USPS files proposed Shipping Services price hikes with Postal Regulatory Commission

While often viewed as a lower-price alternative to the “big two” of UPS and FedEx in some instances, the United States Postal Service (USPS) last week announced it plans to raise prices for some of its Shipping Services in a filing with the Postal Regulatory Commission.

If the proposed increases as approved by the PRC, they would take effect on January 17, 2016.

USPS officials said that the average Shipping Services price change comes out to 9.5 percent, which it said results in an average shipping price of less than $5.50 per shipment across all of its shipping products. And they added that these changes would mark the first increase in three years for commercial Priority Mail, with the average increase for Priority Mail at 9.8 percent over a three-year period since rates last headed up, while the average Priority Mail increase averages out to less than 3.3 percent per year.

Jerry Hempstead, president of Hempstead Consulting, told LM that this move by the USPS makes sense on multiple levels.

“The USPS is, and continues to be, an excellent value choice for light-weight parcels, especially if it fits in the free packaging they provide,” he explained. “There is no fuel surcharge (which UPS and FedEx keep increasing), there is no residential surcharge, no delivery area surcharge, no extended delivery surcharge, and no address correction fee. All of which FedEx and UPS increase significantly each year. The commercial parcel players also charge dimensional weight as well as increasing the basic freight rate each year.”

When asked if there might come a time when USPS turns to dimensional weight pricing, he said that was unlikely because shippers pay the USPS for service prior to receiving it compared to the commercial carriers who bill after the service is provided reduces the possibility of the USPS charging dimensional pricing.

Gordon Glazer, director of modal optimization at Shipware LLC, wrote in a research note that rather than push for an across the board increase, the UPS has carefully selected areas where there is room to raise pricing while still maintaining its competitive edge (in residential delivery).

An analysis by Glazer laid out some notable specifics regarding the proposed rate increases, including:
-along with the 9.8 percent increase for Priority Mail, its base is heading up 9.4 percent on average and is a 13.9 percent flat discount off Retail;
-Priority Mail Express would increase by an average of 15.6 percent, and Commercial Base prices would rise 17.7 percent, and Commercial Base prices will be set at a flat 10 percent discount off of retail prices;
-Parcel Select Lightweight would increase by an overall average of 23.5 percent, and Parcel Select on average would increase on average by 3.1 percent

“The growth in competitive “Shipping Services” is one of the shining achievements since the Postal Service’s financial decline that began in 2007 primarily due to declines in First Class Mail volumes and future retiree health obligations due to the PAEA (Postal Accountability Enforcement Act),” he wrote. “However, while the USPS’s Shipping and Package Service segment has experienced phenomenal growth, profit margins are significantly less robust than the profitability of First Class Mail.  We view the pending 2016 increases as a necessary and important step in the economic recovery of the U.S. Postal Service.”

The USPS Shipping and Package Group has been a bright spot for the organization, which saw fiscal third quarter revenue up 10.6 percent at $3.561 billion, with volume up 13.4 percent at 1.073 billion pieces. Revenue and volume gains for the group were paced by gains in Priority Mail, Parcel Select, Parcel Return, and Standard Parcels, and First Class Packages.

USPS said that Shipping and Packages revenue continued to show solid volume growth as a result of successful efforts to compete in ground shipping services and last mile e-commerce fulfillment markets, including Sunday delivery growth. And it said that volume saw strong end-to-end growth in response to “customers’ increased usage of online shopping, which provided a surge in package volume with a number of packages delivered during the fiscal year 2015 holiday season,” adding that to accommodate this surge in volume and minimize service disruptions during the holiday season and beyond, Sunday package delivery service is now available in limited U.S. markets.

Shipping and Packages accounts for 21.6 percent of USPS revenue but only 2.9 percent of total volume.

The USPS remains hampered by its retiree health benefits prefunding payments, which it has been unable to meet, due to a lack of capital. What’s more, it continues to call on Congress to draft and sign legislation into law to not only reduce the payments, which it has been unable to meet, but also includes a smarter delivery schedule, greater control over its personnel and benefit costs, and more flexibility in pricing and products to provide the necessary cash flows.