Chains Using USPS Same-Day Service Face Sharp Cutoff

The U.S. Postal Service's same-day delivery trial for retailers is scheduled to begin on December 12 in San Francisco, but the service will launch with major limitations, according to the regulatory filings that allow the USPS to do this at all. The most significant limit: Each retailer will be allowed to send only 200 packages per day.

The mail agency also won't be allowed to do more than $50 million in business in the trial or expand it without more regulators' approvals, which rules out a rapid ramp-up to other cities. The last thing same-day needs is a regulatory straitjacket—but that's exactly what the USPS' service and the chains that use it will be saddled with.

The USPS won't say which eight to 10 retailers will be part of the trial, which has been unaccountably dubbed Metro Post. "We will be the service provider—it'll be up to the retailers to advertise/market the product," said USPS Spokesperson John Friess.

But according to filings from October and November, the trial—which is initially slated to run through January 2013—will be hobbled by strict limits on the geographic area involved (only a specified area of San Francisco) and regulator-mandated limits on when packages can be picked up from retailers (after 3:00 p.m.) and delivered (between 4:00 and 8:00 p.m.).

The filings also say pricing will be at least $2.70 per package ("greater than six times the basic tariff of $0.45"). But that's actually in line with prices for same-day delivery competitors such as ebay, Amazon, Walmart and UPS.

What may be most aggravating is that the USPS is barred by law from "creating an unfair or inappropriate competitive advantage" for any retailer using the service. No competitive advantage? That's the point of same-day delivery, isn't it?

But in practical terms, it's the lack of flexibility that will probably cause the most problems for the USPS trial, as well as for the retailers testing it. Those delivery hours, for example: USPS literally can't do any deliveries before 4:00 p.m. without an additional OK from the Postal Regulatory Commission. If retailers discover there's a demand for earlier deliveries, they're out of luck.

The same is true of expansion beyond those specific San Francisco neighborhoods, or beyond 200 packages per day per retailer. If the service turns out to be popular—remember, it's starting two weeks before Christmas—that limit could be blown out almost immediately. And it's retailers who will have to explain to customers why their orders were eligible for same-day delivery 15 minutes ago but aren't now.

And that explanation might have to be made face-to-face.And that explanation might have to be face-to-face because, under the trial's rules, customers can ask for same-day delivery either from a Web site or in-person at a store (presumably that would be a store that doesn't have the item in stock at the moment but is part of a chain that can get it into the system that day).

That 200-package limit isn't a show-stopper, but it will mean chains in the test will have to find back-up delivery services or be willing to just say no to late-buying customers. This is, after all, a test, and 200 sets of data points per day is still going to be very useful to chains in deciding whether or not to keep offering same-day delivery.

That data should also be enough to answer USPS questions about the viability of a service like this. The mail service is currently running a $15 billion annual deficit, because first-class mail has dropped off, but all the infrastructure for deliveries is still in place. The fact the U.S. Postal Service has that type of reach and capacity suggests it's perfectly positioned for same-day delivery, for both chains and pure-play E-tailers.

The USPS is optimistic about Metro Post—USPS Spokesperson Friess calls it "a game changer." That would sound like just a cliché, except federal law literally requires that nothing the USPS does can create market disruption, even though disruption (for the better) is exactly what same-day delivery is all about.

In fairness, postal regulators have to obey laws that are designed to keep the USPS from competing with for-profit delivery services. But so far, those for-profit efforts at same-day deliveries for retailers have been all over the map—everywhere but in the neighborhood called "successful."

For example, ebay's same-day experiment was always intended to be a loss-leader using commercial messenger services, and it still can't manage to guarantee either delivery times or even product prices. (There's an amusing blow-by-blow of ebay's service in New York City, where it just started testing, by the Silicon Alley blog BetaBeat. Warning: If you're offended by BetaBeat's headline—which we won't quote for fear of triggering spam filters—it may not be for you.)

Walmart, which has been doing same-day grocery deliveries in San Francisco since 2010 using its own delivery trucks, expanded that service this month to include some general merchandise. But unlike other Walmart same-day cities (Philadelphia, Minneapolis and the Washington, D.C., suburbs), where customers have until noon to order and deliveries start at 4:00 p.m., San Francisco customers must order by 8:00 a.m. but can choose delivery times with one-, two- or four-hour windows beginning at 2:00 p.m.

That type of tinkering with same-day schedules is exactly what chains should be doing at this point. It's early in the development process for same-day delivery. Sure, Amazon has been offering it for years without making much of a ripple. But other big players are now experimenting and small, online apparel retailers like Net-a-Porter.com are trying it themselves in their home cities.

It's just the beginning of what looks increasingly like a same-day arms race. Nobody knows what customers actually want or will accept from same-day delivery. At the same time, it's holiday selling-frenzy time, when same-day delivery has probably its best shot at proving itself profitable.

And this is the time when regulators want to hobble both the USPS and retailers, with limits like 200 packages per day on Christmas Eve? Ho. Ho. Ho.

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