The market for delivering items purchased on the Web is growing, but the U.S. Postal Service isn’t playing fair, FedEx complained this week. The big delivery company is trying to stop USPS from cutting prices to deliver certain types of packages.
For the record, FedEx stock is worth north of $43 billion. USPS is consistently unprofitable and basically insolvent.
“What USPS is proposing is an aggressive push to gain market share in the fast-growing business of e-commerce distribution services,” FedEx told the Postal Regulatory Commission. “To this end, USPS is proposing reductions of 30 to 55 percent in prices for commercial shippers in the weight categories most used by e-commerce. Price reductions of such magnitude will substantially affect competing service providers and the market as a whole.”
Consumers would pay more, businesses less
The Postal Service wants to restructure Priority Mail rates. Prices would increase for retail customers – individuals who drop off packages at a post office counter – by an average of 1.7%. But some prices for commercial shipments would decrease, a Postal Service attempt to attract more ground shipments weighing 6 to 20 pounds.
Postal regulations are supposed to ensure “that USPS does not derive an unfair advantage from legal or governmental privileges when it competes with private sector companies,” FedEx wrote.
It asked the PRC to make sure “that prices for USPS’s package services correctly reflect costs, so that the ‘playing field’ for e-commerce distribution services remains as a level as possible.”
$2 billion in profit vs. a $5 billion loss
“Packages delivered by USPS benefit from an exclusive right of access to mailboxes and clusterboxes, a postal operator privilege that does not exist anywhere else in the world,” FedEx wrote. The postal monopoly also gives USPS “economies of scope” that bear some of the costs of package delivery.
Translation: Because USPS has to deliver to every home six days a week, it can deliver a package to that home cheaper than FedEx, which only delivers to that home when it receives enough profit to do so. Maybe that’s why FedEx earned more than $2 billion in profit last year while USPS lost nearly $5 billion.
Like UPS, FedEx complained that secrecy surrounding USPS’s “Competitive Products” makes it impossible to prove that USPS’s proposal is contrary to law.
“One-time price cuts of as much as 55% raise serious questions that the mailers in the mid-weight categories are getting subsidized by someone – what FedEx cannot tell the Commission for sure is, by whom,” FedEx wrote. “Largely left behind in this price-cutting frenzy is the ordinary retail customer who brings his package to the local counter.”
UPS and FedEx also agree that USPS’s Competitive Products should bear more than 5.5% of the agency’s institutional costs now that they represent nearly one-fifth of the agency’s revenue.