Parcel Shippers: New USPS Priority Mail Undercuts UPS and FedEx Pricing!

Through careful evaluation, shippers that add the U.S. Postal Service to complement private carriers like FedEx and UPS can significantly drive down costs and improve service.

Package growth is the Postal Service's greatest hope to maintain solvency. Apart from direct mail, the only shining star within all the USPS business segments is Shipping and Package. For the first nine month of its fiscal year (Oct. 1, 2013 through June 30, 2014), the Shipping and Package segment increased volume 8.5 percent and revenue 9.7 percent. Within the segment, Parcel Select is leading the growth with an increase in volume of 12.8 percent and revenue growth of 25.9 percent in the past nine months. Next is First Class Packages, up 11.7 percent in volume and 19.8 percent in revenue for the same time period.

So why the growth? Competitive services at competitive pricing. The Postal Service now offers several pricing options depending on volume and how you manifest packages. Pricing options include the following:

• Retail: No additional discounts from published rates; available at all postal service counters.
• Commercial Base Pricing (CBP): Discounted pricing for users of PC Postage or other electronic postage manifesting.
• Commercial Plus Pricing (CPP): Deepest off-the-shelf discounts offered to high-volume shippers with minimum volume requirements.
• Negotiated Services Agreements (NSAs): Custom contracts.

New Priority Mail Pricing for Volume Shippers
The Postal Regulatory Commission (PRC) recently approved new Priority Mail CPP (effective Sept. 7, 2014), with discounts as much as 57 percent more than previous CPP pricing. All CPP changes are isolated to the 3 pound to 40 pound range and zones one through five only (see table one below):

USPS Priority Mail at new CPP is less expensive than the FedEx and UPS list rates for ground services, but only for certain weights and zones (lighter weights and inner zones). Table two below compares net freight rates (new Priority Mail CPP compared to FedEx/UPS list rates for ground). Zones run across the top, weights down the first column. Green-shaded cells show USPS CPP advantage over UPS and FedEx ground list pricing.

And when you add in FedEx and UPS's fuel and residential surcharges, the delta becomes even more dramatic (see table three below):

Shippers should do their own comparisons since UPS and FedEx discounts, minimum charges, fuel surcharges, custom dimensional pricing and other charges vary.

More Favorable Dimensional Pricing Policies
Another important differentiator for the USPS has to do with dimensional pricing. FedEx and UPS are revising pricing policies for ground packages, moving from weight-based to pricing based on package size starting in 2015. Currently, both parcel carriers only apply dimensional weight pricing to ground packages measuring three cubic feet (5,184 cubic inches) or greater. The elimination of the three cubic foot exception is effective Dec. 29, 2014 for UPS, and Jan. 1, 2015 for FedEx.

For Priority Mail, the price is a combination of weight, size and how far the package is traveling. Priority Mail pieces weighing less than 20 pounds and measuring more than 84 inches, but 108 inches or less in combined length and girth are charged the price for a piece weighing 20 pounds. This is commonly referred to as a "balloon price." The balloon price applies to pieces addressed for local delivery and to zones one through four.

Length is the measurement of the longest dimension and girth is the distance around the thickest part (perpendicular to the length). Priority Mail pieces that exceed one cubic foot and are addressed to zones five through eight are subject to "dimensional weight pricing." In general, if a piece is large and relatively light for its size, it's subject to dimensional weight pricing. Items mailed in USPS-provided Priority Mail Flat Rate packaging are charged the same flat rate regardless of weight (up to 70 pounds) and domestic destination. Commercial prices are available for postage paid through Click-N-Ship and authorized PC Postage vendors.

In short, UPS and FedEx ground pricing in 2015 will look more like the Postal Service, with the exception that the latter offers balloon rates for inner zones and the more favorable DIM divisor of 194 for outer zones and only if the package exceeds one cubic foot (1,728 cubic inches).

Other USPS Advantages
The USPS enjoys many unique advantages over national, private carriers like UPS and FedEx. USPS already goes to every door, every day. Other carriers often need to make an additional stop, especially to residences. The USPS simply drops off parcels with the rest of the mail.

The Postal Service is the only carrier that can put items in mailboxes, PO boxes or residential mail slots. It's the only choice for the 20 million APO, FPO and PO boxes that the private carriers can't deliver to.

The USPS offers free package pickup six days a week. With tens of thousands of Postal Service-managed retail offices in nearly every community in the U.S., the USPS offers the most package drop-off points in the country.

The USPS has significantly fewer accessorial charges. It delivers to every address for the same price, whereas its competitors impose extended area charges, residential delivery fees, fuel and many other surcharges.

Moreover, USPS doesn't charge for Saturday delivery. Free Saturday delivery amounts to 52 additional delivery days a year. Plus, it's the day residential customers are most likely to be home, eliminating the need for more than one delivery attempt, increasing customer satisfaction and reducing customer service calls.

Other advantages include the fact that the USPS offers free packaging and package pickup, and is the only carrier that offers First Class pricing for parcels that weigh under a pound with delivery service standards within one to three business days. (Note: parcel consolidators like UPS Mail Innovations, UPS SurePost, FedEx SmartPost and others do offer ounce-based pricing with induction back to the USPS for final-mile delivery).

Transit comparisons are quite favorable for the USPS as well. Priority Mail is a one-day to three-day product. Compare that with UPS and FedEx ground, which are typically one-day to five-day deliveries. In addition, the Postal Service has made significant improvements to Priority Mail. It's improved tracking with more frequent scanning events, including a real-time final delivery scan. And tracking is now free. The service now includes one- to three-day specific delivery, comes with $50 in insurance ($100 for CPP), and is offered at several pricing options.

The Postal Service offers many flat rate, unlimited weight options. These convenient prepaid boxes feature predetermined rates regardless of weight or destination, and are available in multiple sizes and shapes.

Most importantly, many USPS products are competitively priced, especially when compared against fully-landed costs — with accessorial charges included — for UPS and FedEx. A pricing analysis reveals that the USPS is particularly competitive for lightweight, residential packages, especially for close-in zones. It's a low-cost choice for offshore shipments to Alaska and Hawaii as well U.S. territories.

Many of Shipware's customers are realizing savings of 10 percent to 70 percent through USPS modal optimization. Finally, there's no complex contract with the USPS. Even custom NSAs are less complicated than most FedEx and UPS revenue-based contracts.

Growth Challenges
Of course, with growth comes service challenges. As package volumes continue to grow, the USPS will have to consider expanding its delivery fleet with larger trucks and optimized shelving for parcel delivery. It could take a page out of UPS's playbook and invest in package flow, dispatch, routing and rerouting technologies. At a minimum, the USPS needs to continue to invest in additional package-sorting equipment, a bottleneck for an increasing number of sorting facilities.

Parcel shippers looking to curb FedEx and UPS expenditures are wise to explore USPS services and pricing to complement the national, private carriers. New Priority Mail pricing for volume customers is as much as 57 percent lower than previous pricing, making it an attractive option for one-pound to 40-pound packages traveling less than 1,000 miles.

If you need help, my firm will do a complimentary cost analysis to determine which packages can be modally optimized for which USPS service, at what weight and zone, and what transit tolerance.

In addition, visit www.usps.com or contact your local Postal Service representative for more information. Good luck!