USPS uses pricing to win shippers' business

By Ira Breskin -- Logistics Management, 3/1/2006

WASHINGTON—The United States Postal Service (USPS) is using low pricing to help it win business from smaller shippers that have been hit with hefty fuel surcharges assessed by competing carriers.

Price-conscious shippers believe that the savings attached to USPS' no-frills carriage outweigh the benefits of pricier, technology-based services such as on-demand pickup or real-time parcel tracking. "USPS' service is not feature-rich. However, it is functional," said Ted Scherck, president and CEO of Colography Group, a consulting firm in Atlanta.

That no-frills approach, combined with increasingly reliable service, seems to have helped the USPS boost its market share. Any gain must be kept in perspective, though, as the postal service is a modestly sized player in this segment. By its own reckoning, its share of the overnight express market was 3.1 percent in the fourth quarter of 2004. By the third quarter of 2005, its share of that market, including packages, envelopes, and letters, had risen to 5.25 percent, according to Colography Group research.

The USPS can be the low-cost provider for several reasons. It doesn't assess fuel surcharges because its ratemaking process is too slow, irregular, and unforgiving to address short-term market fluctuations. To counter higher fuel and operating costs, it leverages bulk purchasing.

Unlike its competitors, which raise prices annually, the USPS has imposed only two moderate increases in the past four years, noted Project Director Robert Dahl of market research firm Air Cargo Management Group in Seattle. The most recent increase, which took effect in early January, averaged 5.4 percent across all product lines.