Direct response marketers might want to keep a close eye on Amazon.com, Inc., which is coming to the end of its five-year delivery contract with the United States Postal Service (USPS) this month. If the deal is not renewed, the postal service would take an enormous hit to its long-flagging revenues. Whatever happens, the business of shipping could change dramatically and, direct response, an industry reliant on delivery services for order fulfilment, could be forced to make important decisions.
The online retail giant has been shipping packages through the USPS and a few other carriers—a relationship that has reportedly been advantageous for the USPS, as revenues from first class mail have continued to decline over the years due to the rise of Internet communications.
In 2017, the USPS’ revenues dropped by nearly $2 billion over the previous year. The use of first class mail dropped by 30 percent over the last decade. Package deliveries have taken up some of the slack from that loss. According to the New York Times, package shipping rose from 3.3 billion pieces a year to 5.7 billion over the last 10 years. Amazon reportedly sends about 40 percent of its orders through the postal service.
Like any company that does its business in bulk, Amazon has struck a deal with the USPS to ship at a rate less than the average citizen would pay for a similarly sized or weighted package. Some have criticized that relationship, saying that the postal service is being taken advantage of, but both the law and agencies with oversight prevent the deal from being unprofitable.
Direct Response marketers should be prepared for potential instability in delivery services as these two large forces come to terms with one another.
More concerning for the Direct Response sector is the reality that even if the deal continues as structured now, USPS is seeking increases in package delivery rates, and with Amazon increasingly seeking to “own” more of its delivery services, its rates will more than likely follow suit, too. Those costs will either need to be assumed as an expense to the company or passed along to the consumer.
In an article from Digital Commerce 360, Tom Caporaso, CEO, Clarus Commerce, a firm that works with small to medium-sized retailers to create loyalty programs, said, “This [USPS rate increases] can be really concerning for e-commerce companies because they are already feeling pressure from Amazon and margins are thin as it is.”
Even though the future of the relationship is still in question, deliveries go on as scheduled right now, but it’s better to be prepared.
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