USPS: A Valued Partner

USPS: A Valued Partner

 Innovation may not be the first word that springs to mind when thinking of the U.S. Postal Service. However, for the home parcel delivery business, the USPS has been at the forefront of innovation as it has coped with new competition and critical changes in the behavior of its customers.

The millions of consumers who receive packages at their homes each year may not see it, but the residential delivery process has been completely transformed over the last five years, and the USPS is at the heart of it.


When what was then Airborne Express launched airborne@home (now DHL@ Home since DHL's acquisition of Airborne) in 1999, the Postal Service was under siege. Its expedited letter and package business faced relentless competition from FedEx and UPS, as well as Airborne. Its core First Class mail franchise was under attack from a new, shapeless and lethal rival: e-mail.


USPS desperately needed new revenue sources, and with the Internet emerging as a viable conduit for retail transactions, it turned to residential deliveries.


By law, USPS could not compete for this traffic like its private rivals. It could not vary its rates among different customers, and it could not offer discounts to large shippers. So rather than try to beat its private-sector enemies, USPS joined them.


USPS proposed that private express carriers collect parcels from high-volume shippers ? such as mail order houses, catalogues and Internet retailers ? and deliver the packages as deep into the postal stream as possible. The carrier would pick up the parcels at origin, sort and deliver them to the local Post Offices, known as "Destination Delivery Units," or DDUs. From there, USPS could use its unmatched "last-mile" delivery network connecting 27,556 Post Offices to every home in the U.S.


For the first time, high-volume mail users would have access to "DDU pricing" and would reap substantial cost savings as a result. The express carrier would capture significant new business and optimize the use of equipment. The carrier would become the USPS's customer, paying for postage and creating a new revenue stream for the agency. The shippers and the carrier would effectively be sharing the work with USPS, helping it reduce its operating costs. The ultimate customer would experience no degradation of service levels. And the beauty of it all was that it would run on the existing postal infrastructure.


The concept would lead to a radical deconstruction of the traditional distribution model. Historically, parcel "consolidators" would collect packages at origin, build the parcels into consolidations and bring them to postal sorting facilities known as "Bulk Mail Centers." From there, the parcels would be sorted and pushed downstream.


Although attractive, "BMC delivery" rates were not nearly as desirable as the prices for delivery to the DDU level. But the typical consolidator's operation was not designed to extend so deep into the postal system.


In addition, consolidations often slowed down the shipment flow, and the shipment tracking under the consolidators' system left much to be desired.


DHL saw potential in the business-to-consumer delivery market, especially with electronic commerce starting to gain traction in the late 1990s. However, a standalone service that required drivers to deliver one or two items to residences had dubious cost structure.


The USPS concept was music to our ears. As long as we could offload traffic to the USPS for "last-mile" delivery, we believed we had the size, flexibility and the technology to build the best-in-class residential service in the United States.


In January 1999, Airborne came aboard, agreeing to move parcels from origin to the DDUs over its second-day air system. The letter carrier would deliver to the end customer the next day, usually resulting in transit time from shipper to consumer of three business days.


By putting the collection, sorting, delivery and tracking in the hands of a private express carrier, the USPS has rewritten the rules of a decades-old game.


USPS has morphed into a common carrier, not only handling last-mile deliveries for DHL, but in the past 12 to 18 months for UPS and FedEx as well. As for the integrators, they are experiencing robust growth in the "@home" segment; the since-renamed DHL@home product is growing at a double-digit pace.


Talbot's, the leading specialty apparel retailer, began using our product earlier this year to expedite deliveries to West Coast residences from its Massachusetts distribution center.


Bas Bleu, a cataloguer and distributor of books, games and gifts, consolidated all its distribution with DHL, in large part due to the flexibility, reliability and value it experienced with the @home product. Notably, Bas Bleu cited positive feedback from residential customers in remote areas who received their orders on the front end of its delivery commitment.


The work-sharing model has produced many winners. But it has also produced losers, among them the traditional consolidators that once enjoyed a near-monopoly.


We believe traditional consolidators are likely to find their place as small components of large carriers.


Today, thanks to e-commerce, the opportunities have never been greater and the stakes have never been higher. Due in large part to the partnership possibilities created by the USPS, the system has never been better prepared to respond, and the end customer has never been better served.


-- Jerry Hempstead, Vice President of National Accounts, DHL was one of the designers of the original airborne@home delivery service, now called DHL@Home.