Saturday, July 19, 2014

FedEx Cries Foul Over Postal Service Price Cuts

Poor FedEx.

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.

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Mike Schwab said...

Lets see. I order a shirt. Its custom printed in Dallas, TX. FedEx picks it up, takes it to Milwakee, WI, and Indianapolis, IN. Gives it to USPS for delivery in Springfield, IL. Why not mail it in TX, or not even pick it up if the USPS is so much cheaper? They have two offices in Springfield, IL.

Anonymous said...

So many lies. or outright lazy reporting. If FedEx had to pay to the federal government $5.5 billion every year since 2007 to fund 'future health care costs' for employees that don't even work for USPS yet - it's supposed to cover costs out to 75 years but we all know that monet disapperas into the same black hole Social Security taxes went into - FedEx would be hemmhoraging money, too.

Anonymous said...

Anonymous, I couldn't had said it any better!

Anonymous said...

"USPS is consistently unprofitable and basically insolvent."

- and this is new information? I thought it was a federal mandate that the USPS not post a profit.

D. Eadward Tree said...

Good point, Anonymous (7/22/14) about USPS being a not-for-profit organization. But USPS is so unprofitable and therefore so in debt to the federal government that it cannot even replace the thousands of delivery vehicles that are years past their intended or useful life. It is spending more on repairing some vehicles than they are worth.

Friend of John Galt said...

FedEx has an excellent point. USPS rates are a convoluted mess of cross subsidies, with "first class" bearing rates far in excess of handling cost to subsidize other classes of mail (such as "business mail" (better known as "Junk mail").

USPS has a monopoly on first class mail and it uses it to generate revenues from private individuals and small businesses (who do not qualify for the business discounts).

The taxpayer also backstops USPS with bailouts, should it eventually fail. (Meanwhile, members of Congress force the USPS to keep inefficient offices open and postal worker unions fight expansion of "franchise" post offices (run by private industry, such as Staples or Office Depot). Indeed, my local "post office" is run by a gas station convenience store. Amazingly, there's hardly ever more than one person ahead in a line and the average transaction is concluded far faster than I've ever experienced in a regular USPS office.

I've long preferred to use FedEx ground vs. USPS priority mail but can't afford to use FedEx when the USPS rates are often much lower. The trade off there is that I have more lost (stolen) or damaged packages with USPS (i've learned to pack with extra padding to reduce damage ... adding to the cost of shipping.)

It's long past time for Congress to remove the monopoly that USPS enjoys on first class mail.

Anonymous said...

The worse parT is that FedEx carries an enormous number of Post Office packages which adds insult to injury to this situation. FedEx works very hard to meet schedules and track packeages, I know, I am a part time loader for FedEx Ground. USPS doesn't the break and are not worthy of pity. Let them fail as they desreve. Gerry G

Jason B. Smith said...

To the comment about FedEx carrying USPS packages lest you forget that without the USPS, Smartpost and any other Postal consolidation product for that matter, would not exist. Understanding that this is a high growth area for FedEx and the fact that they targeted the "sweet spot" as far as weight goes, what are you going to do? So the game is changing a bit that is the environment we all live in as carriers.

Anonymous said...

WOW so many People without a clue, the truth of the matter is FEDEX would have been out of business a few years ago if it wasn't for the deal they made with USPS,FEDEX and UPS both are reaping the rewards of the Last Mile Delivery, I say give the US Mail back to the Airlines and see what happens to FEDEX