The Shape of Parcel Efficiency

If the sweeping changes of the pending postal rate case could be summed up in one sentence, it would be this: How much you pay for postage depends on how compatible your mail is with the U.S. Postal Service’s machines. And that applies to parcels as well as to catalogs and other forms of mail.

“In this case, the Postal Service has tried to restructure their services along what would be called shape-based lines,” says Gene Del Polito, president of the Arlington, VA-based Association for Postal Commerce (PostCom). “That is to say that weight, as it has always been a predominant factor in terms of determining the cost of mail, is playing less of a role than shape.”

Currently a 2-oz. First Class parcel costs the same $0.63 to mail as a 2-oz. First Class letter or a 2-oz. First Class flat, even though each has a different processing cost. The rate case proposes separate rate structures for each of these products. The new rates are more reflective of the Postal Service’s true costs for processing the mail: Postage for the 2-oz. letter is expected to drop to $0.58, while pricing for the flat will increase to $0.97, and postage for the parcel will more than double, to $1.30.

The Postal Regulatory Commission’s recommendations on Rate Case 2006-1 call for a systemwide average rate increase of 7.6%. But the increases are variable. The average rate increase for First Class mail is 6.9%, for example. The average increase for Priority Mail is 13.6%. The proposed average increase for Standard Mail is about 9.3% (though actual increases vary hugely depending on the degree of automation, among other things). The increase to Package Services — Parcel Post, Bound Printed Matter, Media Mail, and Library Mail — averages 13.4%. To really understand the impact on your business, though, you need to look past the averages.

For example, let’s say Company A ships 40,000 5-oz. CDs annually. It currently pays $1.35 per piece to mail the CDs First Class. If the recommended rate changes go through, First Class postage for the CDs will jump 33%, to $1.80 per piece.

Now let’s say Company B ships 250,000 2-lb. parcels annually via Priority Mail at the zone 5 rate and pays $5.15 per piece. Under the proposed rates, it will pay 19% more, or $6.15 per piece. Company C ships 30 million 11-oz. parcels at the Standard Mail machinable rate of $0.875 per piece plus labor and transportation. In the new rate case, the rate will increase 57%, to $1.37 per piece plus labor and transportation.

Priority pricing

A significant change proposed for Priority Mail is the introduction of dimensional-weight (dim-weight) pricing. USPS proposes applying dim-weight pricing only to parcels larger than one cubic foot that are going to zones 5-8, where air transportation is typically used.

Dim-weight pricing converts a parcel’s cubic size into a weight. It reflects package density, which the Postal Service defines as “the amount of space a package occupies in relation to its scale weight.” By this definition, a large but relatively lightweight parcel could cost more to ship than a smaller, heavier piece.

A dimensional-weight structure more accurately reflects transportation costs, say other parcel carriers, and they are following suit. DHL Global Mail, United Parcel Service, and FedEx are all introducing or have introduced dim-weight pricing for transporting customers’ goods.

“The way the market is evolving, more low-density packages are being shipped,” says Paul Tessy, DHL Global Mail’s vice president of domestic products. “Trucks are maxing out in volume before their maximum weight is achieved. As a result, we might only be able to get 500 pieces on a truck that should be able to hold 1,000.” Dim-weight pricing makes customers pay their share of the total vehicle capacity that their packages occupy.

Determining dim-weight

To calculate the dim-weight price of boxlike items, first weigh the item. Next, measure its length, width, and height. Round off each measurement to the nearest whole inch. Multiply the item’s length by width by height to determine cubic capacity in terms of cubic inches. If the parcel is 1,728 cubic inches (one cubic foot) or less, it will not receive dim-weight pricing. Instead, pricing will be based on weight and zone.

If the parcel exceeds one cubic foot, divide the total number of cubic inches by the dim factor of 194 to determine the parcel’s dimensional weight. Round up any fraction of a pound to the next whole pound. Using this formula, a 21″ × 20″ × 20″ package measures 8,400 cubic inches and has a dim-weight of 43.29 lbs. which gets rounded up to 44 lbs. Postage would be based on dim-weight or the actual scale weight, whichever is greater, and zone.

An irregularly shaped item such as a guitar case could also receive dim-weight pricing. To determine the dim-weight of an irregularly shaped parcel, first measure the item’s length, width, and height at its maximum cross-sections. Next, multiply the length by width by height, and multiply the result by a 0.785 adjustment factor to determine cubic capacity.

Again, if the result is 1,728 cubic inches or less, dim-weight pricing does not apply, and postage will be based on the item’s scale weight and zone. If the result exceeds 1,728 cubic inches, divide the result by the dim factor of 194 to determine the dimensional weight, rounding up any fraction of a pound to the next whole pound. Using this formula, a guitar case measuring 30″ × 18″ × 9″ at its maximum cross-sections has a cubic capacity of 3,815.1 cubic inches and a dim-weight of 20 lbs.

Standard revisions

Along with new pricing that more closely reflects its true costs for processing and delivering mail, the Postal Service is proposing new mailing standards that support its drive toward efficiency. Highlights of the proposed rate changes for parcels include:

  • Parcels weighing as little as 10 lbs. can qualify for presort discounts, down from the current 15 lbs.

  • The elimination of almost all bundling of parcels, in order to simplify standards.

  • Additional options to combine different classes of parcels in sacks and on pallets to achieve finer levels of presort, provided they are in the same processing category.

  • Required barcoding of parcels unless prepared in five-digit scheme containers.

  • Enhanced discounts to encourage drop-shipping of parcels to destination delivery units (DDUs), with no minimum volume requirement for parcels sorted to five-digit containers.

Even with the lifting of the minimum-volume requirement, most parcel shippers aren’t likely to ship enough packages into each of the country’s more than 33,000 DDUs for drop-shipping to be worth their while, unless they work with a third-party consolidator. The consolidator would pick up a company’s parcels and combine them with parcels from other clients to obtain enough volume to more than compensate for the expense of transporting the packages to thousands of DDUs rather than to 21 bulk mail centers (BMCs) or 350 sectional center facilities (SCFs).

“For parcel customers to have access to those USPS networks, they really need to think about how they can drop their sorts down to a lower level to achieve greater discounts,” says Tessy.

“When the mail gets to the DDU, all the processing work has been removed from the Postal Service’s bucket, and they just do final mile delivery,” says Michael Gilbert, DHL Global Mail’s vice president of northeast sales. “That’s what the Postal Service does best — final-mile delivery.”

It’s clear that the revised standards will mean changes for parcel shippers. “The new formula that USPS is using in this rate case is causing a lot of parcel shippers to review how they do business and how they get their parcels into the USPS supply chain,” Tessy adds.