[A Brief History of The Package Delivery Industry]{.smallcaps}

May 5, 2003

I. [Overview]{.underline}

The package delivery industry, which consists of small package and
express letter shipments,[^1] has changed dramatically over the years.
Radical changes have occurred in the goods transported, the geographic
scale of the marketplace, customers needs, the range of service options
that carriers offer, and the transportation and communications
technology that carriers employ. The market today bears little
resemblance to the market of 30 years ago (at about the time of the
Postal Reorganization Act). It bears even less resemblance to the market
of 100 years ago (at about the time Parcel Post service began). It is
therefore illogical to consider the package market from 30 years ago, or
100 or more years ago, and draw meaningful public policy conclusions for
today and for the future. For example, which carrier entered the market
"first" is irrelevant for evaluating the potential role of the Postal
Service, or any of the carriers, in the modern package delivery market.

The following provides a brief overview of the various phases of the
evolution of the package delivery industry and the key players. The
history of the industry reveals a story of innovation, adaptation,
risk-taking and customer demand driving development, with the private
sector at the forefront.

II\. [Early Package Movements (Mid-1800's to Turn of the
Century)]{.underline}

## 

## Wells Fargo was founded in 1852. While not the only private express company at the time, Wells Fargo provided a central and colorful role in the early package delivery industry. They created a formidable enterprise for mail and package delivery and banking, especially in the West.[^2] In addition to its banking and mail carriage role, it exemplified the early private package industry. One of the founders, Henry Wells, had been a partner in a mail and package delivery business[^3] in the East (and even at one time considered acquiring the Post Office[^4]). 

At the time of its founding, the package and banking businesses were
unregulated. Mail delivery, however, had been subject to the statutory
monopoly of the Postal Service since 1792 and the enactment of the first
"Private Express Statutes".[^5]

Wells Fargo opened its 12 California offices in 1852 and, according to
their promotional material, provided national service: "A typical ad
stated that Wells Fargo specialized in shipping 'gold dust, bullion,
specie, packages, parcels, & freight of all kinds, to and from New-York,
and San Francisco" then to other locations throughout the West.[^6]
Included in their shipments were newspapers, which were carried for free
so that other newspapers could reprint the stories, in that pre-wire
service time.[^7] This helped bind the nation together, and at the same
time provided Wells Fargo with free promotion since they often were
credited with delivering the news. Historian Carl I. Wheat wrote "Wells,
Fargo & Co's Express was at this period the most important agency for
both express and mail service throughout California and particularly in
the mining regions. By 1858, Wells, Fargo went everywhere, did almost
anything for anybody, and was the nearest thing to a universal service
company ever invented. Next to the whiskey counter and gambling table,
Wells Fargo's office was the first thing established in every new camp
or diggin's."[^8] Wells Fargo was "the single most widespread
institution in the early West, being even more omnipresent than the U.S.
government."[^9]

Mail and package transport technology was changing rapidly.
Coast-to-coast commerce and travel had been provided predominantly by
sea. From 1848 to 1858 (from when gold was discovered in California to
when the Overland Mail Company inaugurated service[^10]) most mail
traveled across the continent by steamship with land carriage over the
Isthmus of Panama. The travels of Henry Wells from New York to
California in December 1852 by boat and then by mule over the Isthmus
shows the difficult and perilous nature of that trip. "By the time Wells
reached San Francisco on February 5, 1853, fifteen fellow passengers had
been buried along the way and a large number were ill when they
disembarked."[^11] 1858 marked a significant change to the sea routes
with the Congressionally-sanctioned overland stage route that carried
mail and parcels. "The first relay of stages, drivers, mules, and horses
westward made the grueling, 2,700-mile journey in twenty-four days and
nights in September and October of 1858. It carried the mail and one
through passenger. This was the first true transcontinental mail and
passenger service."[^12]

