Tuesday, December 15, 2015

USPS Is Gaining on FedEx and UPS in E-commerce Shipping

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.

A round of steep, unfair price cuts in September 2014 has enabled the USPS to grab market share from UPS and FedEx, UPS charged in a recent filing with the Postal Regulatory Commission.

“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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Anonymous said...

ups and fedex do the same thing that united parcel service is now whining about. these companies go into large accounts and give these shippers super low rates that smaller companies can't get. 'cherry picking' accounts is the lingo in the business. in a way, the small shipper is subsidizing the huge mailers/shippers. the usps does have a significant advantage because they already have the ground network in place which goes to every address in this country six days a week. all the usps needs to do is the logistics to move the packages from the shipper to the carrier. by the way, the usps pays both fedex and ups BILLIONS of dollars a year to move some of the mail. i believe a law on the books states the usps has to charge enough to at least cover their costs.

Anonymous said...

Therein lies the problem. Ask anyone in the Post Office how much we get paid for the "last mile" parcels, and no one really knows. I heard it is only $1 or so each, which does NOT pay it's way, even if it is dropped at the delivery office. If you consider the overtime used to scan and sort every package, and then have it delivered, sometimes requiring a reload or two, we might be getting the business, but at a loss. Meanwhile, UPS and FED EX get the business, and save money by not having to deliver these parcels, as the USPS does it for them, saving them much more money than what the USPS makes off of the parcel, especially in rural areas...each parcel dropped off at a Post Office saves the UPS or FED EX driver 5 to 10 miles of country road driving, so what is their gripe?

Anonymous said...

I wonder how much all the carriers are saving on fuel this year, a factor not talked about much.

Anonymous said...

^^ That is a great point. UPS added the fuel surcharge when gas prices were astronomical. Gas prices dropped considerably since then, yet we see no relief for those charges.

Rick Huntoon said...

The only way the USPS can compete is on price. Their on-time record from my personal experience for Priority Mail is horrible. They took over 7 days to deliver 40 items I sent in the last 30 days. Their tracking system is updated poorly and is inaccurate. First Class mail is taking over a week in some cases. When you can't compete with service or quality, the only thing left is price.

Joe Strader said...

I am an eBay seller deriving a significant portion of my income from Internet marketing, as my state tax people want to call it. The USPS has become my primary shipper. They offer a full range of services, pick up at my rural location at no charge, do not require an account and minimums and they are reliable and fast. Many supplies are free and the charges are the least of the three for small to medium packages.