Operations and Management: Catalogers’ View of Priority Mail: %@#$

Not only are Priority Mail rates going up at the end of this month, but the U.S. Postal Service is also changing the way it prices parcels.

On June 30, the price of a 1-lb. Priority Mail package will increase 10%, or $0.35, to $3.85. What’s more, the USPS previously did not charge by delivery zone for packages weighing less than 5 lbs.; the cost of shipping a 2-lb. package to zone 2 was the same as those of a 2-lb. package to zone 8. Now, though, all parcel rates will be charged based on both weight and delivery zone.

This change “better mirrors the costs of the service that we are providing,” says Jim Cochran, USPS’s manager of parcel services.

Fair enough. But it’s no surprise that catalogers are not thrilled with the rate hikes. Many, in fact, plan to cut back on Priority Mail use.

For Charlottesville, VA-based AutoSport, which mails the International Auto Parts catalog, the Priority Mail rate increases would add $33,000 a year to its delivery costs, says vice president of finance and operations Bill Sauer. So the cataloger is drastically reducing the percentage of parcels it sends via Priority Mail.

Currently AutoSport ships 46% of its packages — lightweight items such as distributor caps, steering-wheel covers, and chamois cloths — with Priority Mail. The remaining parcels are shipped via UPS, Sauer says. Once the new USPS rates are implemented, the cataloger plans to ship only 16% of its parcels via the Postal Service. AutoSport will continue to mail parcels weighing less than 1 lb. via Priority Mail because those rates increases are not as steep.

Ironically, Sauer says, Autosport turned to the USPS and Priority Mail after the 1997 UPS strike.

Lynchburg, VA-based hardware cataloger McFeely’s Square Drive Screws, which uses Priority Mail about 30% of the time, is also considering switching carriers. “You can raise your prices only so much to cover the shipping costs before you price yourself out of the market,” says president Jim Ray. “Currently, we pay $3.90 for a 2-lb. Priority Mail package to zone 8. With the increase, we could be paying $5.75.”

Not that Ray is eager to switch from the USPS. For one, UPS has a $1.50 surcharge for “rural deliveries,” and many McFeely’s customers have rural addresses.

Also, the Postal Service supplies McFeely’s with Priority Mail boxes. “In the minds of customers, the Priority Mail box sends a message of quality,” he says. “That’s important, plus it’s pretty nice to get the box for free.”

Catalogs on either coast hardest hit

Small mailers based on either coast will feel the pinch the most. Larger catalogers, such as J.C. Penney, that have multiple distribution centers can ship packages to customers from the geographically closest warehouse, cutting down on costs. “There’s no question that if you ship from one distribution center, this isn’t good news for you,” USPS’s Cochran admits.

But even large mailers, such as Medford, OR-based Bear Creek Corp., which mails the Harry and David and Jackson & Perkins catalogs, will cut back on Priority Mail because of the rate hikes. Ralph Malmros, the company’s corporate consultant for parcel delivery, says Bear Creek uses Priority Mail for 5%-15% of parcels. But its use of USPS is likely to fall to 4% after June 30, he says.

Some mailers cut back on Priority Mail before the rate hike news. Venus Swimwear, which ships 10% of parcels through Priority Mail, began shifting from the service last year, says vice president of fulfillment Joe Howell. “Part of it was cost and another part was the service,” he says.

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