(CNN) — For years, a huge Amazon contract has been one of the few bright spots in the US Postal Service’s finances. But now the USPS plans to offer those last-mile services to additional customers to stem billions in ongoing losses – a move that risks losing its biggest customer.
The USPS faces a tight squeeze. With fewer people using the mail, it’s lost more and more money: $9 billion in the 12 months ending in September alone.
“We certainly have a precarious cash position. You know, within probably 12 to 24 months, we are out of cash,” USPS Commissioner David Steiner said in a recent interview with Reuters. Simply making additional cost cutting measures won’t solve the problem, he said.
The Amazon contract reportedly brings in about $6 billion a year to the agency, money it can’t afford to lose.
But the post office now plans to accept bids from other shippers for access to the service’s distribution centers – even though Amazon says that might prompt it to pull back from the using the USPS so much.
“We’ve been working for nearly a year to extend our partnership that started more than 30 years ago,” said Amazon spokesman Steve Kelly.
“We were surprised to hear they want to run an auction after nearly a year of negotiations, and, given the change of direction and the uncertainty it adds to our delivery network, we’re evaluating all of our options that would ensure we can continue to deliver for our customers.”
Universal service
The very thing that makes the postal service so attractive to Amazon is also the reason why the agency so badly needs more money: universal service.
The postal service is legally required to deliver mail all across the United States all at the same price, what’s called universal delivery. That includes rural, far-flung or hard-to-reach destinations, expensive places for mail carriers to get to.
For Amazon, that means it’s sometimes cheaper to use USPS for that last stretch of delivery to a customer’s door.
But while that contract is important to USPS, it’s not nearly enough.
“We may not have sufficient liquidity to meet all of our existing legal obligations when due while also repaying our maturing debt and making the critical infrastructure investments… without putting our ability to fulfill that primary mission at undue risk,” it said in its most recent annual report.
Trying to get more customers to deliver pre-sorted packages in bulk directly into the USPS system makes operational sense, said Elena Patel, senior fellow in economic studies at the Brookings Institute and an expert in Postal Service finances. But she said there is a risk if those negotiations with smaller shippers pushes Amazon to no longer use the USPS as much as it has in the past.
“I don’t know what the state of negotiations is, but it certainly would not be good for the financial situation at the Postal Service for the negotiations with Amazon to fall apart,” she said.
USPS has already started to see package volumes start to slip after years of growth fueled by online consumer purchases. Total parcel and package volume slipped nearly 6% in the most recent fiscal year. But packages are still up nearly 500% from where they were 20 years ago, while first-class letter volume has plunged in the same period.
Patel said that it’s in the national interest for the government to continue to provide universal service, even if it means between $6 billion to $10 billion in annual congressional appropriations to USPS.
“The premise of (the USPS) is that it would deliver everywhere at an affordable rate, and we will let you keep the letter monopoly to pay for that,” she said. “Well, the second half of that is broken. It doesn’t make any sense in this era of digital communications.”
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