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Dive Brief:
- UPS has “reengaged” with the U.S. Postal Service on a potential delivery arrangement for UPS Ground Saver, a service that once relied on the agency, CEO Carol Tomé said on an earnings call Tuesday.
- UPS Ground Saver, formerly known as UPS SurePost, is focused on providing low-cost shipping in exchange for slower delivery speeds. The offering used to frequently hand off millions of packages to the U.S. Postal Service before UPS this year opted to keep the volume in-house due to cost and reliability concerns.
- “There’s new leadership there, they have excess capacity, so we’re working through a number of different positions on Ground Saver,” Tomé said. “We don’t know the outcome of that yet, but we expect to know that hopefully in the quarter.”
Dive Insight:
The discussions with the Postal Service come as UPS is grappling with unexpected costs from delivering all Ground Saver volume itself. The carrier made more delivery stops for the service than expected in the second quarter, hurting results by about $85 million, according to Tomé.
Delivery stop frequency surpassed UPS’ projections despite Ground Saver volume falling more than 23% year over year in Q2, according to EVP and CFO Brian Dykes. The decline outpaced a 6.6% volume drop for ground services overall. UPS executives said the volume drop was part of an intentional plan related to pricing for e-commerce deliveries as the company pushes to boost per-package profitability.
“In the second quarter, Ground Saver made up the smallest portion of our total ground volume that we’ve seen in two years,” Dykes said. “This shift is a proof point showing positive product mix improvement.”
Whether UPS’ discussions with the Postal Service result in an agreement remains to be seen. The USPS did not immediately respond to a request for comment about Tomé’s remarks.
This year’s UPS-Postal Service split happened as the agency moved to overhaul agreements for services like SurePost that relied on its final-mile capabilities. The effort was part of former Postmaster General Louis DeJoy’s plan to maximize volume flowing through the agency’s network while strengthening competitiveness for its delivery offerings.
David Steiner, DeJoy’s successor as postmaster general, took the helm earlier this month. Steiner hasn’t elaborated publicly on the agency’s current position on consolidator arrangements, but stakeholders have been pushing for a pause of various Postal Service initiatives that began under DeJoy.
Reuniting with the Postal Service could help UPS Ground Saver expand its coverage to P.O. Boxes and other locations. The service currently offers pickup and delivery within the contiguous U.S., but was previously able to deliver to Alaska, Hawaiʻi, Puerto Rico and other areas when partnered with the USPS.
