A recent agreement between Amazon and the U.S. Postal Service will reduce the number of packages Amazon ships via USPS, meaning small businesses and consumers, especially those in rural areas, could face higher shipping costs and less reliable delivery service.
The recently proposed changes to the agreement, which still require approval from the Postal Regulatory Commission, would reduce Amazon’s shipments by about 20% (about 200 million a year) through the service as it moves more deliveries to its own network. The change will force the USPS to spread the cost of its national delivery network over fewer packages, putting pressure on both pricing and service.
“When large shippers like Amazon move large volumes of shipments, they either have to raise rates for other customers or reduce service levels to reduce costs,” said Satish Jindel, president of ShipMatrix, a shipping consultant and analytics provider. These effects are likely to be felt first in places where service costs are already high, he said.
Manish Kapoor, founder and CEO of Growth Catalyst Group, which specializes in supply chain consulting, fulfillment and shipping, said the underlying economics of shipping mean disparities in delivery services based on location are inevitable and likely to become more pronounced in the future.
Kapur, who previously led Amazon’s last-mile, AmazonFresh and Sunday delivery efforts and founded FedEx Sameday City, said the two factors driving last-mile economics are volume and density. “Twenty percent of Americans live in rural areas,” he said. “Amazon could deliver there, but the volume and density would be lower. So it would be less frequent and the costs would be higher.”
Amazon has made several efforts to increase deliveries to small towns, announcing last year that it would spend $4 billion on the effort.
Transportation experts say local delivery costs will be higher because drivers will make fewer stops per mile, increasing the cost per package. Carriers already include additional fees of $16.50 for remote locations and about $8.85 for rural deliveries, according to ShipMatrix data.
“Rural and small businesses will be the first to feel the price increase, but larger customers with contracts could be isolated in the short term,” said Amrita Bhasin, CEO of reverse logistics company Sotira.
Amazon said that during recent negotiations in March, at some point before an agreement was reached, it was the USPS that “abruptly walked away at the 11th hour.”
“We are pleased to have reached a new agreement that further strengthens our long-standing partnership with the USPS and look forward to continuing to support our customers and communities together,” an Amazon spokesperson told CNBC.
USPS did not respond to a request for comment.
For consumers, the impact may not be immediately reflected in prices. Rather, it is more likely that the package appears first as it moves through the system. Changes in delivery schedules, such as transportation delays or declines in on-time performance, can appear much faster than price adjustments, Zindel said, adding that price increases require regulatory approval and therefore take longer.
Tough times for unequal e-commerce and postal services
The system is already heterogeneous. In sparsely populated areas, deliveries are often less frequent and less predictable.
According to ShipMatrix data, on-time delivery rates in rural areas are approximately 5% to 7% slower than urban markets, with typical performance ranging from 94% to 96%. Some remote ZIP codes don’t accept seven-day deliveries, and packages can arrive every other day, especially with lower-cost shipping options, Zindel said. This means that if disparities are already noticeable in online ordering, they could become even more pronounced if the proposed changes take effect, even if they aren’t necessarily visible at checkout.
“America’s e-commerce distribution experience is not equal across the country,” Kapur said. “A person living in New York City could get goods delivered faster and cheaper than someone living in rural Kansas,” he says.
Amazon still ships more than 1 billion packages a year through the USPS and remains its largest shipping customer, accounting for about 15% of package volume. By cutting approximately 200 million packages a year, the Postal Service will have less to cover its fixed costs.
“Even if the overall volume is reduced, the costs do not fall by the same proportion, which means the cost per package usually rises,” Bhasin said.
The pressure comes at a difficult time for the USPS.
The agency aims to raise stamp prices and has already implemented an 8% baggage surcharge, a move that reflects broader financial burdens and the short-term impact on fuel costs of the U.S.-Iranian war. The USPS reported net losses of about $9 billion last year, with accumulated losses of more than $100 billion since 2007, and has warned it could run out of money by early 2027.
At the same time, the decline in first-class mail has made the USPS more reliant on package delivery, making large customers like Amazon even more important.
“Large customers are essential to covering the base costs of the network,” said Craig Decker, a managing director at Brown, Gibbons, Lang & Co., who leads investment banking in the transportation and logistics infrastructure sector. “Even though it’s not necessarily the most profitable, the volume helps cover the overall shipping costs,” Decker said.
Why Amazon still needs USPS, even if it’s a little less
Kapur said Amazon’s continued use of USPS in rural America reflects a strategic choice rather than a restriction. “It’s smart economics,” he said. “In sparsely populated areas, USPS is more economical than sending a dedicated Amazon driver.”
In that sense, the proposed agreement would work for both Amazon and the USPS, Kapur said.
As long as the USPS is legally required to deliver to every address in the country, companies will continue to rely on the cost-effective infrastructure, Kapur said. And because the USPS has to ship to multiple shippers and reach all addresses, it can spread costs more widely, something Amazon alone can’t replicate as efficiently in rural markets.
“The USPS is Amazon’s core partner in the rural delivery market. By using the USPS, Amazon can reduce costs in rural areas, and the USPS can generate additional revenue on existing routes.”
Amazon has also spent years building its own logistics network, including freighters, warehouses and last-mile deliveries, to better control shipping costs and reduce its reliance on outside carriers, including a $4 billion injection into small rural cities where the USPS has traditionally played a central role.
In a recent letter to shareholders, Amazon CEO Andy Jassy highlighted Amazon’s focus on increasing delivery speeds to rural customers, highlighting how strategically important these regions have become.
Zindel said USPS’ expansion of Sunday delivery was primarily to accommodate Amazon’s volume, underscoring how tightly the company’s operations are tied to its biggest customers. Kapur said that as Amazon moves more volume into its network, it is increasingly setting conditions for how packages are delivered and priced.
For small businesses, the impact can be immediate. Many businesses rely on USPS as a low-cost option to reach customers across the country and lack the scale to negotiate discounted rates. When shipping costs rise, these companies often pass on the shipping costs by increasing prices or shipping charges. “More than 60% of Amazon’s sales come from third-party sellers, many of them small and medium-sized businesses, so these sellers are absorbing some of the cost increases,” Kapur said.
For consumers, the impact is less visible and could manifest as higher prices at checkout, fewer free shipping options, or longer wait times for delivery, depending on the consumer and where they live, Kapur said. He explained that Amazon will likely continue to protect Prime members, whose shipping fees are built into their membership fees, while non-members will likely face higher shipping fees and more pressure to join.
“With ‘customer obsession’ as our core guiding principle, Amazon has historically applied analytics to design optimized delivery methods and will continue to deliver great value to our Prime customers,” he said. “Non-members will have to pay more or subscribe to Prime.”
Zindel agreed. “This is the Amazon world, and we’re just living in it,” he says.
