Amazon has announced a deal with the U.S. Postal Service to cut around 20% of its annual package delivery volumes with the agency. According to Reuters, the agreement represents a significant reprieve for USPS, which relies on Amazon for roughly $6 billion in annual revenue and has warned in recent months that it could run out of cash by October. Earlier reports also indicated that Amazon was initially considering a two-thirds reduction in delivery volumes with USPS after the agency was said to have abruptly walked away from negotiations on a new contract last December to pursue a wider auction for its delivery services.
In an April 7 LinkedIn post, Amazon senior public policy manager John Rosato explained that Amazon's decision to step away from talks "introduced real uncertainty" into the company's network planning while significantly straining trust with USPS. With a deal now in place, USPS and Amazon have "an opportunity to rebuild," he added. "This is a strong outcome for both organizations," Rosato said. "It preserves a critical, multi-decade relationship while giving each side greater certainty to plan and operate."
The agreement, which still requires approval from the Postal Regulatory Commission, comes as USPS grapples with mounting financial pressures, having accumulated roughly $118 billion in net losses since 2007. At a recent hearing in Congress, Postmaster General David Steiner detailed how the agency is at a critical juncture and warned that less than a year from now, USPS will be unable to deliver the mail if the status quo is maintained.
From a supply chain perspective, this 20% volume cut is being absorbed by Amazon's own Amazon Logistics (AMZL) network and shifted to UPS, FedEx Ground and regional couriers. USPS's last-mile parcel share, especially in less-dense rural ZIP codes, is opening the door for gig-based networks such as OneRail, Bringg and Roadie. From a supply chain perspective, USPS's pressure to diversify its revenue base will, over the long term, push it toward SOA (Service-Oriented Agreements)-based enterprise contracts.
