Spurned by USPS’ denial to end exclusivity agreement, Stamps.com takes its ball and goes elsewhere

For nearly 20 years, the U.S. Postal Service and Stamps.com (NASDAQ:STMP) had a fruitful marriage of convenience. As a USPS-approved reseller, Stamps.com promoted the value of USPS’ service in order to prevent business from defecting to rivals FedEx Corp. (NYSE:FDX) and UPS Inc. (NYSE:UPS). One of Stamps.com’s units, Endicia, provided USPS with software, codenamed “Dazzle,” that allowed users to print postage from their computers without enduring the traditional and cumbersome USPS manifest-approval process. In return, Stamps.com received commissions of between 0.5 and 1.5 percent for label-processing services.

About six years ago, a postage “reseller” program was put in place to drive revenue to USPS. Many customers began to receive relatively small discounts. But Stamps.com, which became a major reseller, reaped the fruits of a spread between its discounted price for postage and the sale price to users, according to people familiar with the matter. The spread, which varied depending on traffic lanes but could hit double-digit levels, became known in the trade as “postal arbitrage.”

On February 21, the marriage ended after El Segundo, California-based Stamps.com said it had terminated its “exclusivity agreement” with USPS covering two of its units – the Stamps.com operation and Endicia, a labeling company. On an analyst call that day, Stamps.com CEO Kenneth T. McBride said the decision was made after USPS refused to waive the exclusive nature of the relationship and allow Stamps.com to incorporate other parcel carriers. Stamps.com said its demands were non-negotiable, so it ended the agreement once USPS didn’t budge. USPS declined comment for this article. A Stamps.com spokesman did not respond to a request for comment.

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