Parcel shipping: USPS rolls out 2010 shipping rates
Cube-based pricing for packages may have a favorable impact on shippers, say experts
Jeff Berman, Group News Editor -- Logistics Management, 11/5/2009
Following a recent announcement in which it said there will be no rate increases for market dominant products, the United States Postal Service this week rolled out its 2010 rates for other products, including Priority Mail, Express Mail, Global Express Guaranteed, Express Mail International, Priority Mail International, Parcel Select, and Parcel Return Service. These price changes will take effect on January 4.
Aside from these rate changes, the USPS, in what it says is an industry first, is rolling out cubic volume-based pricing for large volume commercial Priority Mail shippers, which will provide significant financial savings for customers shipping small, dense, space-efficient packages in the form of a new tiered pricing model, according to the USPS.
Industry analysts told LM that with cube-based rates, shippers will pay on the actual size of the package and the distance it is traveling, as opposed to the weight. USPS cubic foot sizes will range from one-tenth of a cubic foot to one-half of a cubic foot.
"For instance, a package that is .5 cubic foot might have dimensions of 12 X 12 X 6 inches, and go from Los Angeles to NYC," explained Doug Caldwell, principal of Parcel Research. "The shipper will pay a set amount, regardless of the weight-it could weigh a half pound or 20 pounds. This will be an option that the shipper can select; they can still opt for weight based rates. So shippers with dense items, such as candles, books, hardware etc. will probably opt for the cube based rates, while shippers of low density items, such as clothing, may stick with the weight based rates."
Caldwell labeled this pricing approach as "revolutionary," considering UPS, FedEx, TNT Express, DHL and virtually every other carrier charge based on weight and distance, but he said that may change with the USPS announcement. He added that cube-based pricing is not uncommon on the freight side, when shippers are buying a whole container from an airline, whereas until this announcement it was unheard of in the small package arena.
As an example of the price cuts a shipper could get via cube-based pricing, a Zone 8 half cubic foot package priced at $15.33 comes in the middle of a 4 pound, Zone 8 Priority Mail Commercial Plus Package at $13.89 and a 5 pound, Zone 8 Priority Mail Commercial Plus Package at $16.37. Caldwell noted that if a shipper is mailing printed material that is dense or candles or water, among other dense items, the shipper is going to save more with cube-based pricing than compared to weight-based pricing.
"If you can get 15 pounds of product into that package-which is not a stretch at all-you would be paying $34.02 [for Zone 8] under weight-based rates, but $15.33 for cubic-based rates, which makes it a great deal," he said.
Jerry Hempstead, president of Orlando-based Hemsptead Consulting, said cube-based pricing is actually a reverse of what happens in the commercial world.
"USPS is providing beneficial
pricing if the material sent has good density," he explained. "The commercial
carriers charge a penalty for shipments of poor density-which computes as
length x width x height divided by 194 [the tariff divisor originally
set under the Warsaw
convention of 1924 and pertains to the fair yield for a cubic foot]."
And the reason for the penalty is
that the USPS flies most Priority Mail under a contract with Federal Express,
as USPS has contracted for cubic feet on the FedEx network.
"The more the USPS can transport in those cubic feet the greater the profit yield the USPS will have on those transactions," he said. "The USPS is going to share some of the benefit with shippers by rewarding high cubic density shippers with a more favorable pricing structure. A case of fine wine will be a better yielding transaction than say the snuggle blanket you see advertised on TV."
Some of the other notable 2010 USPS price changes include:
- an overall 3.3 percent price increase, on average for Priority Mail;
- adding 0.5 pound rates for Priority Mail, with some rates under 0.5 pounds going down in certain scenarios. The current 1-pound rate for Priority Mail Commercial Plus is $4.75 for a 1-pound package, with all new 0.5 pound 2010 rates under $4.75 except for Zone 8;
- a decrease in Priority Mail Flat Rate Envelope retail rates from $4.95 to $4.90;
- Priority Mail Small Flat Rate Box remaining under $ at $4.95
- a 4.5 percent increase for Express Mail;
- a 4.7 percent increase for Parcel Select, the USPS' bulk shipping ground product;
- a 3.0 percent increase for Parcel Return Service;
- Global Express Guaranteed and Express Mail International going up 4.1 percent and 2.9 percent, respectively; and
- Priority Mail International going up 3.0 percent.
"The Postal Service is the best buy in the market, whether you're watching your budget or gearing up as the economy starts to rebound," said Robert Bernstock, president, USPS Mailing and Shipping Services, in a statement. He added that other package and parcel carriers have announced price increases of nearly 6 percent for 2010, excluding fuel surcharges-most shippers add extra fees for fuel, rural delivery, Saturday delivery and other items to a customer's final bill. The Postal Service, he noted, has no comparable surcharges.
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