Opinion: Politics hinders dynamic e-commerce market

Edward Hudgins

Good news for commerce! Starting in 2020, FedEx will offer home package deliveries seven days a week to consumers in densely populated areas. While this highlights the dynamism of e-commerce and win-win opportunities for online and brink-and-mortar stores, it also shows the folly of the Trump administration’s pressure on the U.S. Postal Service to raise its package delivery rates.

In 2018, consumers purchased $517 billion in merchandise from American companies online. Amazon constituted a whopping 40% of that total. E-commerce now accounts for 14.3% of retail sales, up from only 5.1%in 2007. Indeed, more than half of retail sales growth in the past year came via e-commerce.

Packages wait to be sorted in a Post Office as U.S. Postal Service letter carrier Michael McDonald, gathers mail to load into his truck before making his delivery run, in Atlanta.

Undoubtedly, this transformation of the retail landscape is linked to reliable door-to-door delivery. Playing a crucial role in this service, USPS has a legal mandate to deliver to all addresses six days per week; however, it has lost significant first-class mail business to the internet — we all pay most bills online now rather than dropping the check in the mail, don’t we? That trend is irreversible, and USPS has tried to adjust to the new reality. For instance, it has downsized its labor force from about 800,000 in 1999 to about 500,000 today. It also uses work-sharing and outsourcing for sortation and transportation to contain costs.

USPS excels at carrying packages that “last mile” to your door, and, thanks to e-commerce, its revenues from package deliveries last year hit $23.1 billion. By law, USPS charges rates to cover the direct costs of package delivery, but a 2018 task force commissioned by the Trump administration (“United States Postal Service: A Sustainable Path Forward") urged rates be raised even above the legal requirements to cover USPS  deficits.

The FedEx announcement of seven-day-per-week delivery means higher USPS rates would likely drive business (and revenue) away from USPS. In fact, it is likely a sign that USPS rates are already too high. (Why else would FedEx make this decision?) FedEx also announced it cut back on its current practice of dropping off most of its FedEx SmartPost packages at local post offices for delivery. FedEx will shift about 2 million packages per day onto FedEx ground delivery trucks instead.

FedEx is also building out its own last-mile system by tapping into efforts by traditional brick-and-mortar stores to compete with e-commerce by allowing customers to place orders online, and either pick up merchandise at stores or have them delivered to their door. If an Uber driver can deliver a Big Mac as quickly as you can drive to McDonald's to pick it up yourself, why not a FedEx truck picking up some garden tools at Walmart when the weather is finally right for yard work? Brick-and-mortar stores challenged by e-commerce are, in part, joining e-commerce.

Amazon, in partnership with USPS, as well as using its own expanding truck fleet, does offer Sunday deliveries and now is moving from free two-day delivery to free one-day delivery for its Prime customers. Delivery providers (including Amazon) are also working on drone and driverless vehicle deliveries.

The dynamic e-commerce market is a win-win all around. Innovative ways to order, sell and deliver are being devised, tested and refined. Customers and merchants, especially small businesses in America’s heartland, benefit. This is why the administration should abandon its foolish notion that USPS can cover deficits by raising package rates.

This would simply reduce competition, limiting choices for rural Americans especially, and costing them more. The ultra-dynamic e-commerce market is evidence of the fair competition that exists today, and inserting politics here will only hurt consumers.

Edward Hudgins is research director at The Heartland Institute and the editor of “The Last Monopoly: Privatizing the Postal Service for the Information Age” and “Mail @ the Millennium: Will the Postal Service Go Private?” He wrote this for InsideSources.com.