Rediscovering’ parcel post

When the postal rate case is implemented in January 1999, parcel post rates may actually decrease for catalogers that drop-ship their packages into destination sectional center facilities (SCFs). For the first time, the U.S. Postal Service will offer discounts for parcels drop-shipped in batches of 50 or more into SCFs (as long as they’re presorted to the 5-digit zip code level).

The USPS currently offers comparable discounts, depending on zone and weight, for parcels drop-shipped to regional bulk mail centers (BMCs). But because there are more than 200 SCFs compared to just 26 BMCs, the new discounts will enable catalogers to drop-ship packages through freight consolidators closer to the recipients. The packages, then, will be spending less time in the postal system.

Once the new postal rates kick in-the implementation date of which was decided at press time-the base rates for parcel post will rise 12.3%. But the USPS had proposed a 31-cent-per-piece discount for parcels drop-shipped to destination SCFs. The Postal Rate Commission in May countered with a 45-cent recommended discount, which the USPS governors were expected to approve. This should more than offset the 12.3% base-rate increase, sources say.

Factoring in the 45-cent-per-piece discount, the net package delivery rate change will vary from no change to as much as a 20% decrease, depending on mailers’ volume, their costs associated with drop-shipping their packages to SCFs, and the cost to the mailers of the finer presorts that will be required to meet the 50-piece minimums.

Better rates and faster service Because the rates and discounts vary widely based on volume, weight, and destination zones, no sources contacted could pin down the specifics of the rate changes. But one thing is certain: The many catalogers that have been drop-shipping their parcels into destination SCFs as a means of improving delivery speed will now receive discounts for their efforts.

Similarly, some catalogers that have been taking advantage of the BMC discounts are looking forward to the service benefits of drop-shipping into SCFs. Jewelry, gifts, and tabletop mailer Ross-Simons, for instance, currently uses a freight consolidator to deliver its parcel post packages to BMCs. According to Don McMann, vice president of operations for the Cranston, RI-based cataloger, orders sent this way arrive in customers’ hands one or two days later than packages sent by standard UPS ground delivery. But by using freight consolidators to transport packages to the SCFs, which are closer to customers’ local post offices, “we think delivery times will be improved and become comparable to those of UPS,” McMann says.

Just last year, Ross-Simons used UPS for virtually all its nonexpedited shipments. Now the $198.2 million cataloger uses freight consolidator CTC Distribution Direct and parcel post for some of its lighter-weight packages. While he has yet to calculate the exact cost saving of having CTC drop-ship packages to SCFs under the upcoming postage discounts, McMann estimates it will be between 15% and 20%.

McMann plans to send more packages via parcel post once the new rates are implemented. And Minneapolis-based consolidator CTC expects other mailers to do so as well. In anticipation of increased business, CTC has been developing more sophisticated drop-shipping systems, adding eight facilities to its existing network of 12 distribution centers, according to vice president of business development Mike Talbott. CTC’s network is so extensive, Talbott says, that postal carriers at the final leg of delivery are practically the only USPS personnel handling the drop-shipped packages.

Big packages may not benefit Still, Ross-Simons plans to continue using UPS for the cataloger’s heavier parcels, McMann says. “When you get into the 8-lb. to 20-lb. range, UPS becomes less expensive. UPS’s rates rise in a more gradual way per pound, whereas postal rates tend to geometrically escalate,” he explains.

For example, a 2-lb. package sent to zone 3 via parcel post will cost $2.79, plus up to $1 in drop-shipping costs; to send that same package via UPS costs $4.06. But a 10-lb. package to the same zone via parcel post costs $4.12 plus drop-shipping costs; the same package shipped via UPS costs $5.03.

Furthermore, the cost of both contracting with freight consolidators and preparing their parcels for SCF drop-shipping might prove too expensive for smaller catalogers that don’t ship enough packages to qualify for the discounts, says one source requesting anonymity. But like others, this mailer has yet to fully calculate and understand just how the numbers will fall into place yet, due to the complexity of the different rates and discounts.