In a bold and unexpected move, Stamps.com, which built its business through an exclusive shipping partnership with the U.S. Postal Service, is now severing that relationship as it seeks to offer its ecommerce customers more options, while keeping a sharp eye on Amazon logistics.
On an earnings call with analysts, Stamps.com CEO Ken McBride took several minutes to talk about the USPS’s perceived shortcomings in ecommerce fulfillment relative to its competitors, including Amazon’s well-documented moves.
Among other things, McBride noted the growth in ecommerce capabilities and performance of both UPS and FedEx as well as DHL and regional carriers like On Trac and Pitt Ohio. He contrasted it with the USPS’s lack of guaranteed two-day delivery, calling it “hamstrung” by the pre-funding of retiree healthcare as well as regulatory and government oversight such as the Postal Regulatory Commission (PRC) and Congress.
“As we look to the future of shipping, we no longer see an exclusive partnership with the USPS as the right strategy for Stamps.com,” McBride said on the call. “We have to align our organization to be well positioned as the significant changes in the shipping business at core over the next five years.”
McBride said Stamps.com decision to sever its exclusive arrangement with the USPS through its Stamps.com and Endicia units was “non-negotiable,” terms which the USPS refused to accept, leading to a dissolution of the longstanding partnership.
After detailing several of Amazon’s recent moves in logistics and fulfillment, including an air hub set to open in northern Kentucky, the Shipping with Amazon program and reports it is undercutting FedEx and UPS on shipping deals with retailers, McBride said this momentum will only grow.
“Amazon’s track record of disrupting an industry is well established,” he said. “So, their threat should be taken very seriously by every player in the shipping industry. We are setting our corporate strategy assuming Amazon will be a big global player in shipping.”
Having spent a good deal of his time on Amazon in his remarks, it seems that Stamps.com will look to partner there on behalf of its shipper clients, as well as with more traditional carriers as well as startup players.
“We need to bring the most cost effective, the best the most reliable package services to our customers,” McBride said. “Because if they don’t succeed in shipping their products to their customers, then their business won’t succeed and if their business doesn’t succeed, then we won’t succeed because we lose the customer. When our customers are offered services such as shipping with Amazon, FedEx One Rate, UPS’s new products, regional carriers, Uber shipping, ship from store and everything else, we have to bring those solutions to our customers.”
Conversely, McBride detailed the enormous scope of Stamps.com’s partnership with USPS: Its largest shipping partner (5.5 billion packages generated annually), representing more than 35% of its U.S. domestic Priority Mail packages; and about 50% of its U.S. domestic First Class packages. He also touted Stamps.com’s ability to drive growth for partners – including the USPS.
Analysts took a dim view of the move, wondering how quickly Stamps.com could pivot and grow revenue in its new model of expanded carrier relationships. They also were left to speculate as to the motives and wonder if shareholder actions were afoot.
“While in the short-term Stamps.com has taken steps to reduce the lost revenue burden by charging its NSA clients a software surcharge, in our opinion it will take heavy investment in order to re-establish new deals with strategic carriers in order to restore growth over the long term,” said Roth Capital Partners analyst Darren Aftahi in a research note downgrading the stock, according to Bloomberg.
Gordon Glazer, a senior parcel consultant with Shipware, said Stamps.com’s decision to part ways with USPS didn’t make sense.
“Something is missing here,” Glazer said. “Stamps.com affiliates like ShipStation already process UPS and FedEx so I am unclear about the ‘exclusivity’ they’re are giving up. Rather I believe this is tied to the reseller programs they participate in, which I believe has been driving their profits. The (USPS) Office of Inspector General reported this as part of the $1 billion in lost revenue lost by USPS (in 2018). This is the smoking gun, or it could be the smell of impending lawsuits.”