Dive Brief:
- The U.S. Postal Service increased its spending on trucks to move mail and packages between facilities as it shifted volume away from airplanes in fiscal year 2022, advancing one piece of its long-term transformation plan.
- For the fiscal year ended Sept. 30, total transportation expenses increased 6.5% YoY, driven by a 12.8% jump in highway transportation costs, according to the agency's 10-K. Air transportation expenses increased just 1.7% YoY and would have been lower if not for elevated jet fuel prices.
- That trend continued in Q1 of fiscal year 2023, which ended Dec. 31, with the agency’s trucking expenses growth again outpacing that of air. For the year as a whole, the Postal Service expects to see a reduction in commercial air lift and an increase in surface transportation.
USPS spending jumps for highway transport, growth eases for air
Dive Insight:
Relying more on trucks than airplanes is one component in Postmaster General Louis DeJoy's wide-ranging plan to improve the Postal Service's financial health.
DeJoy told Supply Chain Dive in September that the agency is paying more to move packages in its network than he's comfortable with, adding that trucking capacity in its middle-mile network is underutilized.
"As we make these changes, we will see more [volume] come out of the air and onto the ground," DeJoy said.
Longer delivery timeframes implemented last year for the agency's First-Class Package Service will help the transition. The USPS said that while the majority of the service's package volumes will be unaffected, 32% will see delivery standards extended by one or two days — namely parcels that would have used air transport to meet the original standards.
"Packages traveling the longest distances (e.g., New York to California) will be most affected," the agency said in a fact sheet.
Third-party transportation providers handle most of the Postal Service's long-haul transport between facilities. Additionally, it relies on third parties for air transportation, which is necessary to deliver parcels to certain destinations in the U.S. and abroad.
That means the agency's air-to-ground shift will have an impact beyond its own financial performance. As of May 31, 2022, the Postal Service was FedEx Express' largest customer, as it relied on the FedEx unit for domestic airport-to-airport transportation services. FedEx said in a securities filing that the agency's move away from air transport has hurt its business.
"Further, a decision by the USPS to terminate early or not renew its contract with FedEx Express for domestic services, which expires in September 2024, would negatively impact our profitability," FedEx said.
