USPS Lowers Priority Mail Rates for Business Shippers

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UPS contends that the Postal Service is using the exigent increase to fund low-ball shipping rates and make a grab for e-commerce's growing delivery business.

Price cuts are "dramatic," contends FedEx.
Price cuts are "dramatic," contends FedEx.

The Postal Regulatory Commission (PRC) approved a USPS proposal to decrease business rates on Priority Mail, a development that could result in significantly raising the Postal Service's profile in the shipping business. While retail rates for Priority Mail increased an average of 1.7% this year, Commercial Plus and Commercial Base rates for volume shippers will decline 2.3% and 0.9%, respectively. In its decision, the PRC noted that the decreases are designed to improve the Postal Service's market share for ground package volume weighing between six and 20 pounds.

Both UPS and FedEx vehemently opposed the rate decreases in comments filed with the PRC after the Postal Service filed its request for the change on July 1. UPS maintained that the Postal Service is trying to “squeeze” as much revenue as it can from market dominant mailers to fund a grab for additional market share in shipping. The shipper also alleged that, because the data supporting the request was filed under seal, it cannot be known if the decrease falls in line with the Postal Accountability and Enforcement Act.

FedEx complained that, by proposing price decreases ranging between 30 and 50% in weight categories most used by Internet retailers, USPS was making a major play in the “fiercely competitive market for e-commerce distribution services.” FedEx told the PRC that the rate cuts were “dramatic” and unheard of in the private sector.

The Postal Service has been openly touting its shipping services to e-coms as a low-cost alternative, especially since UPS and FedEx announced “dimensional pricing” plans that will charge premiums for larger-sized packages, no matter the weight. The new rates will take effect at year's end.

The Postal Service already accounts for nearly two fifths of the total volume shipping in the U.S., but less than one fifth of revenues, according to a recent report from the Office of the Inspector General of the U.S. Postal Service. That's because the Post Office has focused on lightweight packages that return a revenue-per-piece of $3.37 as compared to $9.70 for FedEx and $9.39 for UPS. Apparently, the decreased rates for heavier packages are designed to remedy that disparity.

The package business has been one of the few bright lights at the Post Office in recent years, posting regular increases over the last several quarters. During USPS's recently concluded Fiscal 2014 third quarter, shipping and package volume increased 7.7% and added $196 million in revenue.

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