USPS takes steps to boost Priority Mail rates

In an effort to grow its Priority Mail offering, the United States Postal Service (USPS) said this week that it has filed notice with the Postal Regulatory Commission to change prices for Priority Mail.

Priority Mail is described by the USPS as its flagship Shipping Services product and represented $6.4 billion in USPS revenue for Fiscal Year 2013

USPS said that these changes would include:
-a reduction in prices on average for businesses and other customers that use USPS’s shipper-focused Commercial Plus and Commercial Base online shipping services;
-include a modest increase for Priority Mail prices at Post offices and other postal retail outlets of roughly 1.7 percent on average;
-Commercial Base and Commercial Plus prices will be reduced on average, with most of the decreases concentrated in the ground zones weighing between 7-16 pounds;
-prices for Commercial Base customers will be reduced on average by 0.9 percent and prices for Commercial Plus customers will be reduced by 2-3 percent on average; and
-these changes would take effect September 7, pending PRC approval if the PRC agrees the prices are consistent with applicable law

“The Postal Service is a vital business partner for small and large businesses and lowering shipping prices will save them money and improve their bottom line,” said Nagisa Manabe, USPS chief marketing/sales officer, in a statement.  “With our affordable shipping options, we hope to attract new business customers and become their preferred delivery service. Unlike others in the shipping industry, the Postal Service is not implementing any new dimensional-weight charges, continuing our commitment to deliver the best value for our customers.”

USPS added that Commercial Base pricing does not have volume requirements, adding that the reduced rates are available for customers using Click-N-Ship, PC Postage products, permit imprints, or digital mailing systems (meters) that generate an Information Based Indica and submit data electronically to the USPS.

This announcement comes at a time when the USPS continues to deal with severe financial issues. In its fiscal second quarter earnings announced in May, the USPS had a net loss of $1.9 billion, representing the 20th loss it has incurred over the last 22 quarters and an operating revenue of $16.7 billion, up $379 billion or 2.3 percent, including the impact of its price change that took effect on January 26.

But despite the loss its Shipping and Package Group’s revenue was up 8 percent, or $252 million, and was driven largely by e-commerce growth, according to USPS officials, as well as revenues for its “last-mile” services, Parcel Return and Parcel Select, which were up 26.4 percent.

The USPS continues to be hindered by its retiree health benefits prefunding payments, which it has been unable to meet, due to a lack of capital. And it will again not be able to make the required $5.7 billion retiree. But USPS CFO and EVP Joseph Corbett said in May there is more to it than simply having legislation reducing the payment, as that does not offer up more money for the USPS to pay down its debt or put more capital into its business.

“Only comprehensive postal legislation that includes a smarter delivery schedule, greater control over our personnel and benefit costs, and more flexibility in pricing and products will provide the necessary cash flows,” said Corbett.

Jerry Hempstead, president of Orlando, Florida-based parcel consultancy Hempstead Consulting, said that these pricing changes will not do nearly enough to stop the financial bleeding for the USPS as in the big scheme of things parcels contribute only a small portion of the operating revenue for the USPS.

“The bleeding comes from congressional mandates imposed upon the USPS that cause undue financial burdens that can’t be solved with a lowering of parcel prices,” he told LM. “It’s naive to think the USPS is just going to elbow UPS and FedEx with a slight rate decrease and expect them to not counter with an even lower price to protect its business. Remember we are not talking retail but volume shippers who have assigned FedEx and UPS reps that are not going to let any business go over a few cents. Discounting is pervasive.”