Issues at the U.S. Postal Service have created concerns about the November elections, but they have already caused headaches for some of the 2 million Netflix customers who still receive DVDs by mail, as well as Amazon.com Inc.’s fulfillment network.
Netflix NFLX, -1.49% , which still mails rental DVDs in its iconic red envelopes in addition to offering its more popular streaming service, has experienced isolated delivery delays via the U.S. Postal Service, according to a person with knowledge of the company’s operations. The Postal Service remains an important strategic partner of Netflix, and the two operations are working closely to navigate the situation, which is not expected to have any material impact on customer service nor sales because of the isolated issues, the person said.
The Postal Service is in the process of removing 671 high-speed mail-sorting machines nationwide, which will eliminate 21.4 million items-per-hour’s worth of processing capability from the agency’s inventory. Relief could be on the way with Tuesday’s statement from Postmaster General Louis DeJoy that the mail service is ready to handle all mail-in ballots it receives in November, and that he is putting off drastic changes until after the election.
But with Democrats openly skeptical about that vow, as well as budget cuts to mail delivery, tech companies are taking nothing for granted.
“There has been a noticeable delay,” says Nitin Gupta, founder of One Hundred Feet Inc., a mapping geocode app developer that helps delivery systems get to their locations faster. He has seen a surge in use of his company’s app, which is used by the likes of FedEx Corp. FDX, +0.44% , Uber Technologies Inc. UBER, -2.19% and Verizon Communications Inc. VZ, -0.22% , over the past few weeks.
Netflix’s DVD-by-mail service makes up a relatively small slice of the company’s overall business, but is still popular is rural areas, where access to high-speed internet and streaming services is limited. The DVD business reported revenue of $297 million in 2019 from more than 2 million subscribers, down from $366 million in 2018; as recently as 2012, Netflix reported more than $1 billion in DVD revenue. Netflix reported $20.16 billion in 2019 sales, so only 1.5% of that total comes from the DVD business.
The importance of mail delivery in rural areas has intensified the stakes for online retailers shipping products like prescription drugs, groceries, jewelry and DVDs, including Amazon AMZN, -1.57%.
“It’s so critical to older people who are homebound during the pandemic, especially those reliant on medicines,” Shivaram Rajgopal, a professor at Columbia Business School, told MarketWatch.
Any Postal Service issues could affect Amazon on a larger scale because the e-commerce giant ships billions of packages annually. However, the company has built redundancies into its delivery network — utilizing its own deliveries along with the Postal Service and private carriers — because its products are so geographically dispersed.
Amazon Logistics, the company’s in-house logistics operation, “more than doubled its share” of U.S. package volumes from about 20% in late 2018 and is now shipping at a rate of 2.5 billion per year. Morgan Stanley estimates United Parcel Service Inc. UPS, +0.21% and FedEx have U.S. shipping volumes of 4.7 billion and 3 billion packages per year, respectively, and that Amazon is already delivering about half of its own packages in the U.S.
By 2022, Amazon’s U.S. package delivery volume could more than double, to 6.5 billion, according to the Morgan Stanley report. That would easily surpass UPS’s estimated 5 billion and FedEx’s 3.4 billion package volume.
Amazon Chief Executive Jeff Bezos, who as owner of the Washington Post has been publicly targeted for vitriol by President Donald Trump, has put into place a vast network of delivery partners to avoid bottlenecks. Besides its ubiquitous vans that have become as common in neighborhoods as mail carriers, Amazon has agreements with the USPS and UPS to fulfill customer service.
“We regularly balance capacity across our extensive network of carrier partners to ensure we are able to meet our delivery promises,” an Amazon spokeswoman told MarketWatch in a phone interview. “While we don’t comment on our agreements with carrier partners, we continue to look at all of our options to ensure we’re providing the best possible service to customers.”
That hasn’t always translated into timely delivery for small businesses that partner with Amazon. Sharon Buchalter, CEO of Products on the Go, an e-commerce seller of baby products and other goods, said her company has lost sales in recent weeks because Amazon has been late in processing and delivering some orders, prompting customers to ask Amazon for refunds or cancellations.
“There’s really nothing I can do if Amazon runs late,” Buchalter told MarketWatch. “This [slower mail] and the economic slowdown caused by the pandemic have impacted sales a bit.”