Two years later the pony express was founded. As a service, it was heavy
on romance and legend, but short-lived and uneconomic. However, it had
to be offered if one wanted the stage business. "As a profit maker, the
pony express was a loser; as a necessity in order to acquire the
lucrative transcontinental mail and express business carried by stage
coaches, it was a winner; as an indicator of how a new technology could
replace an existing one and render the latter obsolete, it was a
precursor to what would come later...\[the Pony Express\] ran for
nineteen months and carried light mail from near St. Louis to
Placerville, California, at an eventual price of \$1.00 for a half-ounce
letter. At \$23 in current dollars, it was not a service that was
affordable for ordinary folks...First undertaken privately and then
under government contract, the Pony Express lasted from April 3, 1860,
to October 24, 1861."[^13] The overland stage coach mode lasted slightly
longer -- 11 years. The mail contract of \$1,000,000 a year did not come
close to covering the \$2,425,000 annual expense of the line (1,913
miles, 153 stations, and 2,750 horses and mules). The shortfall was
intended to be made up from express package business and passenger
service (which cost between \$225 to \$500 for a one-way throughfare).
One of the earliest passengers was Horace Greeley, editor of the *New
York Tribune* and famous for "Go West, young man", who apparently took
the trip in order to promote the development of a transcontinental
railroad,[^14] which shortly became a reality.

On May 10, 1869, the Central and the Union Pacific Railroads were joined
at Promontory Summit, Utah,[^15] and it marked the transformation of
U.S. goods movement. Wells Fargo continued for some time, adapting to
the new mode of mail and package transport.[^16]

In fact Wells Fargo's ability to successfully adapt to the use of
railroads became a threat to the Post Office that later caused Wells
Fargo to withdraw from the express mail business. "...Wells Fargo
continued to perform that function so essential to the smooth
functioning of a democracy: delivering the bulk of the mail west of Salt
Lake City and Albuquerque. The inevitable confrontation between Wells
Fargo and the U.S. Post Office Department in 1880 was a classic example
of a private business competing directly and successfully with a
government agency....During the Gold Rush era and shortly afterward,
Wells Fargo's private mail system was tolerated because the government
recognized that it did *[not have the same broad reach or the same
degree of efficiency]{.underline}*."[^17] A temporary compromise was
reached whereby mail carried by Wells Fargo directly would pay double
postage: the stamp price, plus the Wells Fargo charge, and customers
were willing to accept the higher cost because of the quality of the
service. "In this way, the government got its due and the customer got
quicker service."[^18] This arrangement held for a while, but the
company ultimately had to abandon the mail business towards the end of
the 19^th^ Century.[^19] "In the old days...\[Wells Fargo\] not only
competed successfully with the Government, but we beat the postal system
at every turn of the road, but now the Federal authorities have adopted
all of our plans, and they do the work as well as we do."[^20]

# III. [Early 20^th^ Century: Railway Express Agency (REA), UPS, and Parcel Post]{.underline}

## 

## [UPS Ground Service]{.underline} In 1907 two Seattle teenagers (Jim Casey & Claude Ryan) started the American Messenger Company, whose messengers ran errands, delivered packages, and carried notes, baggage, and trays of food from restaurants. They made most deliveries on foot and used bicycles for longer trips. Only a few automobiles were in existence at that time and department stores of the day still used horses and wagons for merchandise delivery. The company was soon delivering small parcels for local department stores and changed its name to Merchants Parcel Delivery. The company expanded outside Seattle in 1919 with the acquisition of Oakland based Motor Parcel Delivery and was renamed United Parcel Service in 1930. In the early 50's UPS began the process of expanding its services by acquiring \"common carrier\" rights for the entire country. 

[Parcel Post]{.underline} Parcel Post service became available on
January 1, 1913, and constituted an expansion of a more limited package
service of the Post Office.[^21] Prior to 1913, farmers had to convey
their produce to the nearest town large enough to support a \[private\]
express office, which added to the price of transporting their goods to
the city. But with the combination of Rural Free Delivery (RFD) and
Parcel Post, package service was provided from their mailbox. As
discussed below, there is debate regarding Congress' intention about how
broad this competitive offering would be.

