In late January, 2019, the United States Postal Service (USPS) rolled out some of the largest rate increases in its history.
Some increases, like the 10% jump in the price of a First-class stamp, pertain primarily to individuals. But others, like the move to zone-based pricing for First-class Package Services, have major implications for eTailers that sell and ship lightweight items.We recently sat down with Amware’s Dan Galassi, a longtime package delivery expert, for a Q&A session to get the low-down.
Walk us through the basics of the new USPS parcel rate increase.
On January 27, the USPS made several changes to its rate structure, including:
- Raising the cost of a Forever stamp from 50 cents to 55 cents
- Raising the cost of metered letters from 47 cents to 50 cents
- Increasing Priority mail rates by 65 cents to $1 per box
- And introducing zone-based pricing for First-class Package service
Obviously, all of these changes make using the USPS more expensive. But the zone-based pricing is perhaps the biggest kicker for eTailers, because until now, they’ve been able to avoid extra costs for shipping lightweight packages across the country.
So, instead of being charged the same rate for mailing a First-Class Package – whether that package is traveling cross-town or cross-country – USPS customers now have to pay more for first-class packages that travel longer distances?
Exactly. It’s a pricing model that’s been in effect at UPS, FedEx, and DHL for a very long time. But it’s one that businesses using the USPS First-class Package shipping have previously been able to avoid. And it represents a major philosophical change for how the USPS has dealt with this particular customer base.
How much more will shippers have to pay as a result of this parcel rate increase?
Depending on how much a parcel weighs and how many zones are crossed, it could increase their financial burden by anywhere from two cents to $1.43 per package. (See the table below for details.)
First-class Package Service (Commercial Base Pricing) –
This table is courtesy of Stamps.com
Just in case our readers don’t know, what exactly is a First-class package?
It’s any parcel – be it an envelope or a box – that weighs less than 16 ounces. So if you’re a company that sells lightweight items like cosmetics, t-shirts, nutraceuticals, or small replacement parts, it’s probably a class you’ve qualified for (and used) quite often.
And why, exactly, did the USPS make this change?
We all know that the postal service has been operating at a serious deficit for a long while – and its final-mile delivery arrangement with Amazon didn’t exactly help matters. In fact, according to the last update, the USPS posted a $1.5 billion loss for its latest fiscal year, which is nearly a billion dollars more than the loss it reported for the previous one.
Clearly, the USPS is hoping these increases will help get its prices more in line with its costs.
Are any portions of this USPS parcel rate increase negotiable?
Probably not unless you’re an extremely high-volume shipper. Like it or not, the new prices and terms are the new prices and terms.
So what does this mean for shippers of lightweight packages? If they’ve previously been using the USPS, is it time to consider switching to UPS, Fed Ex, or DHL?
Any time a major carrier implements a significant policy change that either levels or un-levels the playing field it’s always a good idea to re-examine your shipping options. And the USPS’s zone-based pricing definitely meets that description. All B2C shippers would like to reduce parcel costs.
In some cases, it could make the prospect of using hybrid options like FedEx SmartPost, UPS SurePost, or DHL SmartMail Parcel more appealing because there’s now greater pricing parity between those services and a pure USPS First-class Package move.
In others, it may drive a change in companies’ fulfillment warehousing strategy.
Talk to us about this warehousing change. Why would shippers change or expand their warehouse network in reaction to the USPS’ shift?
No matter which parcel carrier service you use, greater distance now equals higher shipping prices – which means that finding a way to shorten this distance and minimize the total zone count has become an even smarter warehousing strategy. (It’s also smart because it reduces shipping time, something almost every customer loves).
As a result, it may behoove companies that have relied on First-class Package services to add more warehouse locations or – if they’re committed to a one-facility strategy– ensure that this facility is located near the center of the country instead of on the East or West Coast.
But won’t spreading their inventory across multiple locations cost shippers more money?
It’s a delicate balance that depends on many factors (including the value of the items sold). But generally speaking, the extra costs that companies incur by carrying inventory at more than one facility will usually be more than offset by the shipping savings that they’ll realize. These savings could add up to approximately 10% if they’re expanding from one shipping location to two, and as much as 30% if they’re migrating from one shipping location to three. Adding facilities will also allow shippers to significantly reduce each parcel’s time-in-transit, enabling them to do a better job of meeting increasingly aggressive same-day, next-day and two-day delivery expectations.
Any other key takeaways?
My advice to eTailers would be to stay tuned. While the private package carriers have always been in sync in terms of implementing rate jumps and pricing policies (such as simultaneously introducing dimensional pricing), the USPS has historically been the one holdout that has done some things a bit differently. As it continues to receive pressure to balance its budget and correct inefficiencies, the possibility exists that this could be the first of many major changes we’ll see – and that many won’t be shipper-friendly.
We at Amware Fulfillment, through our Parcel Shipping Services unit, will continue to monitor the USPS parcel rate increase and the overall situation, just like we keep up with key developments in the rest of parcel carrier/last-mile community. Just as important, we will continue to use our technologies and experience to provide the best available suggestions for optimizing your company’s parcel spend.