Can the U.S. Postal Service deliver on promise of new mail delivery trucks?

Washington Postal Scene by Bill McAllister

Sometime this summer, the United States Postal Service is scheduled to release a much-awaited proposal for new mail delivery trucks.

The Postal Service will ask Detroit to offer details about how it could manufacture the estimated 180,000 right-hand drive trucks it wants at a price of $25,000 to $35,000 per vehicle.

That’s a big order that could add up to $6.3 billion over five years, making it one of the largest U.S. trucks orders in recent years.

The prospect of winning that order has the truck world on edge, said Antti Lindstrom, a truck analyst at IHS Market, a London-based research firm.

“The total value of $6.3 billion is a large amount of money no matter how one looks at it,” he told Linn’s in an email.

The planned postal purchases are “highly attractive to businesses in the commercial truck market,” Lindstrom said.

It would “guarantee solid income for 5 to 7 years” to the winning firm, he said.

One big unanswered question looms over the excitement. How can the deficit-ridden Postal Service find the money to buy those trucks?

That could be answered in the request for proposal the USPS will issue this summer. 

It is certain to give detailed information on everything from where to place the sonic eagle postal logo, to placement of the mirrors on the trucks, to the types of engines that would be acceptable.

Questions about the truck purchase abound.

“It’s not clear the agency’s price range for the new mail trucks is still realistic,” cautioned Trucks.com in a February article.

“And it’s not clear if the Postal Service, which is in the red due in part to having to prepay employee pensions, will immediately go ahead with the multi-billion dollar, multi-year purchase,” the article added.

From all appearances, however, the USPS is proceeding on the request for proposal assumption that financing can be resolved, perhaps with another loan from the Department of the Treasury.

Five truck firms concluded tests of prototype vehicles in March amid increasing reports of fires in the boxy, long-life vehicles that have been the backbone of postal deliveries for decades.

The vehicles have long outlived their expected 24 years of useful service, and the fire problem has given urgency to the call for what the Postal Service calls its “next generation delivery vehicles.”

Getting new vehicles is not a new problem for the USPS.

After World War I, the Post Office Department (the predecessor of the USPS) was given old olive-colored Army trucks to handle mail deliveries. They remained in service for decades.

The long-life vehicles in use today were built to handle letter mail, long the most profitable mail segment. Officials have warned that the current fleet is not equipped to handle packages, which are becoming increasingly important to the Postal Service.

Introduced in 1987, the trucks now have an average age of 27 years and numerous mechanical problems.

The continuing fires with the vehicles give the USPS a strong reason to press ahead, said Michael Plunkett, head of the Association for Postal Commerce.

The following five teams competed in the prototype competition:

AM General of South Bend, Ind., a maker of the military’s Humvee Trucks;

Turkey-based Karsan Otomotiv, which is working with Morgan Olson of Sturgis, Mich.;

Mahindra North America, part of the India-based Mahindra Group that produced Jeeps for that country after World War II;

VT Hackney, a commercial truck and van body maker based in Washington, N.C., teaming up with Workhorse, a builder of electric trucks;

And the team of Oshkosh Corp. and Ford Motor Co., which tested a modified Ford Transit Cargo van.

Lindstrom said he doubts the USPS will split the order between various companies.

The USPS will want to minimize maintenance and service costs instead of having to stock parts from different suppliers or to have to train its mechanics to work on different vehicles, Lindstrom said.

He added that he is not certain how the Postal Service will “divvy up the total order in terms of years.”

The winning bidder likely is going to face production of more than 25,000 trucks a year, he said. That means the builder will have to have the wherewithal to deliver this volume and would need a large workforce to do it, he said.

“A guaranteed volume of 180,000 units is something that the commercial market cannot provide, so slim margins are part of what a bidder (has) to take when going into such a contract,” Lindstrom said.

He noted that the USPS counts Amazon and eBay as some of its customers. This practice will continue, helping the USPS underwrite the costs of the new trucks, he said.

Meanwhile, Amazon is expanding its own transportation fleet, underwriting delivery van purchases to prospective drivers.

Some analysts have been cautioning for more than a year that the Postal Service's share of Amazon deliveries would be dropping.

Last year Cowen, an investment banking firm, projected that the Postal Service’s share of deliveries would drop to 45 percent in 2022, from 63 percent in 2015.

John Blackwell, a Cowen analyst, told a Financial Times interviewer that Amazon wants faster service with its deliveries.

“The Postal Service cannot match the speed that they want,” he said.  “For a customer to get something delivered on the same day they ordered it from Amazon, it needs to be in the post office system at 6 a.m.”

It is a dramatically different transportation scene than several years ago when the USPS began planning for the new postal fleet.

Self-driving trucks are being tested by the Postal Service between a few cities, and some lawmakers are pushing for electric-powered vehicles in a fleet that largely has been powered by gasoline trucks.

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