Parcel Post service expanded rapidly and, due to its pricing and
availability, was widely used, and even sometimes abused. The
Smithsonian Institution's Postal Museum notes two particular amusing
instances: one in which an entire bank was shipped, brick by brick, and
another case where a child was transported by Parcel Post because her
parents found the rates cheaper than passenger service.[^22]

The legislation establishing the Parcel Post service appears to have
been intended as a [narrow]{.underline} response to a perceived gap in
service:\
"The Congressional Record reveals that the purposes of Congress in
establishing parcel post were:

"1. To provide a transportation service for small parcels (not over 11
pounds or 72 inches in length and girth) extending *[beyond that
supplied by express companies and other carriers]{.underline}*.

"2. To give the farmer an opportunity to sell his products direct to
consumers.

"3. To enable residents of rural districts and small communities to
receive small quantities of merchandise by mail from merchants in what
were then distant cities.

"In establishing parcel post for those purposes, Congress also made
clear its intentions that:

"1. Rates should produce revenue adequate to cover costs.

"2. Government should not unnecessarily compete with private
transportation.

"3. *[Parcel post should supplement not supersede private
carriers]{.underline}*."[^23]

That view was reinforced later by several Congressional Committees. On
October 19, 1951, Senate Report No. 1039, 82^nd^ Congress stated that
"...\[t\]he benefits of low-cost service are illusory if part of the
total cost of transportation is borne by general taxpayers. If shippers
do not pay the full cost of the transportation service they use, traffic
generally is diverted from transportation media inherently better able
to serve them." On a similar note, the House Committee on Post Office
and Civil Service issued a report that "\[i\]t is apparent that the
problem of the Government agency competing with private business to the
point that that private business, the Railway Express Agency, is being
irreparably damaged cannot be met by rate increases alone.....however,
it can be met by a ...return in part to the size and weight limits
originally approved by Congress *[when parcel post was established to
provide a small parcel delivery service to areas which are not serviced
by other transportation facilities.]{.underline}* "[^24]

## 

## [Railway Express Agency (REA)]{.underline} As World War I ended, "the reality of a declining business competing with the Post Office \[for parcel shipments\] and overseen by government regulators forced Wells Fargo and six other express companies to the bargaining table"[^25] for the creation of the Railway Express Agency (REA). 

For over 56 years, the REA moved the nation\'s packages and freight. Its
green trucks and rail cars were a welcome sight to anyone expecting a
package. It was the railroad equivalent of today\'s modern package
delivery companies, such as UPS and FedEx. In 1929, the nation\'s
railroads bought the express business. In return for a monopoly on the
movement of traffic on passenger trains, the express company was
obligated to accept any and all shipments destined anywhere in the U.S.
In its peak of success, REA employed over 45,000 people in 23,000
offices and operated over 190,000 miles of railway lines.  In addition,
over 14,000 miles of shipping lines, 91,000 miles of air routings and
15,000 miles of trucking lines were traveled by REA shipments. 
Seventeen thousand trucks handled over 300,000 separate shipments daily,
ranging from small packages to carload-sized lots.

Despite REA\'s early successes, the railroads became less relevant to
express delivery and REA did not change its business model to adapt. On
February 21,1975, the Company filed for bankruptcy protection. REA
stated several reasons for the bankruptcy petition, including losses
created by years of railroad domination, a high rate of inflation, a
recent decline in express shipments, and limited availability of credit.

IV\. [Development of Modern Surface and Air Networks (Late 20^th^
Century)]{.underline}

The establishment of the Interstate Highway System in 1956 to build a
transcontinental network of superhighways, the enactment of airline
deregulation in 1978, interstate trucking deregulation in 1980, and
intrastate trucking deregulation in 1994 contributed to the significant
shift to truck and air transport, especially during the latter part of
this period, and marked the growth of the modern package delivery
industry. The charts in attachment A show the rapid development of the
industry, with more than a 36-fold increase between 1960 and 1998[^26].
The development of modern surface and air networks in the U.S. is
demonstrated by UPS and FedEx.

