WASHINGTON—When postal-reform legislation (H.R. 6407, The Postal Accountability and Enforcement Act) was signed into law by President Bush in late 2006, initial consensus was that the United States Postal Service (USPS) would now be in a better position to compete with private sector bellwethers UPS, FedEx, and DHL.

Effective May 12, shippers will get to see if that’s the case, since that’s the date the USPS will introduce volume-related and other price incentives for various service offerings.

“I think they’re making a competitive statement,” said Doug Caldwell, executive vice president of ParcelPool, an Orem, Utah-based small parcel delivery consultancy and services provider. “These are the first discounts they have made in the parcel arena for things like volume-based and price-based discounts, as well as individually-based ones. They are running the business like they should be and not as a government agency.”

Prior to The Postal Accountability and Enforcement Act being passed there had not been an overhaul in postal pricing for more than 30 years. The new law allows the USPS to revamp how it determines pricing, change prices when needed, and introduce new or customized products in response to consumer demand.

Other components of the legislation ensure that the Postal Regulatory Commission (PRC) establishes a system for separately regulating rates and classes for “market-dominant” (monopoly) products—first class mail, parcels, periodicals, standard mail, and bound printed matter—as well as competitive products, including priority and expedited mail, bulk parcel post, and international mail, among others.

Some of the pricing changes include the following:

Parcel Select, its “last mile” offering, will include pricing and volume incentives for large- and medium-sized shippers. The average overall Parcel Select price increase is 5.7 percent, and it will provide incentives in declining block prices for shippers with more than $5 million in annual Parcel Select revenue that increase their volume from the previous 12-month period.

Parcel Return Service, which enables customers to return packages to businesses, will transition to a weight-based pricing system that will result in price reductions for lighter packages. Parcel Return Service, according to the USPS, will have an overall increase of 2 percent, with prices realigned between the return delivery unit (RDU), which will decrease by 21 percent, and return bulk mail center categories, which will see a 9 percent increase.

Express Mail, premium overnight delivery will switch to a zone-based pricing system that will deliver lower prices for closer destinations. The overall Express rate hike is 3.1 percent, but if it is purchased online or through corporate accounts there is a 3 percent discount, while a 7 percent discount is available for those who meet quarterly volume minimums.

Priority Mail will have an overall increase of four percent, with average retail prices rising by about 6 percent. But customers using electronic postage will receive reduced prices, which on average are 3.5 percent lower than retail prices.

Postal industry experts told Logistics Management that these changes will allow the USPS to stand on firmer footing when competing for market share with FedEx, UPS, and DHL.

The real “sweet spot” for shippers with this news is 1- and 2-pound Priority Mail, according to Jerry Hempstead, president of Hempstead Consulting in Orlando, Fla. His reason: Priority Mail is a six-day delivery product for every address in the U.S., where FedEx, UPS, and DHL only deliver five days a week. Hempstead also said that the USPS does not charge shippers for fuel surcharges, address corrections, and delivery area surcharges.

With a major component of The Postal Accountability and Enforcement Act requiring the USPS’ competitive products to cover its own costs and prohibiting the USPS from using revenue from market-dominant products to subsidize competitive products, the USPS is now taking steps to “price things with the market in mind,” noted Kate Muth, vice president of the Association for Postal Commerce.

“The USPS is making a real competitive charge by encouraging shippers to enter pieces closer to its final destination through its new bulk rate structures,” said Muth. “This pushes shippers to use a third-party consolidator or 3PL to help a shipper with its total density—or number of pieces—and allow the USPS to not take on as much of the delivery costs and then share the discount with the shipper.”