Dell transfers deliveries to US Postal Service

Dell is to shift some of its computer deliveries from private parcel shippers to the US Postal Service, underlining the growing competitive threat posed by the government-owned organisation to companies such as United Parcel Service and FedEx.

The computer maker plans to drop off some newly-bought computers at US post offices for customer pick-up rather than delivering them directly to homes through private couriers.

Any loss of business from Dell would be a particular blow to UPS, which counts the company among its 20 largest customers.

Analysts have been warning for months that the US Postal Service is becoming a more powerful force in the US parcel market.

The additional competition comes at a time when UPS, the world’s largest parcel shipper, is facing growing competition from FedEx and German-owned DHL in its domestic market.

Dell said the change in shipping arrangements would initially affect only the company’s most basic products, with the majority of shipments continuing to be made through UPS. However, a spokeswoman said Dell planned to eventually offer the choice of home delivery or post office pick-up to all customers.

“For many working people, it is more convenient to pick up a parcel at the local post office than it is to wait at home for a delivery,” she said.

Under the new scheme, starting next month, Dell will use an independent logistics company, APX, to ship computers to about 5,000 of the country’s 38,000 post offices. Analysts said the plan appeared to be a cost-saving measure by Dell.

UPS said it was relaxed about Dell’s decision. “We continue to have a great relationship with Dell and our business with them is continuing to grow,” said a spokeswoman.

She said the postal service would struggle to match the deep relationship that UPS had developed with Dell and its other large customers. “We are plugged into their customer service operation,” said the spokeswoman. “We don’t believe the postal service has the technology or service levels to do that.”

James Valentine, analyst at Morgan Stanley, said the postal service was often overlooked as a competitive threat to UPS, despite it having the second-largest share of the domestic ground parcel market. UPS commands more than 60 per cent of the $29bn market, followed by the postal service with 22 per cent and FedEx with 15 per cent.

The postal service’s parcel business had been declining for years but has revived over recent months, with parcel volume up 13 per cent in 2004, compared to 1.1 per cent growth in UPS’s comparable business.

“The postal service has increased its management attention on its package operations over the past 2-3 years which has improved service,” wrote Mr Valentine, in a report.

Competition from the postal service could be blunted next year, when it is expected to increase its parcel prices 5.4 per cent. But Mr Valentine said the rise was not much greater than UPS’s typical annual hike.

“The postal service is the low-price leader in many markets and so its improved service is putting pressure on UPS’s pricing in those lanes in which it competes,” he said.

UPS has become reliant on its fast-expanding international business to offset sluggish domestic sales. It has sought to revive US growth through a push to win more business from small and medium-sized customers.