We use cookies
Image
This site uses cookies to improve your experience. By continuing to use the site, you agree to our Privacy Policy.
Reject
Accept

Amazon cuts USPS volume by 20% in new deal, averting major revenue loss for Postal Service

Amazon cuts USPS volume by 20% in new deal, averting major revenue loss for Postal Service
While the existing contract between global e-commerce retailer Amazon and the United States Postal Service (USPS) expires in 2026, a Reuters report published yesterday shed some light, in regards to the relationship between the parties. According to the report, Amazon and the USPS came to terms on a new agreement, in which the USPS will handle roughly 80% of its existing deliveries, representing around 1.7 billion packages and $6 billion in revenue annually, from Amazon, representing a 20% reduction from current levels, which the report said was initially to be closer to a two-thirds reduction. In December, USPS announced that that shippers of all sizes would be able to access more than 18,000 USPS delivery destination units (DDU) across the country. USPS explained that this will be done through a solicitation process to start accepting around late January or early into February. And it added that in advance of setting up a dedicated bid solicitation platform, the USPS would communicate with shippers, regarding the procedure and also to gauge interest in participation, as well as “fine-tune” the bidding process based on feedback to provide the most effective platform,” with more details announced over the coming months. Adi Karamcheti, Consultant, Professional Services, had a different take on this development, when it was initially announced, saying it does not make sense, in that it seems like an attempt by the USPS to either get more from Amazon or to get UPS to work with them again. “USPS claiming this process is open to shippers large and small, doesn't make a lot of sense,” he said. “You really need to be big in order to directly inject into the Post office network. I'm not sure playing a game of chicken with Amazon is really the best idea. It's a high-risk move. Amazon's reaction could be to build out their network even faster than they are currently doing.” To that end, Amazon has remained on track in building out its network, following its June 2025 announcement, in which it said it was making a $4 billion investment towards tripling its delivery network by the end of 2026, with a focus on small towns and rural areas. Feedback regarding the updated agreement between the USPS and Amazon was well-received by industry observers. “With Amazon and the USPS reaching a new deal, it looks like the USPS has averted a disaster of losing its top customer soon after announcing it would run out of cash in February,” said Paul Yaussy, Head of Parcel Contract Intelligence, at Loop. “Apparently, Amazon is cutting its footprint with the USPS by 20%, which is dramatically different than some reports we had heard saying it could be nearly triple that. So, it would appear to be a win-win for now as USPS avoids having to find a replacement for its largest shipper and Amazon buys more time to execute on its apparent long-term plan of insourcing most of its package volume.” Rob Martinez, founder of San Diego-based Shipware, called it an important announcement, in that Amazon is keeping a low-cost last-mile partner, especially in rural and less populated areas where USPS offers an advantage. “The partnership with the Postal Service helps Amazon manage its delivery costs—Amazon knows exactly how much it costs to deliver a package through its own network compared to handing it off to USPS, often the cheaper choice,” he said. “This helps Amazon protect its profit margins, stay flexible with its delivery options, and avoid building its own network in places where it would not be worth the investment. It's also noteworthy that the announced USPS contract demonstrates that Amazon’s strategy of bringing deliveries in-house has its limits. For the Postal Service, it's quite possibly an existential win. Retaining around 80% of Amazon volume protects a multi-billion-dollar revenue stream and maintains network density. It also signals that USPS remains a critical piece of the U.S. parcel ecosystem despite competitive pressures. USPS remaining viable and relevant preserves a third major delivery option, which is critical leverage in contract negotiations with UPS and FedEx, and it helps keep last-mile pricing in check, particularly for lightweight residential deliveries.” John Haber, Chief Strategy Officer, for Transportation Insight said this announcement was not surprising, adding Amazon and USPS reaching an agreement was expected. “It’s a very interesting and complex situation with many questions,” he said. “Will the USPS make a profit on the new deal with Amazon? Does it have to make a profit? Will Amazon make a profit on the new deal with the USPS? Does it have to make a profit?” This development comes at a time when the USPS’s financial outlook has been under scrutiny for years, due, in large part, to traditional first-class mail, once the backbone of the organization’s business model, having steadily declined as more communication moves online. Over the past 15 years, billions of pieces of mail have disappeared from the system. USPS Postmaster General David P. Steiner said the agency’s financial situation remains serious, with the organization having hired restructuring advisers to review its finances as leaders warn the agency could run out of money by 2027 if major changes are not made. “We are out of cash in 12 months if we don’t do anything different,” he said.

Comments ()

To post a comment, sign in to your account
Sign in

You may be interested in