[UPS Air Operations]{.underline} In 1929, UPS opened United Air Express,
offering express package delivery via airplane to major West Coast
cities, and as far inland as El Paso, Texas. Due to the 1929 stock
market crash and a failing economy, the air service was discontinued
after only eight months. In 1953, UPS resumed air service, offering
two-day service to major cities on the East and West coasts. Packages
flew in the cargo holds of regularly scheduled airlines. Called UPS Blue
Label Air, the service grew until by 1978 the service was available in
every state, including Alaska and Hawaii. In 1988 UPS received
authorization from the FAA (Federal Aviation Administration) to operate
its own aircraft, thus officially becoming an airline.[^27]

[Federal Express (FedEx)]{.underline} While the USPS was the first to
deliver urgent letters, it has many current rivals because its monopoly
power is not monolithic. The Postal Service is authorized to adopt
suspensions to the Private Express Statutes for specific circumstances
in which the public interest might be best served by a private
carrier.[^28] It is under such authority that Federal Express, UPS, and
other carriers conduct their express letter operations.

Federal Express was incorporated in June 1971, and officially began
operations on April 17, 1973, with the launch of 14 small aircraft from
Memphis International Airport. On that night, Federal Express delivered
186 packages to 25 U.S. cities - from Rochester, N.Y. to Miami, Fla. The
company was named Federal Express because its founder, Fred Smith, was
working on obtaining a contract with the Federal Reserve Bank and,
although the proposal was denied, he believed the name was appropriate
for express envelope and small package delivery. Profitable in the U.S.
market by July 1975,[^29] Federal Express grew rapidly in the
international market when it acquired Tiger International, Inc. (also
known as Flying Tigers) in February 1989. Two further acquisitions were
of substantial significance: In 1995, Federal Express acquired Evergreen
International Airlines, Inc.\'s all-cargo route authority to serve
China. The other was when the company acquired Caliber System, Inc., in
January 1998 which gave FedEx ownership of RPS, a major ground package
carrier (now designated as FedEx Ground).[^30]

It was during this period that the industry saw the introduction of many
new services and service enhancements. Package carriers began to offer
multiple delivery options, including same day service, next day
delivery, and a variety of deferred, time-specific delivery options.
Delivery guarantees accompanied express movements. Private carriers then
expanded these guarantees to more traditional "ground" movements in the
late 1990's.

As the scale of commerce progressed from local communities to national
trade, then to global markets, the industry followed suit, with the
heavy capital investments needed to expand. This period also produced
intense competition as private carriers achieved 100% geographic
coverage of the United States and to most points of commerce around the
globe.

Significant investments in information technology enabled package
carriers to provide to customers the ability to track a package's
movement from origin to destination. Other advances included combining
logistics, freight and financial services with traditional package
delivery in order to offer customers full supply chain management
solutions.

The development of the package industry has enabled others to innovate.
Michael Dell (Dell Computers) and Jeff Bezos (Amazon.com) are but two of
many innovators that have used just-in-time deliveries, coupled with the
power of the e-commerce, to launch new business models. Those
innovations helped contribute to the relative importance of the package
delivery industry that carries, by some estimates, goods valued between
8.6% and 14.3% of the nations Gross Domestic Product**.**[^31]**\
**\
V. [Conclusion]{.underline}

The package delivery industry as we now know it has not shown historical
continuity. The history in fact demonstrates that it has changed
significantly since its inception, and those changes have been driven by
private sector carriers. A recent study on the package delivery industry
at the University of Pennsylvania concluded that there are two reasons
why the package delivery industry has become so important in recent
years.

"One consists of changes in the way goods and services are produced and
distributed in our economy---globalization, customized mass production,
lean inventory management, rapid customer response, and growth in
e-commerce, among others. The other is parcel service itself, which is
at the vanguard of transportation service modernization with such
features as differentiated time-definite service options, intermodal
service, in-transit visibility, and data integration with the management
systems of customers. Thus parcel service is a major element of the
transportation infrastructure of the nation. It is essential for modern
commerce." [^32]

[^1]: For ease of reading, references hereafter to the "package delivery
    industry" encompass both the small package and express letter
    services, unless the context clearly indicates otherwise.

