Postal Service Is on Track to Gain Larger Share of Holiday Deliveries

By Laura Stevens

This holiday season, the letter carriers for the U.S. Postal Service have been busier than an army of elves, operating practically 24/7 to try to take a significant share of a record-breaking online shopping season.

So far, USPS is on track to scale a new high in holiday deliveries, as its volume is up more than 15% compared with a year ago and is forecast to reach more than 600 million packages between Black Friday and New Year's Eve.

Based on that number, the agency's market share of holiday deliveries this year will increase to 40% from last year's 35%, as it continues to elbow its way into an e-commerce market long dominated by United Parcel Service Inc. and FedEx Corp.

"We're putting more pressure on the organization to grow the business and to look at opportunities to continue to grow," said Postmaster General Megan Brennan. "And I think given the pace of innovation and what we've demonstrated in terms of our capability, we're well positioned."

The Postal Service also has taken several steps to prepare for this peak holiday season, including deploying additional package-sorting equipment. Carriers and post offices are equipped with more than 200,000 blue, package-scanning devices to improve tracking data.

It has hired seasonal workers--about 30,000 this year--along with its own employees to increase the number of delivery shifts in some areas to three a day from one.

And it is running the equivalent of about 25,000 routes on Sunday, up from 4,000 on a nonpeak Sunday. Both UPS and FedEx typically don't deliver on Sundays.

"That ability to deliver on Sundays takes tremendous pressure off the week," Ms. Brennan said. "That has certainly been a game changer in our ability to keep the network fluid."

The Postal Service's ambitious holiday plans are just the latest in a series of efforts to compete with UPS and FedEx in the battle for online shipping. But the efforts have been costly since its aging network was built for letters, not packages. Compensation expenses increased 2.3% in fiscal 2015 to $35.9 billion, in part due to growth in packages, the agency said.

In September, the USPS requested permission to raise prices on its lightweight category, last-mile packages by 23.5%, because it was only making about a penny per package on those deliveries.

Ms. Brennan acknowledged that it is a challenge to balance the workload associated with packages with the costs. She said the agency is working to manage overall expenses and expects to present good numbers for the quarter.

"As a general rule, anytime the Post Office takes on more business, especially during peak with all those extra costs, the profitability goes way down," says Keith Byrd, a partner at shipping consultancy Transportation Impact.

A typical mail truck can hold an average of about 70 packages, compared with about 200 for a FedEx or UPS truck, according to Satish Jindel, president of ShipMatrix Inc. Despite some scattered reports of hiccups, so far its last-mile delivery service is coming in at about 99% on-time, higher than the national networks of rivals UPS and FedEx.

The Postal Service pays for its own way: it doesn't receive taxpayer dollars to cover operating costs, although it is compensated for certain services and receives a $15 billion credit line with the U.S. Department of the Treasury. In November, the agency reported a $5.1 billion loss for fiscal 2015. Stripping out certain items including mandated retiree benefits, it would have earned $1.2 billion.

The Postal Service in recent years has started competing more aggressively for parcel business as its lucrative business--First Class mail--has declined in the digital age.

It lowered prices last year on some of its Priority Mail packages, and most recently has been testing out same-day deliveries of groceries, water and fish.

It also has become a more attractive option for both lightweight and bulky packages, after both UPS and FedEx started charging by the size and weight of packages this year to encourage shippers to use smaller boxes.

"I think the Postal Service is positioning itself for the future," said Gordon Glazer, a shipping consultant with Shipware LLC. "It's important to be seen as a viable carrier."

Write to Laura Stevens at laura.stevens@wsj.com

(END) Dow Jones Newswires

December 22, 2015 20:09 ET (01:09 GMT)

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