U.S. Postal Service Announces Holiday Rate Increase

Last Friday, the U.S. Postal Service announced temporary price increases effective Oct. 18, 2020 through Dec. 27, 2020. Increases are quite significant, as follows:

• Parcel Select (DDU entry): Up to 7.5 percent
• Parcel Select (DSCF entry): Up to 9.1 percent
• Parcel Select (DNDC entry): Up to 6.7 percent
• Parcel Return Service: Up to 7.9 percent
• Parcel Select Lightweight: Up to 13.3 percent
• FCPS: Up to 9.1 percent
• Priority Mail: Up to 5.7 percent

The USPS delivered 6.2 billion packages in 2019, including more residential delivery volume than FedEx and UPS combined. The majority of the postal package volume was Parcel Select, although many may not recognize the postal product name. Shippers are more likely to recognize popular brand names that handle the front end of the Parcel Select product, like UPS SurePost, UPS Mail Innovations, FedEx SmartPost, OSM Worldwide, and DHL eCommerce. Collectively known as “consolidators,” these companies perform and enjoy “workshare incentives” from the Postal Service for collection, sortation, transportation and deep induction within the USPS network for final-mile delivery.

In addition to consolidators, mega shippers like Amazon.com have enough volume to induct Parcel Select packages directly within the USPS delivery stream. The deeper the induction, the bigger the postal discount. Businesses that induct directly will likely be forced to eat the added costs in this day and age of inflated consumer expectations for free — and fast — delivery.

Most of the contracts between the USPS and its workshare partners (called Negotiated Services Agreements) include language that allows the Postal Service to pass along exigent rate increases. Therefore, it’s very likely that companies like UPS, DHL and FedEx will be adversely impacted by the temporary postal rate increases. However, it’s very likely that any increases incurred by Parcel Select consolidators will be passed along to their customers.

In many cases, these rate increases represent a profit opportunity for the consolidators. Historically, consolidators have applied postal rate hikes to their published pricing in the same percentage. For example, a one-pound machinable Parcel Select shipment is $3.19 (USPS published rate) when inducted at the DDU — that’s the rate the Postal Service would charge a consolidator to deliver a package inducted at the DDU. That same shipment, going to Zone 5 using UPS SurePost, is $10.17 (published rate). While UPS gets a deep contractual discount from the USPS, let’s draw this comparison out using published rates for illustrative purposes.

• Postal increase to workshare partners: $3.19 plus 7.5 percent temporary increase = $.24 increase to UPS
• Potential UPS increase to customers: $10.17 plus 7.5 percent temporary increase = $.76 increase

So in essence, UPS will be taking a huge profit ($.52, or 5.1 percent) on the USPS increase!

Details of the postal rate increase are available here. Shippers that need help either deciphering the impact of these postal rate increases to costs or need assistance warding off increases from consolidators can contact me for more information.

Rob Martinez is the CEO of Shipware, a professional services firm that transforms businesses through intelligent distribution solutions and strategies.