USPS set to roll out e-commerce-based market test in San Francisco

Taking steps to leverage the ongoing advent of e-commerce, the United States Postal Service (USPS) is preparing to roll out a market test, entitled Metro Post, which it describes as a package delivery service that will provide customers with same-day delivery from participating locations within a defined metropolitan area.

The USPS filed a notice with the Postal Regulatory Commission, regarding Metro Post on October 12, and the filing was made available on the PRC web site earlier this month.

In the filing, the USPS said it “observes that online e-commerce companies sand retailers have realized the power of online shipping platforms, which has created an opportunity for the Postal Service to explore the feasibility of same-day delivery.” The market test will kick off in San Francisco on December 12 and will last for one year, and the objective of the market test is to test the operational feasibility of same-day package delivery and determine the optimal pricing structure for this type of service.

And as part of the market test, USPS will enter into relationships with up to ten qualifying e-commerce companies to offer same-day local delivery, with each participating company having at least ten physical locations nationally and one or more location within San Francisco.

The Metro Post market test has a 200 package daily limit, and the USPS said in the filing that customers can receive same-day delivery in various ways:
-by using a qualifying online e-commerce platform to purchase items online;
-purchase items at retail stores that have partnered with test participants; and
-visit a test participant’s web site to purchase items

In terms of expected revenue, Metro Post is expected bring into the financially-ailing USPS, the filing said it is anticipating between $10-$50 million during the market test period. And the USPS said that Metro Post is likely to contribute to its financial stability by generating more package deliveries that do not currently move within the postal system.

The launch of Metro Post comes at a time when e-commerce activity continues to gain traction as a preferred method of making purchase for consumers and businesses. This was made clear in an October analysis by the National Retail Federation and Shop.org, which stated that 2012 online holiday sales—for the months of November and December—are expected to grow 12 percent annually to as much as $96 million. And the U.S. Department of Commerce said it estimates total 2011 4th quarter e-commerce sales increased 15 percent annually.

“The rapid growth in e-commerce certainly lends itself to not only ways for the Postal Service to position itself to be a same-day provider for consumers who are very much into instant gratification, but we are also looking at an opportunity where we can grow our shipping business,” said John Friess, USPS public relations representative. “It is not a niche opportunity for us. If the market test proves out, this will be a wonderful opportunity for us to grow the shipping business, which is a core goal, but also to help e-commerce sites leverage a growing business…with same-day delivery service.”

If the USPS is impressed with the market test’s reception and elects to move it out to other cities, it would need PRC approval. Various reports said that it could eventually expand to other densely populated cities such as Boston, Chicago, and New York.

While pricing information was not made publicly available in the PRC filing, Friess said it will be competitive compared to competitors’ rates in the same-day package delivery arena, with USPS utilizing the market test to see what price points work best to make it a profitable, revenue-growing business, which provides great customer value.

Jerry Hempstead, president of Hempstead Consulting, said that this offering is akin to a service FedEx’ SmartPost and UPS’s SurePost, with these services geared for retailers that can get product to a Destination Delivery Unit by a critical entry time.

“[Retailers] want to be able to gratify consumers, and it also helps Amazon of course, especially between now and Christmas,” he said. “There is a proven correlation between hitting the ‘confirm purchase’ button and gratification , that the sooner the delivery the more likely the consumer is to return to the site and also the interval is correlated to how soon the person returns.”

Despite losing $15.9 billion in fiscal year 2012, shipping and package services business revenues for the USPS were up $926 million—or 8.7 percent—at $11.6 billion, and volumes were up 201 million pieces at a 6.6 percent annual growth clip. These services include Priority Mail, Express Mail, Parcel Select and Parcel Return services and account for 2.2 percent of total USPS volume and 17.8 percent of total revenue. USPS officials pointed to e-commerce fulfillment and last-mile services as drivers for its strong performance.

And for the holiday season the USPS expects a 20 percent increase in package volume. Friess said that fact that the USPS serves every U.S. address is a major driver of this as it drives its e-commerce business during the holiday season.