The federal government ships a considerable number of packages each year, primarily using FedEx and UPS. In fiscal year 2012, federal agencies spent almost $337 million on shipping services through General Services Administration (GSA) contracts. The U.S. Postal Service earned only $4.8 million of that revenue, or less than 2 percent, a recent Office of Inspector General audit report found.
The Postal Service faces several challenges to growing its share of this market. Unlike its competitors, the Postal Service cannot offer necessary discounts to penetrate a market, attract new customers, or match competitors’ prices. In addition, the Postal Service’s lack of a guaranteed 2-day or 3-day express delivery product prevented it from qualifying for one of the GSA’s most lucrative contracts. Priority Mail regularly meets 2-day and 3-day delivery performance (90 percent of the time), but it did not qualify because it does not include a delivery guarantee.
As a late entrant to the GSA market, the Postal Service is at a distinct disadvantage. FedEx and UPS have been vendors since 2001, nearly 8 years longer than the Postal Service, and they have built solid relationships with the federal agencies. The OIG audit report noted that many federal agencies are reluctant to leave these long-term relationships and switch to the Postal Service. Further, the Postal Service does not always accept the payment methods desired by customers, forcing federal agencies that ship with the Postal Service via a GSA contract to use one of its four payment methods. Its competitors accept multiple payment methods, such as electronic billing data files.
At least one federal agency had specific requirements that disqualified the Postal Service from participating. The audit found that the U.S. Department of Defense (DoD) provides preferential treatment to those shippers that have their own aircraft and participate in the Civil Reserve Air Fleet (CRAF) program. Because the Postal Service does not own aircraft, it is prohibited from competing for DoD business allocated to CRAF participants, even when demonstrating lower prices.
The OIG audit concluded that the Postal Service could capture a larger share of the federal shipping market if it could overcome these challenges. We would like to hear your ideas. What are some ways the Postal Service might be able to increase its shipping sales to federal agencies? How best might the Postal Service overcome some of the considerable challenges noted in the audit report?