That time has come for rate increases by the United State Postal Service (USPS), which were rolled out last week.
As usual, these announced 2018 increases were filed in a notice with the Postal Regulatory Commission (PRC), and, if the price increases are approved, they would take effect on January 21, 2018. But, as the Wall Street Journal observed, these rates increases could be challenged, as price hikes need to be signed off by the USPS Board of Governors, a board that has been member less since December 2017.
What’s more, the financial outlook of the USPS continues to remain in dire straits, with mail volume continuing to see steady declines due to the ongoing diversion to electronic alternatives like e-mail, coupled with defaulting on around $40 billion in the Postal Service Retiree Health Benefits Fund (PSRHBF) and mandated certain obligations for paying the normal costs and prefunding of retiree health benefits, as per the Postal Accountability and Enhancement Act, which was signed into law in 2006. This situation has significantly hindered its financial position, which has led the USPS to call for “legislative and regulatory change.” USPS has repeatedly said that its long-term financial stability depends on the PRC establishing a new pricing system that enables the organization to generate sufficient revenues to cover its costs.
In August, the USPS reported a net loss for $2.1 billion for the fiscal third quarter, an increase in net loss of $573 million, compared to the same quarter last year. Controllable loss for the quarter was $587 million, an increase in controllable loss of $35 million, driven by higher transportation costs.
“The growth in our lower-margin package business is not sufficient to make up for the accelerating mail volume declines,” said Postmaster General and CEO Megan J. Brennan in a statement. “Our financial situation is serious, but solvable. The continuation of aggressive management actions, and legislative and regulatory reform, will return us to financial stability and enable the Postal Service to maintain the long-term affordability of mail, invest in America’s mailing and shipping industry, and best serve the American public.”
Of key interest to shippers in the announced rate increases is that “most” Shipping Services products, a key USPS revenue driver spurred on by ever-increasing e-commerce activity, last mile e-commerce fulfillment markets, and Sunday delivery, will average a 3.9% price increase. USPS added that prices for Shipping Services are adjusted strategically based on market conditions and the need to maintain affordable services for customers.
Jerry Hempstead, president of Hempstead Consulting, provided LM with an overview of key aspects of the announced USPS rate increases for shippers, including:
While the announced 3.9% [average Shipping Services] increase is in line with previous years increases, the actual impact to any given shipper will vary greatly depending on what services and lanes they ship most, Gordon Glazer, senior consultant for San Diego-based parcel consultancy Shipware LLC, said.
“It is very evident that the USPS did their homework and took their largest percentage increases in the lanes that are consistently lower than their competition,” he said. “The highest increases are in the lower weights and inner zones, where they usually win when compared with fully landed costs (including surcharges, fuel, dimensional weight, etc.). This is a continuing trend by the USPS, to increase margin without hurting volume. There is a lot of variance in the changes, users of the popular Priority Mail (PM) Flat Rate Envelopes will see their costs increase 10% while those who use PM Regional Flat Rate will see an 11% decrease. High volume residential shippers using the popular Parcel Select (PS & PSL) services (ie; UPS SurePost, UPS Mail Innovations, DHL e-Commerce, Newgistics, OSM and FedEx SmartPost) will feel the impact of 5.3% and 7.4% increases in the lightweight (PSL) and over a pound categories (PS) respectively.”
These consolidator service models, he explained, vary greatly in how they utilize Parcel Select and how they pass along these increased costs will vary by carrier and by their client contracts.
Glazer also added that shippers “will be well advised” to model these changes against their historical spend to gauge the true impact while also comparing competitive services with their annual increases and surcharges.
“After going through this exercise, shippers may find the USPS is even more attractive than before, especially when also comparing alternative modes like USPS PM Cubic where the pricing is based upon volume, not weight,” he concluded.
Given the ongoing top-level financial turmoil for the USPS, its Shipping Services group continues to stand out as a viable option for both business and consumer customers. While it may not be the rising tide to lift all USPS boats, this group clearly has its oars in the water and is ready to help lead the USPS to financial daylight.