The U.S. Postal Service Friday proposed the first rate increases on its "Priority Mail" product lines in nearly three years, actions that, if approved by postal regulators, will result in high-single-digit to double-digit hikes on many of its products starting in January.
Under the proposal, filed with the Postal Regulatory Commission, the agency that oversees USPS' rate actions, the overall price of shipping services will rise, on average, by 9.5 percent. This includes a 3.1-percent increase for USPS' "Parcel Select" product, under which large postal users induct mail deep into the postal system—usually at the closest post offices to destinations—for final delivery, primarily to residences. By law, USPS must serve every address in the United States, and an array of companies, from large bulk mailers to consolidators that aggregate parcels from multiple shippers, to parcel giants FedEx Corp. and UPS Inc., leverage the USPS network to coordinate "last-mile" deliveries.
Rates on "Priority Mail Express," which offers guaranteed next-day or second-day delivery by 3 p.m., will increase by 15.6 percent under the USPS proposal. Retail prices on Priority Mail Express packages tendered at postal counters will rise 14.4 percent. Rates will rise 17.7 percent for Priority Mail Express packages tendered through USPS' "Commercial Base" service, which offers lower prices than retail to customers that use online and other authorized postage-payment methods.
The biggest increase, 48.2 percent, will come in the "Commercial Plus" category, which is tailored to users tendering more than 5,000 Priority Mail Express packages per year. The increase is designed to bring Commercial Plus rates in line with its Commercial Base rates, USPS said. The quasigovernmental agency said its long-term goal is to eliminate the Commercial Plus pricing category during 2017, to reflect the industry standard of publishing one set of commercial rate tables.
Rates on the regular "Priority Mail" service, which offers two- to three-day deliveries, will increase, on average, by 9.8 percent, USPS said. Retail rates will rise 8.6 percent, shipments tendered via Commercial Base will rise 9.4 percent, and rates for the Commercial Plus category will rise 13.3 percent, again to bring it to near parity with Commercial Base rates.
Rates for USPS' "Standard Post" product, where parcels are delivered in between two and 14 days, will rise 10 percent. Customers shipping over short and midrange distances will continue to get Priority Mail service and will be required to use Standard Post only if an item contains hazardous materials or is otherwise not eligible for air transport, USPS said. Once known as "Parcel Post," the product will be rebranded again in January as "Retail Ground," USPS said.
The Postal Regulatory Commission has the power to accept, reject, or modify the USPS proposal.
USPS products are divided into two categories: "Market Dominant," which includes first-class mail, and the "Competitive" category, which includes shipping services. In recent years, shipping services have reported solid shipment and revenue gains, in contrast to perpetual declines in the dominant products, which have been battered by the ongoing conversion to digital mail. However, the gains in shipping services have not offset the declines in the dominant products, because shipping represents a relatively small part of USPS' overall revenue.
The USPS announcement comes one day after UPS announced 2016 rate increases of 4.9 percent https://www.dcvelocity.com/articles/20151015-ups-hikes-2016-tariff-rates-49-percent-on-ground-service-52-percent-on-air-international/, on average, for ground parcel deliveries not moving under contractual arrangements. Atlanta-based UPS also announced a 5.2-percent noncontract rate hike on air and international shipments. Memphis-based FedEx announced a 4.9-percent hike on air, parcel, and international services. The UPS and FedEx increases take effect on Dec. 28 and Jan. 4, respectively.
Jerry Hempstead, a long-time parcel executive and head of an Orlando-based parcel consultancy bearing his name, said USPS offers an excellent value proposition to business-to-consumer (B2C) shippers of lightweight parcels, which are the core of e-commerce deliveries. Hempstead noted that unlike FedEx and UPS, USPS does not impose fuel surcharges or extra fees for certain types of deliveries. USPS also does not impose a different pricing scheme for shippers tendering packages beyond specific dimensions, Hempstead said.
UPS and FedEx have imposed so-called dimensional pricing on ground parcel deliveries of shipments measuring less than 3 cubic feet; these changes have resulted in double-digit rate increases for shippers of lightweight, bulky parcels, because for those items pricing based on dimensional weight is much higher than pricing based on the parcel's actual weight.
FedEx and UPS will benefit from USPS' proposed rate measures because they will elevate the lower end of the pricing market for all three players, Hempstead said. Many large postal users like Seattle-based e-tailer Amazon.com Inc. have service contracts that may mitigate the proposed rate hikes, he added.
USPS' services generally underprice those of FedEx and UPS. However, many B2C shippers continue to use FedEx and UPS because of what are perceived to be more-reliable networks and superior technology. FedEx and UPS have a near duopoly on the business-to-business (B2B) parcel segment, with USPS essentially a nonparticipant.
Editor's note: USPS' "Commercial Plus" pricing for its Priority Mail Express is available to customers tendering 5,000 parcels or more each year. The original story said the threshold was 50,000 parcels per year.
Gartner, Inc.
