Not that long ago, people were talking about whether or not the US Postal Service would still be around in a few years. Now the postal service is making big moves to ensure not only that it will survive, but that it will claim a large part of the growing business-to-consumer delivery market.
On August 15, the postal services’ regulatory commission voted to actually lower rates by as much as 58% on two of its “Priority Mail” one- to -three dayy delivery products for high-volume customers, such as online retailers. The new rates went into effect Sept. 7.
Now the postal service has announced that it won’t start charging new dimensional weight pricing on its parcel shipments. The announcement comes in response to plans by UPS and FedEx to start assessing the new “dim weight” charges on ground parcels measuring less than three cubic feet. Beginning next year, rates on those packages will be determined by their shape rather than their weight, with bulkier parcels costing more to ship.
Seeking Bigger Share of Online Retailer Market
In making these moves, the USPS seems to be acknowledging that its prices were too high to be competitive. But now many B2C companies are reconsidering taking their packages to the post office, rather than calling a private delivery service, according to Rob Martinez, president of Shipware, a shipping strategy consultation firm.
“A lot of shippers are going to take another look at the Postal Service,” Martinez told the Wall Street Journal.
More Moves in the Works
But the Postal Service doesn’t plan to stop there. It already is testing a grocery delivery service for Amazon in San Francisco. If successful (and profitable), the program could be expanded to more than 20 different cities.
For their part, UPS and FedEx are calling foul, claiming that the Postal Service’s status as a near monopoly is creating an unfair advantage when it comes to cornering the online retailer delivery market.
In a complaint filed with the Postal Service Regulatory Commission in July, FedEx complained that the price cuts “do not reflect a minor cost-related adjustment in the postage that Grandma will have to pay to send a sweater to young Johnny. What USPS is proposing is an aggressive push to gain market share in the fast-growing business of e-commerce.”
In a separate filing, UPS complained that the Postal Service’s prior financial problems “should raise a red flag” and that the agency plans “to squeeze as much revenue as the commission will allow out of (mailers) who have little or not alternative to using the Postal Service while making a grab for competitive market share.”
Just in the Nick of Time
The new strategy comes none too soon for the Postal Service, which posted a loss in 21 out of the past 23 quarters and was required to pay $5.7 billion for prefunding retiree health benefits earlier this year. But in the first nine months of its current fiscal year — which ends Sept. 30 — revenue from the “shipping and package” segment grew 9.7% and volume increased 8.5%.
“Package growth is the Postal Service’s only hope to maintain solvency,” Martinez said.