USPS Proposal Would Let It Increase Rates for Parcel Post
By Ina Steiner
On April 26, 2012, the Postal Service filed a notice with the Postal Regulatory Commission requesting that Parcel Post service be moved from the market dominant list to the competitive product list, which would give it more flexibility in raising rates. The Postal Service estimates that only 15 percent of Parcel Post's volume is attributable to small businesses.
There are two different processes by which the USPS can raise rates - one for market dominant services, such as First Class mail, and another for competitive services, such as Priority Mail and Express Mail. The USPS is restricted from increasing prices for market dominant services above the Consumer Price Index, according to the Postal Law of 2006.
The USPS said Parcel Post is an economical ground package delivery service for less-than-urgent and oversize packages that competes with comparable products offered by competitors, and asserts that Parcel Post fulfills all criteria for competitive products under postal regulation 39 U.S.C. 3642.
The USPS said it recognizes that a price increase would be necessary "to ensure that Parcel Post covers its attributable costs and prohibits market dominant products from subsidizing competitive products."
The Postal Service contends that Parcel Post has small market shares in both the ground package retail market (17.6 percent) and the broader ground package market (1.1 percent), even though Parcel Post prices are lower than those charged by UPS and FedEx for comparable products.
Based on a comparison of 2012 Parcel Post prices with the retail rates (including fuel and residential delivery surcharges) charged for UPS Ground and FedEx Ground, the Postal Service determined that Parcel Post's prices were, on average, 24.1% lower than UPS Ground retail rates and 14.7% lower than FedEx Ground retail rates.
The USPS notes that a comparison of the service standards indicates that UPS and FedEx provide faster guaranteed delivery times than those currently offered by Parcel Post. "For these reasons, the Postal Service contends that current Parcel Post customers would have viable alternatives from competitors if the Postal Service were to raise prices, degrade service, or decrease output."
The Postal Service acknowledges that a modest price increase will be necessary to attain full cost coverage. However, it contends that Priority Mail prices will effectively serve as a price cap because the Postal Service cannot raise Parcel Post prices above Priority Mail prices without shifting Parcel Post volume to Priority Mail. It explains that Parcel Post will continue to have the same service standards if the proposed changes are implemented, ensuring that customers in rural communities will continue to receive reliable ground package delivery service.
The USPS has until May 15 to respond to the Postal Regulatory Commission's request for additional information, and comments by interested persons are due by May 31, 2012.
About the author:
Ina Steiner is co-founder and Editor of EcommerceBytes and has been reporting on ecommerce since 1999. She's a widely cited authority on marketplace selling and is author of "Turn eBay Data Into Dollars" (McGraw-Hill 2006). Her blog was featured in the book, "Blogging Heroes" (Wiley 2008). Follow her on Twitter at @ecommercebytes and send news tips to email@example.com.
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