UPS chart shows commercial Priority Mail growth after rate cut.
The U.S. Postal Service is using low rates to muscle aside its private competitors and grab nearly all the growth in e-commerce-related shipments, according to a UPS analysis.
“The Postal Service reduced rates as much as 58% for packages shipping to zones 1-5 and weighing between six and twenty pounds, the rate cells most popular for the burgeoning e-commerce market. These deep discounts brought Priority Mail rates for the largest customers substantially below rates set by private competitors in the market.”
“Before the price cuts, the Postal Service’s market growth rate had stalled, barely registering above 0%, while UPS and FedEx were exhibiting healthy growth rates. After the Postal Service’s price cuts, the growth of UPS and FedEx Ground slowed, and the Postal Service’s commercial growth rates quickly became 10 to 20 times that of its private competitors.”
USPS’s price increases for Priority Mail next month won’t solve the problem, UPS says: “Despite an announced average increase of 9.4% for Commercial Base prices in 2016, for example, discounts ranging from 7% to 53% below pre-September 2014 rates remain for packages weighing between six and twenty pounds.”
“The Postal Service’s ability to set artificially low rates,” says UPS, also shows up in the Parcel Select rates the USPS charges the likes of Amazon, UPS, and FedEx for “last-mile delivery.”
“The Postal Service is leveraging its network to such a degree that UPS and other carriers use Parcel Select to compete because they are not able to deliver at or below the prices the Postal Service charges for this service,” UPS wrote. “Over the last year, Parcel Select experienced 26.5% volume growth, compared to 2.8% and 2.1% growth for UPS Ground and FedEx Ground, respectively.”
UPS claims that the Postal Service’s commercial parcel rates are priced too low to cover its costs, which means USPS’s e-commerce growth is being built “on the backs” of traditional mail customers: “The Postal Service is charging higher prices to captive mailers, while reducing service standards, in order to help fund its aggressive expansion into competitive product markets.”
The Postal Service counters that its methods are fair, legal, and backed by research, while UPS’s proposal is “based upon a set of ad hoc, loosely-constructed, cost measures.”
eCommerce Bytes recently provided an in-depth look at the UPS-USPS debate and what it could mean for parcel shippers.
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