USPS Privatization: Potential Impact on Pricing and Delivery Coverage

Industry experts told Supply Chain Dive that a fully privatized U.S. Postal Service would likely pursue more aggressive rate increases, reduce service frequency, and reshape its network to more closely resemble that of FedEx and UPS.

President Donald Trump has floated the idea of privatizing the roughly 250-year-old institution as the White House evaluates strategies to address the agency's financial losses. Tesla CEO Elon Musk, a prominent voice in the Trump administration, said during a Morgan Stanley conference last week that the Postal Service should be privatized, according to reports.

The proposal has drawn pushback from Postal Service employees and members of Congress, who fear such a move could jeopardize service in rural communities, drive up prices, and put agency jobs at risk. Postmaster General Louis DeJoy said in a Feb. 25 video message to employees that it is up to the president and Congress to decide whether structural changes are needed.

"To the degree possible postal leadership will be involved, so that we ensure the nation's leaders are aware of how future proposed changes may impact our organization's ability to serve the American people," DeJoy said.

The state of the agency

The Postal Service is already working toward financial sustainability under DeJoy's 10-year "Delivering for America" plan, implementing a range of network adjustments to trim operating costs while attracting more package shippers to boost revenues. However, the path has been lengthy.

The agency lost $9.5 billion during fiscal year 2024, 80% of which it attributed to factors outside management control, such as the amortization of unfunded pension liabilities. DeJoy has pushed for administrative and legislative reform, including pension funding changes, to ease the agency's financial challenges.

As the Trump administration and lawmakers debate the agency's future, they must determine whether a fully private, profit-driven enterprise free of regulatory constraints would benefit the country, experts said.

Despite its current issues, the Postal Service's delivery network "is a critical part of the nation’s infrastructure that cannot be replicated by private actors," according to a 2018 report from a task force established during Trump's first term to evaluate agency reform.

"We have to really understand, what is the Post Office?" said Aaron Alpeter, founder of supply chain consultancy Izba. "Is it meant to compete with commercial interests that are out there, or is it meant to provide a safety net for things that commercial interests are not interested in?"

Service at risk

The Postal Service currently faces limitations in how it can adapt operations to save costs. More than half of its carrier routes lose money, DeJoy said last June, but the agency cannot simply eliminate those routes. It is required to deliver to all Americans in a prompt and reliable manner across the country's expansive geography under its universal service obligation.

This includes reaching more expensive locations for delivery networks like Hawaiʻi, Alaska, and Puerto Rico, said Anthony Pizza, VP of growth and innovation at parcel carrier SpeedX, which also makes deliveries in Hawaiʻi.

"There's a certain floor for the cost to move things there," Pizza said.

The Postal Service does not receive tax dollars to cover added expenses tied to serving far-flung addresses. Any adjustments to the universal service obligation would require oversight by Congress and the Postal Regulatory Commission.

Privatization does not guarantee the end of the universal service obligation—the privatized Royal Mail, for example, is required by regulators to affordably deliver and collect letters six days a week throughout the United Kingdom.

"If we're going to keep the service standards as they are today, you have to be very realistic to think about what privatization can actually accomplish," said Derek Lossing, founder of the consultancy Cirrus Global Advisors and a former Amazon Logistics leader. "Again, if you look at the Royal Mail, I don't think it's accomplished nearly what they thought it could."

Experts said a Postal Service freed of regulatory constraints would likely move to reduce its six-days-a-week delivery frequency in less profitable rural locations, which would add to existing agency efforts to limit operating costs in serving remote areas.

The Postal Service could also pursue profits by making significant cuts to its footprint of more than 33,000 Post Office locations, Lossing said. In their place, the agency could rely on less resource-intensive pickup and dropoff methods, similar to how UPS uses local businesses as Access Points.

"Your footprint would look more like a UPS or FedEx," Lossing said.

Rate hikes likely

More aggressive rate increases could also be on the horizon. The Postal Service would need to raise parcel delivery prices by at least 30% to earn a reasonable return and stand on its own, Wells Fargo analysts said in a Feb. 27 research note. The agency's pricing was between 25% and 60% lower than FedEx and UPS in Q4 2024, depending on the service, they added.

"I don't know how they would be able to sustain delivery with the current price structure," said Helaine Rich, VP of strategic sales and administration at ePost Global.

While reducing service and adjusting prices could benefit the Postal Service's bottom line, it also carries risks, particularly for its package delivery offerings that compete with FedEx, UPS, and other private carriers.

Too few delivery days from USPS in some areas would give shippers added incentive to use alternative options, experts said. Maintaining reliable service in rural communities is an advantage for the agency in some ways, especially as e-commerce businesses do not want to be limited by which home addresses they can ship to, according to Lossing.

On the parcel pricing side, the Wells Fargo report noted that aggressive rate hikes from a private Postal Service would help FedEx and UPS by "increasing the floor for" delivery rates. Higher mail prices could also accelerate volume declines by incentivizing other forms of communication.

Long route ahead

The U.S. could also privatize only some of the Postal Service's operations to limit disruptions to mail delivery. Several experts suggested the government might retain the mail business and maintain the universal service obligation while spinning off the package shipping portion that competes with private companies.

"I don't see it happening, obviously, on the letter mail side of things," Rich said of privatization.

Regardless of the form a potential privatization might take, it would likely require a multiyear effort similar to what countries like Germany experienced while overhauling their postal systems, said Mark Waverek, managing partner at PlaidMark Management and Consulting Services.

"You just can’t snap your fingers and turn it on tomorrow," he said. "This is going to take a well-thought-out process of what those cuts are going to be, what it's going to mean to the people on the service side [and] what alternatives are going to be in place. It's going to take time."