Deep discount for big mailers

On Aug. 15, the Postal Regulatory Commission approved new rates for Priority Mail shipments by high-volume mailers, decreases that the United States Postal Service had said should lower rates for those mailers by about 2.3 percent.

But an analysis of the new rates by a San Diego-based consulting firm suggests that postage rates will “dramatically” drop on parcels weighing 4 pounds or more.

Those are the parcels that make up much of the new Internet-generated shipping that is so prized by the Postal Service, United Parcel Service (UPS) and FedEx.

Both UPS and FedEx, the Postal Service’s biggest parcel competitors, strongly challenged the new rates, but they failed to block the commission’s approval of the rates, which were effective Sept. 7.

FedEx alleged that the Postal Service was seeking a major move into the booming Internet-generated shipping field by promising postage cuts of 30 percent to 55 percent on the weight classes “most used in e-commerce.”

UPS said that the USPS was “trying to ‘squeeze’ as much revenue as the commission will allow” from big mailers while “making a grab” for new revenues.

Clearly, both of the private firms were arguing that the cash-hungry Postal Service was targeting these shipments for price cuts because the agency sees parcels as composing the mail of the future.

Parcel growth has been the one major bright spot on the Postal Service’s revenue screen. Package volume grew by 8.5 percent in the first nine months of the current fiscal year, while all other major mail classes continued to fall.

Increasing parcel business has become one of Postmaster General Patrick Donahoe’s major themes, and the case of the new rates illustrates that the Postal Service is willing to do something rare to achieve it.

That rarity, disclosed by transportation writer Mark B. Solomon, is a willingness to make deep cuts in some rates.

Here is what Solomon says that Shipware LLC has discovered about the new rates:

“For example, the new Commercial Plus rate for a five-pound parcel moving between 301 and 600 miles represents an 18.8-percent drop from prior levels,” according to Shipware.

“The rate for shipping a 10-pound parcel between 601 and 1,000 miles has dropped by 36 percent, according to the firm. The price of shipping a 15-pound parcel between 151 and 300 miles has fallen by nearly 48 percent, the firm said.”

What’s significant about those drops is that it make the USPS the best bargain for many large parcel shippers.

In addition, Solomon notes that the USPS does not place fuel surcharges or residential delivery fees on its packages, giving the Postal Service an additional edge.

All is not necessarily in favor of the Postal Service.

UPS and FedEx are tough competitors that offer deep discounts to preferred customers. The Postal Service is prohibited from offering individual discounts and must follow schedules adopted by its regulator.

The USPS also needs a better vehicle fleet to manage any sustained package growth, Solomon notes. That may be one reason why the agency’s top financial officer has been arguing it needs to spend up to $10 million to modernize it fleet.

Parcels may be the savior of the USPS, says Rob Martinez, president of Shipware.

“Package growth is the Postal Service’s only hope to maintain solvency,” he told Solomon.

These discounted rates are available in two ways, the Postal Service said when it announced the price changes this summer.

Reduced rates are available for customers who use Click-N-Ship, PC Postage products, permit imprints, or digital mailing systems [meters] that generate an IBI [information based indicia] and submit data electronically to the USPS.

Eligibility for Commercial Plus Pricing is based primarily on shipping volume.

For Priority Mail, 50,000 pieces are required within the prior year. In lieu of past volume, customers are allowed to complete a customer commitment agreement.