[^2]: In the West, "\[a\] private express service was safer, surer, and
    speedier than the federal postal service. 'No one in California
    mails an inland letter but sends by Express...The miners give their
    address & power of attorney to the Express agent who takes their
    letters out of the post office in San F. twice a month and delivers
    them to every town & camp in the placers\...'" said Louis McLane,
    quoted in *The American Mail: Enlarger of the Common Life,* Chicago:
    University of Chicago Press, 1972, referenced at page 2 of
    *Stagecoach, Wells Fargo and the American West,* Philip L.
    Fradkin*,* Free Press, New York, 2002

[^3]: Wells defined his earlier company as being in "the business of
    carrying parcels and packages as fast as possible, with special care
    to their safety in transportation and their sure delivery."^?^ Id at
    page 4.

[^4]: "Supposedly a monopoly established by law, the Post Office charged
    high prices for poor service in 1840. It cost eighteen cents to send
    a letter from New York City to Troy, New York, but only twelve cents
    to ship a barrel of flour over the same route. (For longer
    distances, the letter rate was twenty-five cents.) As a result,
    private express services who employed messengers proliferated. They
    carried the mails at up to one-fifth the cost of the government
    service. The Post Office arrested messengers and brought suit
    against some of the express services. The harassment didn't bother
    the private concerns. Henry Wells, a partner in an upstate New York
    express company, proposed that his firm take over the entire postal
    business of the government and charge five cents for a letter.
    'Zounds, sir,' reportedly replied an assistant postmaster general to
    Wells's proposal, 'it would throw 16,000 postmasters out of office!'
    The appointment of postmasters was a major source of political
    patronage. Congress did not wish to do away with this 'engine of
    patronage.' So the solution would have to be an adjustment to the
    marketplace realities and tightening the monopoly. The 1845 Postal
    Act reduced the cost of postage and made the government monopoly on
    letter mail virtually airtight. The law, however, was honored more
    in the breach than observed in the West, where expediency and
    selective enforcement were the informal laws of the land. .... Wells
    Fargo and other express companies became, in effect, opposition post
    offices." *Id* at page 3.

[^5]: "Despite the constant reiteration in the communications of the
    Postmasters General of the need to prevent private carryings of the
    mail, it was not until the Postal Act of 1827 that attempts to
    compete with the federal government in carrying the mail were made
    criminal." Page 1.27 *Towards Postal Excellence, the Report of the
    President's Commission on Postal Reorganization, June 1968* Annex
    III. But even that did not quell the market forces that responded to
    the demand for expeditious and reliable service.

[^6]: *Stagecoach, Wells Fargo and the American West,* Philip L.
    Fradkin*,* Free Press, New York, 2002, at page 11.

[^7]: *Id* at page 12.

[^8]: *California Historical Society Quarterly*, December 1930 cited in
    *Id* at page 27.

[^9]: Jay Monaghan, ed., *The Private Journal of Louis McLane U.S.N.
    1844-1848,* as cited in *Wells Fargo and the American West,* Philip
    L. Fradkin*,* Free Press, New York, 2002, at page xi.

[^10]: [www.sfmuseum.org/hist2/gold.html]{.underline}

[^11]: *Stagecoach, Wells Fargo and the American West,* Philip L.
    Fradkin*,* Free Press, New York, 2002 at page 14.

[^12]: *Id* at page 31

[^13]: *Id* at pages 29 and 30.

[^14]: *Id* at pages 41 and 42.

[^15]: [www.sfmuseum.org/hist1/rail.html]{.underline}

[^16]: Wells Fargo began having its messengers use the railroad. In
    fact, it advertised that the railroad permitted the country to be
    crossed in only 4 days, compared to 32 days by stage. *Stagecoach,
    Wells Fargo and the American West,* Philip L. Fradkin*,* Free Press,
    New York, 2002 at page 88.

[^17]: *Id* at page 145. emphasis added.

