USPS files notice for temporary price hikes

Late last week, the United States Postal Service (USPS) announced it filed notice with the Postal Regulatory Commission (PRC), an independent Federal agency that provides transparency and accountability of all USPS operations, for temporary price adjustments, to go into effect on October 18.

USPS officials said that these price adjustments, in the form of rate increases “are in response to increased expenses and heightened demand for online shopping package volume due to the coronavirus pandemic and expected holiday e-commerce.” And they added it is planning a time-limited price increase on all commercial domestic competitive package volume from Oct. 18 until Dec. 27, with no rate changes for retail and international products.

This announcement comes at a time when the USPS continues to incur steep financial losses, due to various factors, including ongoing revenue declines in First Class and Marketing Mail, which USPS said each continue to see declining volumes, coupled with volumes expected to fall further in the future, due to what the USPS has called the “migration to electronic communication and transactional alternatives resulting from technological changes.” Things like e-mail, texting, and other electronic communications channels continue to hinder First-Class Mail, too. The COVID-19 pandemic and ongoing economic uncertainty also are factors, too.

For the fiscal third quarter, the USPS reported $17.6 billion in total revenue, which represented an increase of $547 million, or 3.2% annually. Total operating expenses—at $19.8 billion—were up $477 billion, or 2.5%, compared to a year ago, and it reported a net loss of $2.2 billion, which was in line with a $2.3 billion net loss for the same period last year. And its controllable quarterly loss, of $1.5 billion, was steeper than the $1.1 billion loss for the fiscal third quarter in 2019.

This quarterly net loss is the most recent in a string of several, going back to 2007 through June 30, 2020, during which it has incurred $85.3 billion in net losses over that span. And it expects these losses to continue without needed legislative and regulatory assistance, which, USPS noted, could lead to the organization lacking sufficient liquidity to meet its existing legal obligations when due and reduce its debt and make the critical infrastructure investments, which have been deferred in recent years.

Regarding the rate change announcement, USPS said last week that these planned prices would raise prices on its commercial domestic competitive parcels – Priority Mail Express, Priority Mail, First-Class Package Service, Parcel Select, and Parcel Return Service.

“This time-limited adjustment will increase prices for our commercial customers in line with competitive practices without impacting customers at the retail level,” said the USPS. “In doing this, the Postal Service is protecting the retail consumer during a vulnerable economic period while increasing prices on commercial volume during heightened volume levels. No structural changes are planned as part of this limited time pricing initiative, allowing customers the greatest ease in implementing the new prices with minimal complexity. The Governors believe these temporary rates will keep the Postal Service competitive while providing the agency with much needed revenue. The forecasted additional revenue from the time-limited increase will depend on the volume of packages shipped between Oct. 18 and Dec. 27 at commercial rates.

Should the PRC favorably review the rates changes, the new rates would include: 

• Parcel Select Destination, Delivery Unit (DDU) Starts at $3.19, with a planned increase of 24 cents;
• Parcel Return Service, starts at $3.05, with a planned increase of 24 cents;
• Parcel Select Lightweight, starts at $1.81, with a planned increase of 24 cents;
• FCPS Commercial, starts at $2.74, with a planned increase of 25 cents;
• Priority Mail Commercial, starts at $7.02, with a planned increase of 40 cents;
• Parcel Select Ground, starts at $6.92, with a planned increase of 40 cents;
• Parcel Select DSCF, starts at $4.37, with a planned increase of 40 cents;
• Parcel Select DNDC starts at $5.98, with a planned increase of 40 cents; and
• Priority Mail Express Commercial starts at $22.75, with a planned increase of $1.50

And it noted that Some rate cells in Parcel Select Ground will be charged less than $0.40 so as not to exceed USPS Retail Ground retail prices:

• 19 lbs., zones 8/9 – the increase will be zero instead of $0.40;
• 20 lbs., zones 8/9 – the increase will be $0.06 instead of $0.40; and
• Oversized – the increase will be zero instead of $0.40

Rob Martinez, president and CEO of San Diego-based Shipware, described these USPS rate changes as quite significant, with Parcel Select (DDU entry) up to 7.5%, Parcel Select (DSCF entry) up to 9.1%; Parcel Select (DSCF entry) up to 9.1%; Parcel Select (DNDC entry) up to 6.7%; Parcel Return Service up to 7.9%; Parcel Select Lightweight up to 13.3%; FCPS up to 9.1%; and Priority Mail up to 5.7%. 

“The USPS delivered 6.2 billion packages in 2019, including more residential delivery volume than FedEx and UPS combined, Martinez told LM. “The majority of the postal package volume was Parcel Select, although many may not recognize the postal product name. Shippers are more likely to recognize popular brand names that handle the front end of the Parcel Select product like UPS SurePost, UPS Mail Innovations, FedEx SmartPost, OSM Worldwide and DHL eCommerce. Collectively known as ‘consolidators,”’ these companies perform and enjoy ‘workshare incentives’ from the Postal Service for collection, sortation, transportation and deep induction within the USPS network for final-mile delivery. In addition to consolidators, mega shippers like Amazon have enough volume to induct Parcel Select packages directly within the USPS delivery stream.  The deeper the induction, the bigger the postal discount. Businesses that induct directly will likely be forced to eat the added costs in this day and age of inflated consumer expectations for free—and fast—delivery.”

What’s more, Martinez added that most of the contracts between the USPS and workshare partners, called Negotiated Service Agreements, include language that allows the Postal Service to pass along exigent rate increases.  

“Therefore, it’s very likely that companies like UPS, DHL and FedEx will be adversely impacted by the temporary postal rate increases,” he said. “However, it’s very likely that any increases incurred by Parcel Select consolidators will be passed along to their customers.” 

And, in many cases, Martinez observed that these rate increases represent a profit opportunity for the consolidators. 

“Historically, consolidators have applied postal rate hikes to their published pricing in the same percentage,” he said. “As an example, a 1 pound machinable Parcel Select shipment is $3.19 (USPS published rate) when inducted at the DDU—that’s the rate the Postal Service would charge a consolidator to deliver a package inducted at the DDU.  That same shipment, going to Zone 5 using UPS SurePost is $10.17 (published rate).  While UPS gets a deep contractual discount from the USPS, let’s draw this comparison out using published rates for illustrative purposes—Postal increase to workshare partners:  $3.19 plus 7.5% temporary increase = $.24 increase to UPS; and Potential UPS increase to customers: $10.17 plus 7.5% temporary increase=$.76 increase. So in essence, UPS will be taking a huge profit ($.52 or 5.1%) on the USPS increase!”

Jerry Hempstead, president of Hempstead Consulting, noted that the USPS has lost money every year for the last decade and is restricted by the Postal Regulatory Commission on how much, and when, market dominant ma products can go up, adding that T hey need to go up 13%.

“They can increase prices (with notice) on the competitive (parcel) products,” he said. “Because of the changes in buying behavior due to Covid, the USPS has been overwhelmed by packages. A good number come from the likes of UPS SurePost, FedEx Smartpost, DHL e-commerce, Pitney Bowes Newgistics, with much of that through Parcel Select DDU entry. Both rates for lightweight (up to 13 ounces) and parcels are going up $.24, from October 18 through December 27. The USPS may lose some business with this increase, because Amazon, UPS and FedEx can deliver with their own vehicles. But needless to say given the financial shape of the USPS they need to take pricing (all pricing) up.”