There has been a good deal of press in recent months regarding the USPS Rate Case and the impending impact on non-profits and direct marketers. But what about the cost-conscience parcel shipper? The Governors of the Postal Service voted in March to implement the Postal Regulatory Commissions recommended rates on May 14. If you use the USPS Priority Mail and Parcel Post package services considerably, the changes may have a significant financial impact on your business. The Postal Service made changes that vary based on package weight, package size, travel distance (zone) and selected service, so the net results to your business are not so cut and dry.
Priority Mail
Priority Mail is a popular and cost-effective alternative to one to three-day air services offered by other industry carriers. However, the recent changes could impact how large parcel shippers view Priority Mail and result in a volume shift back to FedEx, UPS and DHL. There are five significant changes that should be explored.
1 Price increases and decreases depending on weight and zone combination
2 Segregation of the Zone 3 prices from Zones 1 and 2
3 Introduction of dimensional weight pricing for Zones 5 through 8
4 Increase of the oversize charge to the 20-pound price for Zones 1 through 4
5 Permanent implementation of the flat rate box regardless of weight or zone
Priority Mails weight and zone price changes will have a positive or negative impact on shippers overall transportation costs. As Figure 1 illustrates, pricing changes increased or decreased depending on package weight. But its not as easy as simply evaluating weight alone; shippers also need to analyze where they are shipping packages by weight break to understand the true cost implications. As depicted in Figure 2, depending on the zone, average price changes can range from a decrease of one percent to an increase of 22% for packages weighing between one and 15 pounds. Figure 3 provides additional detail for select weight and zone combinations.
The Postal Service segregated Zone 3 from Zone 1 and 2 prices. This will result in increased costs for parcel shippers who utilize a regional shipping strategy. There are double-digit price increases for packages that weigh up to fifteen pounds. If your network strategy is a regional model, you may benefit from evaluating other value services with similar short haul transit times.
Adding to the challenges that shippers face evaluating costs related to the zone-weight price changes, they must also consider a new dimensional weight pricing structure for Priority Mail. The Postal Service expressed the need to switch to dimensional weight to adequately reflect air transportation costs for large, lightweight parcels. Considering FedEx and UPS transport Priority Mail on their airplanes, moving toward a dimensional weight pricing structure is not all that surprising.
Packages with a length plus girth over 84 used to be billed at a 15-pound oversize rate regardless of zone. Now, a dimensional weight pricing structure applies to Zones 5 through 8 parcels and kicks in when parcels exceed one cubic foot (1,728 cubic inches). Similar to the zone-weight price changes, shippers need to evaluate their packages sizes and where they are shipping them to in order to understand the dimensional weight cost impact.
Dimensional weight charges for Zones 5 through 8 could result in parcel billings over twice the rates shippers paid last year. For example, shipping an 8,000 cubic inch square package (20 x 20 x 20) to Zone 8 cost $29.30 under the old 15 pound oversize pricing method but costs $61.10 using the new dimensional weight pricing. If you are shipping large, lightweight parcels, you will need to get to work performing a detailed financial analysis. By determining if an alternate shipping strategy is in order, you can keep shipping costs from spiraling upward.
Oversize pricing applies to Zone 1 through 4 parcels measuring 84 to 108 in combined length plus girth and weighing less than 20 pounds. When the new rates are implemented in May, oversize packages will be charged the 20-pound rate, as opposed to the current 15-pound standard. The silver lining is that the 20-pound rate decreased in some zones, thus lessening the cost impact (See Figure 3).
For shippers who enjoy the convenience of the Priority Mail flat rate box, this product will be made a permanent fixture. However, the price of the box is planned to increase to $9.15 at the Governors recommendation. The price increase may be a motivation for some shippers to source their own boxes for one-to two-pound packages and ship them standard Priority Mail, resulting in a savings of $1.00 to $4.00 per package. For certain zones, the flat rate box remains a good value if you can squeeze over three pounds in the box.
Parcel Post
Parcel Post, a two- to nine-day service, also incurred pricing changes that are not as complex as Priority Mail but just as concerning. Price increases in the double-digit percent range are most common for the Inter-BMC and Intra-BMC services, with some price decreases for Zones 6 through 8 Inter-BMC services. Figure 4 and Figure 5 provide a snapshot of the weight and zone pricing changes. Also worthy to note is the increase of the oversize charge from a 15 pound rate to a 20 pound rate (84 to 108 length plus girth packages). However, unlike Priority Mail, the 20 pound rate increased as well; in most cases 20-30%.
Parcel Select, a value-priced destination entry service, did not see drastic increases like Parcel Post. In addition, the Postal Service provided additional cost incentives for shippers willing to sort non-machinable parcels to the five-digit ZIP Code level (See Figure 6).
Choose Your Course of Action
So what does this mean for you, and how do you mitigate your exposure? In many cases, shippers will incur double digit cost increases. Due to the varying rate changes and new pricing methods, cost impacts will be a mystery without a detailed analysis. Shippers should evaluate their historical shipping data against the new rates and regulations to understand their future costs and develop strategies to minimize the increases. This will require a firm understanding of the new rates and collecting at least three months of Package Level Detail shipping records to evaluate. With this information in hand, shippers can create mathematical models that simulate the cost impact. Consulting firms specializing in this type of analysis and strategic planning can help if it seems like a daunting and time-consuming project.
In summary, the USPS price changes illustrate the increased complexity of parcel industry pricing practices. As a result, shippers are continually challenged to understand the impacts to their costs and parcel network. You can eliminate the uncertainty by performing a detailed analysis of your shipping data and rates to simulate the impacts. The output of the analysis provides the information you need to develop short and long-term strategies to optimize your network performance.
Mike Lambert is Director of Consulting Services at