[^18]: *Id* at pages 145, 146.

[^19]: "On May 24, 1895, Wells Fargo quietly removed all its collection
    boxes in San Francisco and on the next day announced it was ending
    its letter service." *Id* at page 147.

[^20]: *Id* at page 148. Note that the withdrawal was from letter mail;
    the company remained in the express package business and in banking.

[^21]: [www.postalmuseum.si.edu](http://www.postalmuseum.si.edu/) For
    example, in 1907, merchandise under four pounds could be sent by the
    Post Office for sixteen cents per pound. Even then, however, the
    discrepancies in sub-categories of service were irreconcilable:
    domestic shipments from any city in the U.S. to New York City would
    cost sixty-four cents, but if it were destined to one of the
    thirty-three countries then served, and by chance went through New
    York City, the rate was twenty-five percent cheaper \-- forty eight
    cents. (Address by Postmaster-General Meyer to the New England
    Postmasters' Association, Boston, October 1907, as referenced by
    Charles W. Burrows, *Further Thoughts on Parcels Post,* Selected
    Articles on the Parcels Post, Second and Revised Edition, compiled
    by Edith M. Phelps and published by The H.W. Wilson Company,
    Minneapolis, 1913)

[^22]: "By far the largest object ever moved through the Parcel Post
    System was a bank. Not all at once, of course, but practically brick
    by brick. When W. H. Coltharp, in charge of building the Bank of
    Vernal, Utah... The bricks which Coltharp wanted were produced by
    the Salt Lake Pressed Brick Company, located 427 miles from Vernal.
    Instead of paying four times the cost of the bricks for them to be
    shipped by wagon freight, Coltharp arranged for the bricks to be
    shipped in 50-pound packages, through the Parcel Post Service, a ton
    at a time. The Salt Lake City and Vernal postmasters as well as the
    Uintah Railroad, all responsible for hauling the bricks became
    frantic as tons of bricks piled up....In the end, all 40 tons of
    bricks were delivered for Coltharp\'s bank."\
    "One of the oddest parcel post packages ever sent was \"mailed\"
    from Grangeville to Lewiston, Idaho on February 19, 1914. The 48 1/2
    pound package was just short of the 50 pound limit. The name of the
    package was May Pierstorff, four years old. May\'s parents decided
    to send their daughter for a visit with her grandparents, but were
    reluctant to pay the train fare. Noticing that there were no
    provisions in the parcel post regulations specifically concerning
    sending a person through the mails, they decided to \"mail\" their
    daughter. The postage, 53-cents in parcel post stamps, was attached
    to May\'s coat. This little girl traveled the entire distance to
    Lewiston in the train\'s mail compartment and was delivered to her
    grandmother\'s home by the mail clerk on duty, Leonard Mochel.
    [www.postalmuseum.si.edu/exhibits/2b2f_parcel.html]{.underline}

[^23]: 1953 REA Publication "The Truth About Parcel Post", at page 2.
    Emphasis added.

[^24]: *Id* at page 7. Emphasis added.

[^25]: *Id* at pages 203 and 204.

[^26]: *The Parcel Service Industry in the U.S.: Its Size and Role in
    Commerce*, Center for Human Resources, the Wharton School,
    University of Pennsylvania, September 2000.

[^27]: [www.ups.com/about/story.html]{.underline}

[^28]: www.pe.usps.gov/cpim/ftp/manuals/qsg/q011.pdf. and
    www.nalc.org/depart/cau/pdf/manuals/pub542.pdf

[^29]: 1975 was also when FedEx installed its first drop box.
    www.fedex.com/us/about/express/history.html

[^30]: www.fedex.com/us/about/express/history.html?link=4

[^31]: *The Economic Significance of the Express Package Industry*, the
    W.J. Usery, Jr. Center for the Workplace at Georgia State
    University, June 2000.

[^32]: *The Parcel Service Industry in the U.S.: Its Size and Role in
    Commerce*, Center for Human Resources, the Wharton School,
    University of Pennsylvania, September 2000, at page i.