Postmaster General Louis DeJoy described the Postal Service’s large-scale changes impacting package consolidators as necessary for his wide-ranging "Delivering for America" plan in an interview with Supply Chain Dive on Sunday.
"I'm not trying to take over the package business industry. I'm trying to just fill my trucks and fill my carrier bags, right?" DeJoy said. "And once I do that, and I've leaned out the whole place, we have potentially a chance of covering our costs and saving the Postal Service."
Consolidators like DHL eCommerce and OSM Worldwide use the Postal Service for final-mile delivery of its customers' packages. But two changes the Postal Service rolled out last year incentivized these companies to overhaul their longstanding business models in varying ways.
For one, the Postal Service eliminated ounce-based rates for packages shipped via Parcel Select, spurring partners that used it to pursue heavier shipments. The agency also nixed contracted rate discounts for consolidator volume going to its delivery units, or facilities closest to the end recipient. This has led more packages to be dropped off further upstream in the Postal Service's network.
"Going into delivery units was not something that I was happy with on a competitive standpoint. I thought it was a foolish strategy," DeJoy said.
Previous consolidator arrangements didn't align with the agency's aim to streamline its middle-mile operations and maximize the amount of volume its ground transportation network handles. Instead, consolidators were often handing packages off one step before delivery.
"We have to get paid for that work, but they were paying somebody else for that work, right?" DeJoy said. "So it's our system now that's bringing the product down. And you know what? I'm going there anyway with my trucks."
The Postal Service's strategic shift under DeJoy has sparked major changes throughout the parcel delivery industry over the past year. Consolidators are looking to deliver heavier packages due to ounce-based pricing changes. Alternative delivery providers are moving to compete directly with the Postal Service on lightweight shipping services. And UPS is now delivering all of its SurePost packages in-house rather than splitting up the work with the Postal Service.
Amid the overhaul, DeJoy said he's open to reach more deals with services that previously relied on the agency. However, he noted there is limited room at the Postal Service for additional business from consolidators in the near term.
The Postal Service is also amenable to discounts for delivery unit drop off, but only through direct contracts and offered more tightly than in the past, according to DeJoy. Some customers still drop off volume at delivery units, but the agency wants to ensure those facilities aren't "overwhelmed" as some locations were in previous instances, he added.
"I gave everybody opportunities to negotiate with us for what I felt was the reasonable price adjustment that we needed to make," DeJoy said.
But the Postmaster General still views consolidators as competitors in the agency's efforts to snag a larger share of the parcel delivery market. Key in that plan is to secure more direct contracts with shippers, including through its Ground Advantage service that offers its own ounce-based rates. The agency is also gearing up to launch its Next Day Priority shipping service later this year. DeJoy said the offering will "roll it out regionally as the deals come."
"We were not dealing with our customers when I got here," DeJoy said. "We had resellers, consolidators, our sales force was dormant. I got a sales force that's on fire now."
Industry stakeholders have voiced concern about how the changes could challenge on-time delivery reliability as more volume is entered into the agency's transforming network earlier. Although DeJoy acknowledged the Postal Service's overhaul has had its share of challenges, he added that shipping partners who align with the agency will see "great service" going forward.
"We're going to perform, we're going to deliver on time," DeJoy said.
