Why E-commerce Is Key to the Future of the Postal Service
There weren’t many vehicles last week, thanks to temperatures being near zero and a fresh blanket of snow covering everything. It was just as well. The county’s lone snowplow takes its sweet time in getting to the rural back roads in my neck of the woods. And honestly, local drivers around here can cause chaos even when the conditions aren’t treacherous.
Still, I did see at least one person braving the slick roads in the storm. It was our mail carrier… dutifully following his daily route. As the unofficial motto goes, “Neither snow nor rain nor heat nor gloom of night stays these couriers from the swift completion of their appointed rounds.”
The U.S. Postal Service (USPS) is older than the United States itself. The Continental Congress appointed Ben Franklin as the nation’s first postmaster general in 1775. Having previously served in the same capacity for the British crown, Franklin was tasked with creating an independent postal delivery system.
After extensively surveying to develop more efficient routes, his network of couriers was instrumental in the gathering and disseminating of vital communication that united the Colonies.
Even in Franklin’s day, a rider could deliver correspondence from New York to Philadelphia and return with a reply in less than 24 hours. Still, I wonder what old Ben would think about today’s vast operation.
The Postal Service Today
Today, the USPS employs 635,000 workers and operates a fleet of 235,000 vehicles. Even in tiny towns without a single traffic light, there’s a post office somewhere nearby. Incredibly, the USPS serves 165 million unique delivery points, adding 1.8 million new addresses last year.
Mail carriers deliver 128 billion letters and packages annually — about 350 million per day. And as we all know, first-class postage rates are continually climbing. The USPS generated $79 billion in operating revenues in 2022, up from $69 billion in 2017.
If this were a private enterprise, that would be good enough to put the USPS at 43rd on the Fortune 500 list. And the Postal Service unquestionably ranks among the federal government’s most respected agencies — garnering 91% favorability ratings from both Democrats and Republicans.
Unfortunately, expenses have outpaced revenues. Despite a $200 million top-line increase in the first quarter of fiscal 2023, the USPS posted a $1 billion operating loss. In fact, this venerable institution (which receives no government monies or appropriations) hasn’t turned a net profit since 2006.
Meanwhile, underfunded employee health and pension obligations have also been a thorny problem. Fortunately, the Postal Service Reform Act of 2022 brought some relief. Still, legislation can’t alter the fundamental shifts in the way Americans communicate and stay informed.
Things that used to arrive in physical mailboxes (such as birthday cards and wedding shower invitations) are now frequently delivered electronically. Take Street Authority, for instance. Thousands of former print subscribers now read High-Yield Investing online. Simply put, email, e-vites, and social media have put a big dent in traditional letter delivery volume.
Since handling 207 billion pieces of mail in 2000, post office “throughput” has declined by more than 30%. However, you might not know it by the stacks of political campaign materials stuffed in your mailbox lately.
An E-commerce Tailwind
On the bright side, the USPS competes effectively with UPS (NYSE: USPS) and FedEx (NYSE: FDX) for package shipping services — which have grown explosively thanks to e-commerce. Over the past decade, the number of packages delivered annually by the USPS has doubled from 4 billion to nearly 8 billion.
Even mighty Amazon (NSDQ: AMZN) piggybacks on this network and relies on the good old post office to make a good chunk of its deliveries — particularly to small rural towns unreached by massive fulfillment centers.
With rates determined by the free market rather than regulators, this segment accounts for just 6% of USPS mail volume, but more than 30% of its income.
A powerful e-commerce tailwind has propelled FDX shares to a 50% total return over the past five years. UPS has gained even more including dividends, which have shot up by 70% since 2019. But there is no way for investors to profit from the tens of billions of U.S. postal deliveries made each year.
Or is there?
I’ve got my eye on an opportunity to do just that… and I’m sharing it with readers of my High Yield Investing newsletter.
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