Sending It Back: Reverse Logistics and the U.S. Postal Service

Sending It Back: Reverse Logistics and the U.S. Postal Service podcast transcript

You may not realize it, but if you've ever purchased two different sized pairs of shoes online with the intention of returning the pair that doesn't fit, you've made use of reverse logistics. I'm Rick Chateau Bauer with the U.S. Postal Service Office of Inspector General, and our recent white paper titled “Sending it Back: Reverse Logistics and the U.S. Postal Service.”

We looked at significant trends in the reverse logistics industry, including postal service initiatives, since 2018.

So, you may be asking what exactly is reverse logistics?

The term refers to the movement of goods from the customer back to their place of manufacture, sale, or disposal.

It's what we commonly refer to as returns. But reverse logistics isn't simply forward logistics done backwards. It's far more complex and costly.

The path the returned item takes is determined through triage and disposition processes, where the item’s ultimate destination is decided.

Because of these additional steps, retailers find themselves devoting significant resources toward the logistics of handling returns.

Ecommerce grew considerably during the Covid 19 pandemic from 9.7 percent of total U.S. retail sales in 2018 to about 14.5 percent in 2021.

It comes as no surprise that along with the boom in ecommerce, came an increase in returns. The National Retail Federation estimates that 17.6 percent of all online purchases were returned to retailers in 2023.

Today's consumers have more options than ever before for returning unwanted items. They can take their returns to the merchant’s brick and mortar location and drop them off there.

They can make use of package list returns, or they can drop their return at the carrier's retail location, Reschedule to have the carrier come to their premises to collect the return.

While the retailer's ultimate goal is to make the customer experience as convenient and efficient as possible, this variety of options does not come without cost.

Recently some retailers who previously offered free returns have begun experimenting with charging return fees. Their challenge is balancing the desire to recoup some portion of return costs, with the danger of potentially losing their longterm customers.

While the U.S. Postal Service delivers more packages than any other carrier, UPS transports the highest volume of returns, followed by USPS and Fedex. Third party logistics providers, or three plus, also compete for business from retailers who may wish to contract out a portion of their return logistics operations.

As the returns market has grown and evolved, the Postal Service has expanded its return services.

One product, USPS returns, consists of end-to-end services that allow packages to be dropped off at a post office, deposited in a collection box, or collected via package pickup. Delivery times vary from one to five days.

Another Postal Service return product is Parcel Return service or press designed for shippers with a high volume of returns per allows customers to drop off their returns at a postal facility, place them in a collection box, or have them picked up. The press partner then picks up the returned items in bulk from a designated USPS facility.

The Postal Service offers customers several other return services, including label delivery and label printing at self-service kiosks, rapid drop off stations, package list returns, QR code scanning for package pickup, and doorstep pickup.

As the returns market has grown, innovators are hard at work to develop creative solutions to retailers.

Challenges of managing the cost of returns, while maximizing customer satisfaction. For example, end-to-end three plus handle every part of the returns process for retailers, including creating the customer interface to initiate returns, triaging returns to determine their best next to use, and physically transporting the goods for resale, refurbishing, recycling, or disposal.

Some last mile delivery companies are using crowdsourcing models to provide first mile return services.

Drivers arrive at a warehouse to load their personal vehicle with deliveries and are given a list of returns pickups along their route.

Another innovation is hyper local returns. For larger items, retailers may partner with a company that will pick up a bulky item to be returned, and resell it locally; thus, saving the retailer the expense of shipping it across the country.

There seems to be a potential role for artificial intelligence to play in every aspect of our lives, and reverse logistics is no exception.

AI offers promising applications to manage some of the complexity and costs of returns.

Retailers can use AI to create customer profiles to better understand consumer preferences and behaviors.

It can also provide timely insights into the salvage value of returned items.

One industry expert we spoke with even suggested that an AI chat bot could proactively suggest an alternative item to a customer that they may be less likely to return.

But with rising volumes and innovation, there are also growing challenges. Returns fraud is a growing problem facing retailers. Retailers must balance taking a stand against fraud, with the risk of alienating customers, making legitimate returns, and possibly risking their future business.

Another challenge in reverse logistics is sustainability.

The complexity of the reverse logistics supply chain creates environmental harm,

One expert told us the carbon footprint for reverse logistics is two to three times that of forward logistics.

Many three PLs are working to reduce the waste in their operation by increasing their resale and recycling efforts.

The Postal Service is facing its share of challenges as well.

It must compete in reverse logistics with smaller, nimble start-ups who may be focusing on only a few specific parts of the larger market.

The good news for USPS? There are several potential opportunities the Postal Service could pursue to grow its share of the reverse logistics market in its 2021 delivering for America ten-year plan.

USPS discussed transforming post offices into retail hubs for business growth, including for return services.

Additionally, industry experts told us postal workers could quickly evaluate return products to ensure that they're what the sender claims they are thus acting as a first line of defense against returns fraud.

They also suggested postal facilities could potentially be used for returns, warehousing, providing retailers, and resellers with a convenient means of product storage and distribution.

Finally, USPS can explore new service offerings that will better serve the needs of its customers.

For example, USPS already plans to increase the number of parcel lockers at its facilities with returns capabilities such as printing out return labels and securely accepting packages.

Ultimately, increasing the Postal Service's share of the reverse logistics market will require ongoing innovation geared toward meeting consumers’ needs.

So, the next time you send back that kitchen gadget that seems so amazing in that late night infomercial, you'll have a better idea of all the complex logistics that go into that return. And if you'd like to learn even more about reverse logistics and potential postal service roles in that market, you can find our whitepaper “Sending It Back: Reverse Logistics and the U.S. Postal Service” at USPS.gov

I'm Rick Schadelbauer with the USPS Office of Inspector General. Thank you for listening.