USPS Losses Threaten Ecommerce Shipping

The U.S. Postal Service requires dramatic changes to fulfill its mandate to serve all American households, according to Postmaster General David Steiner.

Testifying on March 17 before the U.S. House Subcommittee on Government Operations, Steiner painted a dire picture of USPS’s collapsing finances.

This crisis, Steiner said, was due to a drop in mail volume from a peak of 213 billion pieces annually to 109 billion, resulting in an estimated $81 billion income decline at current rates.

“No company could weather that much revenue loss,” he said.

“You’re going to hear me say this repeatedly and over and over again. If I’m in the private sector, I’ve got options. If I have 71% of my routes that are losing money, guess what I can do? Cut routes. If I have 80% of my stores that are losing money, you know what I can do? I can cut routes, I can raise prices, I can do all the things…. We don’t have options. We have mandates,” Steiner said.

The warning is not new. The USPS has reported losses for years, and reform efforts have come in waves.

What is different now is the urgency. Discussions of cutting delivery days and tightening operations suggest a shift from long-term structural concern to near-term operational risk.

For online retailers, the USPS’s rapidly deteriorating situation is concerning. What if the USPS becomes slower, pricier, or unreliable?

More Bad News

Shortly after the hearing, the USPS seemingly received more bad news. Several news organizations, including The Wall Street Journal, reported that Amazon planned to significantly reduce the number of parcels it sends via the USPS.

“We negotiated with [the USPS] in good faith for more than a year to reach a deal that would bring them billions in revenue and believed we were heading toward an agreement,” Amazon published in a March 18 blog post.

“Our goal was to increase our volumes with USPS, not reduce them — until USPS abruptly walked away at the eleventh hour in December,” the post continued. “In recent years, we’ve spent over $5 billion annually with USPS and have advocated on their behalf.”

Amazon’s current agreement with the USPS ends in September.

USPS Matters

Financial woes aside, the USPS still plays a crucial role in the ecommerce industry.

The service is frequently the lowest-cost option for lightweight parcels. It reaches every address in the United States without surcharges.

Indeed, private carriers rely on USPS for “last-mile” delivery through programs such as UPS’s SurePost and FedEx’s SmartPost.

In a sense, the USPS is not a competitor to UPS, FedEx, or even Amazon’s own Prime Delivery. Instead, the government-supported infrastructure underpins a significant portion of the ecommerce industry’s shipping.

The USPS serves areas that other carriers do not, making it the only nationwide last-mile option.

USPS Changes

The Postmaster General has proposed multiple changes to keep the agency solvent.

• Fewer delivery days. By law, the USPS delivers mail six days per week, but Steiner wants a cut. Delivering five days would save billions annually, but would slow deliveries.

• Closing post offices. Approximately 60% of post offices operate at a loss, according to the testimony. The USPS has limited authority to close locations, but expanded flexibility could lead to a smaller retail footprint, particularly in rural areas.

• Raising prices. Steiner suggested that postage rates, including the price of a First Class stamp, may need to increase. Even modest increases could generate billions in revenue, though they would also raise shipping costs for merchants and consumers.

• Regulatory and policy changes. Steiner emphasized that many of the agency’s financial challenges stem from statutory constraints, including pricing limits and pension obligations. Proposed reforms could reduce costs or improve financial flexibility, though they would require action from Congress or regulators.

• Borrowing. The USPS has reached its $15 billion borrowing limit, a cap set decades ago. Increasing that limit would provide short-term liquidity and allow for continued operations while lawmakers debate longer-term reforms.

None of these options is simple. Cutting service could weaken the USPS’s value proposition. Raising prices could reduce volume. And policy reforms depend on a political consensus.

The U.S. Constitution grants Congress the authority to create and regulate a national postal service. The USPS cannot fail, at least not like a private company. For example, it cannot simply declare bankruptcy.

Yet it certainly can change. Those changes could be as Steiner suggested, or more radical. For now, the ecommerce industry can only wait and see.