Postal Service Scores a Win with Walmart

If FedEx and UPS are so much more efficient than the U.S. Postal Service, how did the USPS manage to beat its private rivals for an exclusive deal with the nation’s toughest customer?

At last month's National Postal Forum, postal officials were bragging that they had recently negotiated an agreement with Wal-Mart to be its exclusive shipper of prescriptions ordered by telephone. The drugs will be sent via Priority Mail, with Wal-Mart picking up the tab, according to Clint Bolte’s excellent summary of the forum at PrintCeo.

“Wal-Mart has a reputation throughout its history of driving down each of their suppliers’ prices. Wal-Mart surely put FedEx, UPS, and USPS up against one another to obtain the cheapest distribution price possible,” Bolte wrote. “USPS CFO Joe Corbett remarked that he sits on the seven-person pricing committee and is personally confident that this Wal-Mart contract will be profitable to the Post Office.”

That might surprise the misguided pundits and politicians who pontificate about how the Postal Service should privatize or outsource delivery. But when it comes to delivering small items inexpensively to homes, it’s pretty clear that FedEx and UPS can’t compete with the Postal Service.

Often, they don’t even try. Both have outsourced much of their final delivery to the Postal Service. FedEx favors the Postal Service especially for lightweight packages delivered to residences, according to industry analyst Alan Robinson.

The reason is obvious: The Postal Service is going to deliver to a residence any way, so adding one more small package to the delivery won’t cost much. To make the same delivery itself, FedEx would usually have to add another stop to a driver’s route. And of course FedEx must deliver to the doorstep, not to the mailbox.

FedEx and UPS thrive by making high-value deliveries (for example, those involving big packages, overnight service, or delivery confirmation) especially to business locations that receive multiple items each day. But for a packet or bottle of pills destined for a residence, where the service level of Priority Mail is good enough, the Postal Service is clearly in the driver’s seat despite its inefficiencies and enormous fixed costs.

I wonder how many other retailers could lower their inventory costs by using the Postal Service.