Spend Matters welcomes this guest post by Jim Haller, program director, Transportation Services, at NPI, a spend management consultancy, focused on eliminating overspending on IT, telecom and shipping.
Believe it or not, not every carrier rate increase is bad news and such may be the case for the USPS. Recently, the Postal Service filed a request with the Postal Regulatory Commission to raise rates for a few of its small parcel delivery services – most notably its Parcel Select offerings, which would increase by 8% (domestic Priority Mail rates will go unchanged).
The Parcel Select service is most commonly known as “the other half” of the hybrid, last-mile shipping services offered by UPS, FedEx and DHL. If you’ve ever used UPS SurePost or FedEx SmartPost to ship goods, then Parcel Select is the service that’s made it happen. These hybrid offerings have grown in popularity in recent years, especially within the e-commerce sector where they are a cost-effective alternative to more costly, expedited offerings.
An 8% rate increase is a pretty sizeable spike, and one that won’t be confirmed until the Postal Regulatory Commission votes on it in April. However, this is one instance where a rate hike could be a win-win for everyone. The USPS could see an additional $310 million in revenue during 2015 alone – revenue that’s sorely needed to upgrade its fleet and aging infrastructure to handle growing capacity. The Postal Service continues to make a comeback as it acquires new commercial clients and partner with companies like Amazon.com to provide Sunday delivery. But that growth will only be as strong as its ability to increase capacity.
Furthermore, unlike the “big 2,” the USPS doesn’t rely on annual rate hikes, a long list of accessorial and surcharge fees, and dimensional weight pricing to meet revenue targets. That has allowed them to provide more cost-effective and service-friendly offerings to shippers, and foster healthy price competition in an environment where rates are constantly escalating (and often with little justification).
A price increase for Parcel Select would help the USPS to continue this behavior, strengthen its ability to be competitive and meet customer demands. All parties would benefit – shippers would continue to benefit from price competition and the USPS would be in a better position to handle capacity requirements. Even UPS and FedEx customers would benefit, especially during peak season when there’s higher utilization of hybrid delivery services.
A cost increase from USPS is a right step toward a more competitive, service-friendly small parcel landscape – one that will benefit us all in the long term.