Consultant Insight: USPS struggles with capacity despite an impressive supplier lineup

FedEx continues to beat all competition on the list of the top 150 U.S. Postal Service Suppliers compiled annually by law firm Culhane Meadows. FedEx transports mail by air for the USPS; its current contract expires Sept. 29, 2024. [caption id="attachment_69752" align="alignright" width="298"] Cathy Roberson, Cargo Facts Consulting senior consultant and Air Cargo World columnist[/caption] FedEx has held the top position since 2002, and in 2020 received more than $2.2 billion — an increase of about $174 million from 2019. “COVID spotlighted the Postal Service’s importance to the nation’s infrastructure, and transportation suppliers are the backbone of that network,” said David Hendel, who compiled the list and is a partner at Culhane Meadows PLLC, as well as a member of the government, regulatory and compliance group. Indeed, more than half of the USPS’ procurement spend in fiscal year 2020 was spent on transportation services or equipment. Eight of the top ten suppliers provide transportation services or equipment. Transportation suppliers also dominate the 11th through 20th places, filling seven of the 10 positions. Other airlines in the top ten include UPS in eighth place, slipping from sixth place in 2019; and Kalitta Air in 10th, slipping from eighth place in 2019. Several combination carriers are also on the list, including United Airlines, Delta Airlines and American Airlines. Likewise, several trucking firms are included among USPS’ transportation suppliers, including Davenport Transportation, Ryder, AJR Trucking and J.B. Hunt. However, the USPS experienced high parcel volumes during the holiday season that led to widespread delivery delays. According to the postal operator, delays were caused by a shortage of postal workers due to a spike in COVID-19 cases and capacity challenges with airlifts and trucking. Capacity was indeed problematic for many shippers during the holiday season. The American Trucking Associations (ATA) reported that truck tonnage in December rose by a seasonally adjusted 2.3% year over year and increased by 7.4% compared with November — the strongest month-over-month gain since summer 2020. ATA Chief Economist Bob Costello noted in the association’s announcement that freight continues to be helped by strong consumption, retail inventory restocking and robust single-family home construction. He also sees the recent federal stimulus effort as a positive for the industry. “With the stimulus checks recently issued and with a strong possibility of more in the near future, I would expect truck freight to continue rising,” Costello said. Could the USPS have better managed its trucking challenges? It’s difficult to say. Looking at the USPS’ top suppliers, one would question why it couldn’t have handled these challenges better. Among providers on the supplier list that could have supplemented USPS capacity are C.H. Robinson, the largest trucker broker in the U.S.; Total Quality Logistics, another large truck broker; or even U.S. Postmaster General Louis DeJoy’s former employer, XPO Logistics. Perhaps the delays were due less to trucking issues and more to intermodal concerns. Record ocean freight imports continued in December, and rail struggled to the point that rail operators, such as Norfolk Southern, issued service alerts over severe congestion and temporary closures of its Chicago ingates to all domestic local and interline shipments. Taking a look at USPS’ top suppliers once more, it appears that there are no rail operators on the list, a surprise considering the history between the rail and USPS. On the airfreight side, there may have been a struggle with FedEx fulfilling its obligations to the USPS in December. FedEx was, and still is, deeply involved with the COVID-19 vaccination distributions — to the point that some other shippers have complained that they have had to take a back seat when it comes to deliveries. However, the number of air partnerships the USPS has should have helped to alleviate problems during the holiday month. In December, North American carriers posted a 3.1% increase in international demand, according to the International Air Transport Association. This was the strongest monthly performance since late 2018. But again, it’s likely the focus for air demand was on international routes versus domestic ones. A number of shippers reported shipments scheduled for delivery in December were instead delivered in January because of the incredibly high demand for inventory replenishment. We are in the midst of an amazing supply chain rethink as shippers shift from store-focused to online-focused. The parcel is “king” in this new rethink; the USPS knows this and is trying to transform its own supply chain to remain viable. As shippers and consumers, we need the USPS as a third, or possibly fourth, nationwide last-mile provider. Here in the U.S., we are limited in our express options to FedEx and UPS. Looking ahead, Amazon is rumored to be restarting and expanding its third-party delivery service, which could be good news for shippers faced with FedEx and UPS capacity limits. But until then, the USPS needs serious updating. Looking back at the holiday season, some of the problems were probably out of the USPS’ hands; however, a proper transportation network system that includes all modal options with real-time visibility may have helped the organization better manage its transportation suppliers, and mitigate some delays.

Consultant Insight: USPS struggles with capacity despite an impressive supplier lineup

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