Parcel shipping/LTL: USPS market test could add a new player for LTL-like services
Jeff Berman, Group News Editor -- Logistics Management, 4/2/2009
WASHINGTON—In a filing submitted to the Postal Regulatory Commission, the United States Postal Service (USPS) said it will kick off a market test on May 6 to provide service that will resemble a less-than-truckload (LTL) network.
According to the filing, the LTL-like market test cannot exceed 24 months, with total revenues not anticipated to exceed $10 million. The USPS said it will leverage its national transportation network that serves its processing facilities, which are primarily comprised of approximately 440 sectional center facilities and more than 40 bulk mailing centers. USPS does not have an asset-based transportation network, as it contracts out its over-the-road trucking business.
When the service gets underway, the USPS plans to leverage excess capacity on its trucks moving to and from these facilities—due to a significant decline in its mail volumes—by selling that capacity on a “space-available” basis. It added that delivery unit loads will be on pallets, with exceptions on a case-by-case basis. And delivery times will range from one-to-four days, depending on origin and destination.
The filing also noted that the USPS “would accordingly be unable to set prices substantially above costs, raise prices significantly, decrease quality, or decrease output without risk of losing business to other firms in the LTL shipping market.”
An industry source whom declined to be identified told LM that this plan makes sense on various levels, considering the USPS has plenty of excess capacity on the roads at the moment with a network that is already delivering mail on a daily basis. And he added that if viewed as an LTL player, the USPS has a bigger LTL footprint—or network—due to its existing mail routes.
“There is no place the USPS does not go,” explained the source.
The catch for shippers, though, he explained is that they will need to determine how to get freight to and from the USPS SCFs and BMCs. This presents an opportunity for third-party integrators to take an active role in delivering and picking up freight and then collect and deliver it to a consignee.
While this initiative comes when the LTL market is replete with excess capacity, the source explained this could be a good thing for shippers as it will offer up more service options. And he added that shippers that are able to coordinate with a third-party for freight pickup and delivery in and out of USPS locations should be able to get competitive pricing.
And at a time when there is excess capacity and shippers have a close eye on expenses, cost management is not something that can be easily overlooked by shippers, noted Satish Jindel, president of Pittsburgh-based SJ Consulting.
“This is a time where shippers are saying cost is paramount and will compromise on service if there is noticeable cost savings,” said Jindel. “And that is what the USPS service is going to be—by shippers moving freight from an existing network to the USPS.”
But with the USPS saying it can handle freight on a space available basis it removes some just-in-time flexibility on deliveries. Even with this premise, he said that there should be an appeal for this service for select shipments for select shippers…
“In good times, this would not attract too many customers, but in these times there will be shippers willing to try it,” said Jindel.
The view from ‘The Street’: If the USPS market test is successful, it “could add an additional LTL competitor over the longer-term,” wrote Jon Langenfeld, Robert W. Baird transportation analyst in a research note. But he noted that “given the scale an operational excellence required to compete in the LTL sector, we do not consider USPS to be a viable near-term threat to the industry.”
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