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UPS and FedEx Unhappy over USPS Pricing

As the USPS gets ready to lower commercial rates for Priority Mail packages next month, UPS and FedEx expressed some concerns. The Postal Regulatory Commission (PRC) referenced those concerns in its order Friday approving the rate changes to Priority Mail that take effect on September 7, 2014.

The new Priority Mail rates make it cheaper for shippers who purchase postage online, while making “retail” rates – those purchased at the post office counter – more expensive. Priority Mail is considered a competitive product, unlike First Class mail which is a market dominant service that the USPS is not allowed to increase above the Consumer Price Index. Rates for certain Priority Mail weights and zones are decreasing dramatically.

Stamps.com Senior Director of Online Marketing Eric Nash told EcommerceBytes that with the September rate changes, “the USPS is going aggressively after the ground business from UPS/FedEx Ground.”

UPS and FedEx Weigh in with Concerns over Competitive Advantages
FedEx told the PRC that the Postal Service is making a major thrust into the market for ecommerce distribution services by dramatically decreasing rates for commercial mailers of ecommerce products.

Nash had noted that the discounts were extreme in the 9 lbs. to 22 lbs. range for Zones 1 to 4 – as high $14 cheaper per package. A document prepared by the PRC calculated the percentage change in price for Priority Mail, showing that a 19-pound Priority Mail package going to Zone 4 with Commercial Base pricing currently costs $25.26. Under the new rates, the package would cost $11.43 to mail – 55% lower than the current rates.

That was the most dramatic price decline in Commercial Base rates, and not all rates are decreasing. The spreadsheets showing the percentage-change for each rate are available on the PRC website (in XLS format).

FedEx also noted that the Postal Service has exclusive access to customer mailboxes and clusterboxes while it is unable to deliver to post office boxes.

And UPS contended that the Postal Service was trying to squeeze revenue from market dominant mailers while increasing its competitive market share.

In its order, PRC said the USPS was subject to different rules and mandates than private sector competitors. “None of these burdens or advantages, however, are directly relevant to the issues before the Commission, which concern whether the proposed changes to Priority Mail rates comply with” regulations.

UPS and FedEx Want Improved Cost Attribution
UPS asked the Commission to improve the allocation of costs between market dominant and competitive products. And FedEx indicated that cost attribution should be reevaluated and suggested a “bottom-up pricing review.”

The PRC said it had previously acknowledged that accurately attributing postal costs to products is critical. “However,” it said, “costing methodologies are issues that merit careful and detailed examination. Given statutory time limits, proceedings on changes to competitive rates do not allow sufficient time for proper consideration of proposed changes to costing methodologies.”

The PRC noted that interested parties could submit petitions to initiate proceedings to change the cost attribution methodology that the Postal Service uses to develop the annual periodic reports that it submits to the Commission.

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Ina Steiner
Ina Steiner
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 ina@ecommercebytes.com. See disclosure at EcommerceBytes.com/disclosure/.