What the 2014 USPS Pricing Changes for Shipping Services Means to Retailers
This is a guest post by Gordon Glazer, director of strategic partnerships at Shipware, a professional services firm that transforms businesses through intelligent distribution solutions and strategies. Gordon can be reached at firstname.lastname@example.org.
Every time the USPS announces rate changes, all the stakeholders come out of the woodwork, with many of them bemoaning the increases and how it will impact their operation. Relax! Take a deep breath. All told, this rate change will have minimal impact to most, favorable impact to some and not so favorable (but tolerable) changes for others. The positive outcome is that it motivates shippers to evaluate their processes and take action on the many strategies available to lower their costs on small parcel logistics.
Here are five tips for reducing your parcel expenses:
1. Restructure business rules to route packages by cost of transit and service times.
2. Reduce air space when possible to take advantage of flat rate, regional flat rate and cubic Priority Mail offerings. "If it fits, it ships."
3. Work with a parcel consolidator that has a negotiated service agreement (NSA) with the USPS. NSA's generally include special pricing with better discounts than the lowest volume discounts, called Commercial-Plus Pricing (CPP). Consolidators with NSA's carry additional benefits, including the following:
- Allows you to participate in cubic pricing tiers.
- Provides an extra $50 in free insurance. CPP and NSA customers receive $100 insurance per package, while "base" customers get $50.
- Carries no annual commitment.
- Allows you to ship 14-ounce to 16-ounce packages at the "Plus" tier for First Class Package Services. Without "Plus" pricing, packages over 13 ounces are priced at the more expensive Priority Mail rate.
4. Enable your customers to make a shipping cost decision based upon time of transit, not specific carrier service mode. Use a carrier management system to determine the lowest cost based upon dimensions and weight/zone that includes your negotiated rates with ancillary costs considered.
5. Consider working with a third-party organization to help you both modally optimize and negotiate best-in-class carrier contracts, while rightsizing the earned discount (portfolio) incentive tiers to reflect the modally moved volume to lower-cost carriers.
Here's a general summary as well as product-specific USPS pricing changes (effective Jan. 27):
- three percent increase to Priority Mail Express;
- no increase on the weighted average of weights, zones and options for Priority Mail;
- three percent increase for parcel return service;
- five percent increase for first class package service;
- Parcel Select (only non-contract volume impacted) packages will increase 9.2 percent;
- new zone 9 for "freely associated states" (Micronesia, Marshall Islands and Palau); and
- twenty-cent surcharge for not having an Intelligent Mail Parcel Barcode.
Priority Mail Express (formerly Express Mail)
- average changes: retail (plus 3 percent), base (plus 2.9 percent) and CPP/"Plus" (plus .6 percent);
- CPP Weight and Zone decreased .1 percent;
- CPP flat-rate pricing increased 15 percent; and
- 10:30 a.m. delivery option (add $5.00).
- Reduced the combination threshold to participate in the CPP pricing to 50,000 units per year. (It was 150,000 for cubic and 75,000 for weight/zone).
- Many of the rates were reduced for cubic and weight/zone products, and only slightly increased for flat rate options.
- This should make this popular segment even more competitive considering the 4.9 percent ground increases from the private carriers (UPS, FedEx). In the one to 10 weights, their increases are over 7 percent!
- Most commonly used by private consolidators like FedEx SmartPost, UPS SurePost, Newgistics or OSM.
- These changes primarily impact residual volume as the major private consolidators are under contracts unaffected by this change. It doesn't mean they didn't raise their prices, however.
For 2014, FedEx SmartPost and UPS SurePost increased rates 7.3 percent for one-pound to nine-pound packages. It's notable that there's a significantly higher increase for deeper entry — DDU (8 percent), DSCF (5.6 percent), DNDC (5.1 percent), Non-Destination Entry (5.9 percent). It may make sense to comparison shop between carriers as this segment is very competitive and real net pricing is based upon negotiation skills.
Package Return Services
- Average increase of 3 percent;
- It's notable that there's a significantly higher increase for retrieving packages deeper into the package stream (e.g., RDU increased 5.7 percent)
- There are several programs available directly from the Post Office and now you can also leverage scan-based payment from a third-party discounted program that can leverage NSA discounted outbound rates for the return trip. Savings up to $2.00 per package is common.
First Class Package Services (Parcels)
- Remains the best value for under one pound
- No change for CPP pricing, primarily used for 14-ounce through 16-ounce parcels
- Base pricing increase of, on average, 4.7 percent, but only 1.5 percent for the more common weights.
- GXG Average increase of 3 percent
- PMEI (Priority Mail Express) saw a 1.3 percent increase
- PMI (Priority Mail International) rates increased 1 percent (both PMEI and PMI offering new flat rate options)
- IPA (International Parcel Airmail) decreased 2.5 percent
- ISAL (International Surface Air Lift) decreased 2.9 percent
- IPA and ISAL notables:
o Direct country minimum reduced to two pounds
o Flats minimum weight reduced to 17.6 ounces
o Package minimum weight increased to 4.4 pounds
o 14 or 20 rate groups now include shape-based pricing
o Permanently suspend service to Cuba, Iran, North Korea, Sudan, Syria
- Airmail M-Bags increased 2.9 percent
- FCPIS (First Class Package International Service): retail increased .8 percent, while there was no change for base (up to 14 percent lower than retail) or plus (up to 20 percent lower than retail).
Shippers who are smart enough to use the USPS should feel good with their decision as their savings will increase this year compared with the alternatives. Savvy transportation directors will continue to explore the many options to reduce their parcel spend while improving the customer experience.