class mail volume fell 6.5% to 68.7 billion pieces in 2012 from 73.5 billion pieces in 2011.

For the upcoming holiday season, Donahoe said the Postal Service expects to handle about 420 million packages, an increase of about 12% compared with a year ago.

Officials at Amazon and the Postal Service said they will not charge anything additional for Sunday delivery, although such charges are common with other parcel carriers for deliveries on weekends.

“Sunday delivery will be more expensive,” said industry consultant Satish Jindel of S.J. Consulting in Sewickley, Pa. “Amazon is not charging more because customers don’t want to pay a premium for this service.”

Jindel said Amazon’s strategy may be to force competitors, such as Wal-Mart and eBay Inc., to spend money to keep up.

EBay, as an example, recently purchased Shutl, a company based in Great Britain that works though independent couriers to provide on-demand delivery of goods purchased online.

Tompkins said he likes Amazon’s strategy of developing delivery routes in major metropolitan areas for groceries and then using the same vehicles to deliver all kinds of goods.

“Amazon realizes that transportation is a big play. It’s a huge expense,” he said.

Tompkins said Wal-Mart is responding to the trend in online commerce by using its stores as places where consumers can chose to pick up items purchased online in the store, in lockers or have it delivered by local courier.

Though officials at UPS and FedEx could not be reached for comment on Amazon’s Sunday delivery initiative, both have working relationships with the Postal Service. Memphis, Tenn.-based FedEx provides air cargo service and maintains drop boxes at many postal facilities. Each of the companies offers a service in which small packages are consolidated into truckload shipments and dropped off at Postal Service facilities for final delivery.