Thursday, July 31, 2014

Frenemies: The Love-Hate Relationship Between UPS and the Postal Service Blossoms

The rise of online purchasing is boosting the partnership between United Parcel Service and the U.S. Postal Service – and fueling their rivalry as well.

Volume for UPS SurePost – lightweight parcels that are typically handed over to the Postal Service for final delivery to residential addresses – were up more than 60% in the past year, UPS announced this week.

UPS also revealed a coup of sorts: “During the quarter, a retail customer upgraded its catalog distribution to UPS Ground from the U.S. mail, contributing to our ground growth,” CFO Kurt Koehn said during the company’s quarterly earnings call. He didn’t name names, but only a large customer could cause meaningful growth in the company’s $6.2 billion quarterly revenue for domestic ground shipments. (Update: Several readers pointed out that the customer was Restoration Hardware, which recently shipped 17-pound multi-catalog bundles via UPS.)

The big shipping company is also wary of the Postal Service trying to steal market share with its recent proposal to slash prices on some commercial parcel shipments. (See FedEx Cries Foul Over Postal Service Price Cuts for more on why USPS's competitors are trying to block the proposal.)

Sharing customers
“We work very closely with the post office,” said D. Scott Davis, UPS’s CEO. “We appreciate their universal service mandate where customers of theirs are customers of ours, but there is some concern as we go forward and how they price competitive products and there is some concern about cross-subsidization.”

Both UPS and FedEx contend the Postal Service has shifted too much of its cost burden to “market-dominant” mail classes like First Class and Standard, which enables it to keep package prices artificially low. The company, Davis said, will continue fighting that battle at the Postal Regulatory Commission, which will rule soon on USPS’s proposal to reduce many parcel rates by 30% and some by 55%.

“At the same time, we’ll go out and compete with the post office,” he added.

But the Post Office is also being urged to be more competitive with UPS.

“The Postal Service’s mix of packages generated a relatively low revenue per piece of $3.37,” the independent USPS Office of Inspector General wrote in a recent study. UPS and FedEx each earn more than $9 per package.

“While the Postal Service has long served low revenue market segments such as lightweight packages very well, customer demand has created opportunities to offer value-added services and enter the higher revenue per piece segments,” the report said.

“The Postal Service cannot afford to be the provider of last-mile delivery only when the revenue is low and the cost is high. Such ‘cream skimming’ will harm the Postal Service’s package revenue and its ability to fund universal service.”


Anonymous said...

Restoration Hardware sent their full annual set of catalogs in one UPS delivery.

Anonymous said...

There is no tranparency on the special deal that USPS gives UPS. Postal Inspectors should check to see if USPS is at least recovering cost--leave alone profit--from this deal.

PMG does not know the meaning of competition. He has put USPS in a position of competetors calling the tunes.

Anonymous said...

"Restoration Hardware sent their full annual set of catalogs in one UPS delivery."

And it went right in the Garbage!

Anonymous said...

I hate to say it folks but the clearly defined lines of these two competitors has been murky since the introduction of the Parcel Select product. The cream skimming is a reality and whether the declining First Class mail revenue can sustain this bastardized product only time will tell. If I were a UPS driver or American taxpayer I would be nervous. UPS takes the profits and leaves all the USPS associated costs to the direct mailers.

Anonymous said...

Please send Red Plums every week via UPS.