Dive Brief:

• A new U.S. Postal Service product offering next-day local delivery made less than $200 in revenue in its first three months of market testing, according to an agency report.
• From its launch on Jan. 9 to March 31, USPS Connect Local Mail handled just 65 parcels, per the report, which was submitted to the Postal Regulatory Commission on May 10. USPS Connect Local, which Connect Local Mail is part of, was available in more than 800 Texas locations when it was first announced in February.
• Connect Local Mail focuses on documents, making it distinct from USPS Connect Local's package shipping service. But they both share the goal of offering improved USPS access to local mailers, and the agency "considers each product as important to the success of the other," it wrote in a Nov. 10 filing.

Dive Insight:

The Postal Service's report provides a peek into the initial reception of one piece of USPS Connect, a suite of services targeting small- and medium-sized businesses the agency announced in February, after piloting it in Texas. Parcel carriers have pursued these customers more aggressively in recent years, as they are typically more profitable for carriers per shipment compared to larger, high-volume customers.

But the delivery price has to be right to attract shippers in a time of elevated delivery costs, and the Postal Service's filing showed little initial interest for one of its Connect services. The service's initial pricing is $2.95 for a letter or flat size mailpiece weighing up to 13 ounces, per the November filing. Costs connected to the service for USPS are estimated at $2.03 a piece.

The Postal Service said possible competitors include overnight and two-day delivery via UPS or FedEx and expedited local delivery from smaller firms, although precise pricing information for those couriers isn't accessible, according to a January filing.

"While today Connect Local has not been price-competitive, they are very much in the drawing board stages," said Gordon Glazer, a senior consultant and USPS specialist at Shipware, in an interview. "They're trying to figure out exactly where they fit in the marketplace, and we do expect them to get much more competitive as time goes on."

The Postal Service plans to run the Connect Local Mail market test for two years with a phased rollout nationwide. Since its start, the USPS has been expanding Connect Local Mail's coverage throughout the U.S., including in Wisconsin in June and the Evansville, Indiana, area in July.

The service provides same-day or next-day delivery to addresses served by the local post office. It's designed as an "economical alternative" for shippers regularly sending documents in their local area, rather than over the longer distances that many of USPS' services are designed and priced for, the agency said in its November filing.

"Volumes and revenues for USPS Connect Local Mail are difficult to predict, as customer demand for this service is unknown,” the agency said. “Nevertheless, it is the Postal Service’s hope that the test will generate significant customer interest.”

Rolling out the service has come at a cost — administrative and startup costs for Connect Local Mail between Jan. 9 and March 31 totaled $531,584. But the agency hopes to see savings through a new operational model being used to fulfill Connect Local deliveries, with parcels staying at the local post office for processing and delivery rather than being moved into the agency's plant network.

“Operationally, we are having a savings there and we’re passing that savings along in our affordable pricing for the customer,” said Jakki Krage Strako, USPS chief commerce and business solutions officer and executive vice president, during a February press briefing.

The Postal Service did not respond to a request for comment regarding the report.