USPS rolls out 2011 rate changes, new products

Earlier this week, the United States Postal Service (USPS) rolled out new prices for various services, which are scheduled to take effect on January 2, 2011, pending approval from the Postal Regulatory Commission.

In its announcement, the USPS said it is rolling out new flat-rate products, as well as offerings geared specifically to consumers and shippers, respectively.

Priority Mail rates will increase 3.5 percent, with new prices for Express Mail, Global Express Guaranteed, Express Mail International, Priority Mail International, Parcel Select, and Parcel Return Service all taking effect on January 2 as well. USPS officials said the overall price increase for all Shipping Services products is an aggregate 3.6 percent.

A new service geared specifically for shippers mailing on a regional basis is what the USPS described as a new Priority Mail Regional Rate Box, which is comprised of USPS-supplied packaging in two sizes for its Commercial Base and Commercial Plus customers. This new offering, said the USPS offers zone-based pricing with flat rates up to a maximum of 15 pounds for the cubic-size box measurement of .21 cubic feet and a maximum of 20 pounds for the cubic-size measurement of .41 cubic feet, along with reductions in volume for Commercial Plus customers.

“Cube-based pricing has already been in place at the USPS, but it was only available for shippers mailing 400 packages per day, and now the threshold is much lower,” said Doug Caldwell, principal of ParcelResearch.

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.

Another new offering is Critical Mail, which is targeted for Commercial Plus customers and provides “fast, consistent time-in-transit service for sensitive documents like event tickets, ID cards, and high-value direct mail.

Caldwell described Critical Mail as a hybrid service that is more expensive than First Class but less expensive than Priority Mail. Critical Mail provides customers with delivery confirmation and requires the usage of USPS-supplied envelopes that run $3.50 for letters and $4.25 for larger, flat-size pieces.

While Shipping Services are expected to rise 3.6 percent overall in 2011, the current rate for a 1 pound Parcel Select shipment dropped off at a local Post Office—or a Destinating Delivery Unit (DDU)—is $1.60. But in 2011 it is slated to be $1.85, a 15.6 percent increase, and Parcel Select DDU rates through 10 pounds would all increase, while shipments over ten pounds would not increase.

And there is also a $0.71 incentive for dropping a 1 pound Parcel Select package at a DDU instead of a DSCF (Destination Sectional Center Facility), which will drop to $0.41 in 2011.

“That makes it much more feasible to drop at the DSCF’s,” said Caldwell. “That also dramatically lowers the bar for entry for new shipping companies, since they will be able to drop at 400+ DSCF’s, rather that 15,000 or more local Post Offices.

He added that the USPS is now encouraging DSCF drops, when just a couple of years ago they were actively discouraging those drops. A main reason for this is because of the drop in letter and flat mail volumes the USPS has seen in recent years, which has created excess transportation capacity from the DSCF’s to the DDU’s along with the fact that USPS has available manpower and underutilized sorting capacity at many of those DSCF’s.

“The Postal Service is hoping to encourage new business,” explained Caldwell. “This
significantly lowers the cost of entry. For instance, in Portland, Oregon the
DSCF serves over a 100 mile radius around Portland, extending into SW Washington. Instead of dropping at 80+ local Post Offices, all the packages could be dropped at a single facility, at a cost starting at just $1.85, and receive next day delivery.  That’s a pretty compelling offering.”

These proposed rate hikes are in line with recent 2011 increases announced by FedEx and UPS. Both carriers came in with a net increase of 4.9 percent for ground packages and a net increase of 4.9 percent on all air express and U.S. origin international shipments.

The USPS 2011 rate announcement follows a recent decision by the Postal Regulatory Commission’s Sept. 30 ruling denying the Postal Service exigent price request, which the PRC said “failed to justify rate increases in excess of its statutory CPI price cap.”
This proposal was part of the USPS’s exigent price case to raise rates filed on July 6. This case was comprised of four-to-six percent price increases for various products, including its 18 Market Dominant products.

These changes, had they been approved by the PRC, would have taken effect on January 2, 2011. When the USPS made this proposal, it said these price changes would generate $2.3 billion for the last three quarters of Fiscal Year 2011 and an estimated $3 billion for the full 12 months of Fiscal Year 2012. The PRC said it denied the request because it “failed to justify rate increases in excess of its statutory CPI price cap.”

This week’s rate announcement pertains to competitive services offered by the USPS as granted to the USPS under the 2006 Postal Accountability and Enhancement Act.