The news: The US Postal Service will deliver more than 1 billion packages for Amazon each year under a deal the retail giant struck with the agency, per The Wall Street Journal.

While that amounts to a 20% cut from current Amazon package volume through the Postal Service, it is a far cry from the roughly 67% reduction in a previous proposal the Journal reported last month. (Amazon subsequently disputed that characterization, saying it had been negotiating to increase volumes rather than sharply reduce them.)

The Postal Regulatory Commission still needs to approve the agreement.

Why it matters: Amazon is the Postal Service’s largest customer, accounting for about 15% of all packages USPS delivered in the US last year and roughly $6 billion in revenues. While a 20% cut is less dramatic for USPS than a potential 67% slash, it could still have significant ripple effects for small and midsize retailers. Amazon’s business has been a stabilizing force for an agency that saw its parcel volumes fall 8.3% YoY last year and that has posted multibillion-dollar losses in nine of the past 10 years.

With fewer Amazon packages flowing through USPS—and the remaining packages routed through the agency likely to be the more costly ones, including rural deliveries—those pressures could intensify.

Implications for small- and midsize retailers: Shipping costs are likely to rise.

The Postal Service has spent heavily to build out its parcel network as traditional mail keeps shrinking, and that system works best when running at scale. Now it will be handling 20% fewer Amazon packages while carrying the same fixed costs, spread across fewer shipments. That likely means USPS customers will face higher prices, weaker service, or both.

That would be difficult for smaller retailers that rely on USPS, especially to reach rural customers, where USPS is often the most practical option for shipping online orders. If rates go up or service slips, those businesses could quickly see sales decline. Slower delivery, less consistency, or fewer delivery days will pose real challenges as Amazon, Walmart, and other big players keep raising expectations on speed and reliability.

Some sellers would likely move more volume to UPS or FedEx, but that would likely increase costs. Others might lean more on Amazon’s logistics network. However, that solves one problem while creating another, deepening their dependence on a company they’re also competing against.