Between December 2012 and February 2013, the U.S. Postal Service delivered a record 35.6% of all FedEx Ground shipments. The Postal Service delivery was provided as part of the FedEx SmartPost product which experienced a 26.4% growth in shipping volume during FedEx’s 3rd fiscal quarter that ran between December, 2012 and February, 2013.
The following chart illustrates the growth in Postal Service delivered shipments as a share of FedEx Ground shipments.
The Postal Service share of FedEx Ground deliveries has steadily grown over the past five years. The Postal Service’s share of FedEx Ground deliveries in the 3rd quarter of FedEx’s 2013 fiscal year represents a 9.6% increase in the share of FedEx Ground shipments from 2012 and a 62% increase from 2009.
The chart illustrates that the share of Postal Service delivered parcels always peaks in Fedex’s 3rd fiscal quarter. In this quarter, business-to-consumer shipments represent a larger share of all parcel shipments than any other quarter. Based on data provided by multiple industry sources, business to consumer shipments likely also hit a record share of all parcel shipments in FedEx’s 3rd quarter and possibly hit a majority of all parcel shipments in the quarter.
The increase in FedEx’s use of Postal Service delivery to meet its customer’s needs also illustrates a shift in the mix of business-to consumer deliveries, and in particular an increase in the share of business-to-consumer shipments from department stores and apparel retailers. These shipments tend to be of lower value and weight than shipments from other consumer-oriented e-tailers and require a low cost delivery service like FedEx SmartPost in order for the retailer to offer free shipping.
The increasing use of FedEx of Postal Service delivery poses both a significant opportunity as well as great risks for the Postal Service.
Postal Service delivered parcels that are sold by FedEx, United Parcel Service, DHL and others grew by over 15% in the Postal Service’s 1st quarter of FY 2013 (October – December, 2013). The willingness for FedEx, and its customers to increasingly rely on the Postal Service for delivery suggests that it is currently meeting a market need. The Postal Service has a great opportunity to continue provide a delivery service that FedEx and other cannot provide on their own.
The growth of FedEx’s use of the Postal Service for delivery creates risks for the Postal Service as it illustrates that the Postal Service’s parcel delivery business is increasingly reliant on a limited number of customers. In particular, as the growth of FedEx SmartPost has outstripped the growth of USPS’s parcel services that FedEx SmartPost uses, so FedEx’s share of the Postal Service’s parcel deliveries have grown. The Postal Service is therefore vulnerable to changes in FedEx Ground’s delivery strategy especially as Amazon, Google, ShopRunner and possibly others develop competitive last mile delivery networks to the Postal Service.