USPS Proposing Parcel Rate Increases in 9%-12% Range

The U.S. Postal Service is proposing a number of rate changes that would be effective on Jan. 27 including an average 9.3% increase in its Parcel Select service for packages weighing more than 1 lb., and an average of 9.9% for those same deliveries injected into local post offices, as it looks to recover rising costs and deals with stiff competition from major carriers.

Prices for Parcel Select Lightweight, i.e. those weighing less than 1 lb., will increase by 12.3%.

The USPS is also proposing an increase in the cost of a First-Class stamp from 50 cents to 55 cents. Overall, Priority Mail Express would go up 3.9% and Priority Mail would bump up 5.9%.

The changes will hit mid-size and smaller ecommerce shippers particularly hard. They were submitted by the USPS Board of Governors to the Postal Regulatory Commission (PRC) for review and approval. Parcel Select is the last-mile service the USPS provides for UPS, FedEx, Amazon and others.

Also, the USPS is expanding its dimensional weight pricing (DIM) categories to include Priority Mail and Parcel Select parcels over 1 cubic foot, using a divisor of 166 to calculate the charge. For Priority Mail Express, which had a DIM divisor of 194, it will be lowered to 166. A lower divisor number means a higher DIM charge for shippers.

“The Governors believe these new rates will keep the Postal Service competitive while providing the agency with needed revenue,’ the USPS said in a press release. “The Postal Service has some of the lowest letter mail postage rates in the industrialized world and also continues to offer a great value in shipping.”

Despite rumblings that the size of the rate changes is in reaction to criticism from President Donald Trump – who has vocally called for privatization and criticized USPS’ work with Amazon – the USPS denies this is the case. Other observers agree, saying it’s driven by market forces, costs and competition, not presidential bluster.

“The annual rate increase from the USPS is not a reaction to anything said or proposed by the President,” said Jerry Hempstead, a parcel spend consultant. He added any charge that the USPS is making money on parcel delivery – as in the case of Amazon – or even covering its costs “is just not defendable based on the economics of the present situation.”

“The USPS is not singling out a particular shipper or mailer,” Hempstead said. “The pain seems to me to be equally distributed although Parcel Select Destination Delivery Unit (DDU, i.e.  injected at a local PO) for pieces over 20 lbs. seem to be hammered. But should the postal service be encouraging via pricing pieces over 20 lbs. that drive additional vehicle acquisition costs? They’re not good on large pieces and my view is they were undercharging before and the increase is prudent from a business perspective.”

Brad Grimsley, a parcel spend consultant with Crimson & Co., said any shipper surprised by these increases “wasn’t paying attention.”

“Capacities for parcel deliveries have been stressed over the last several years as more consumers pivot to ecommerce,” Grimsley said. “UPS and FedEx raise rates every year and all including DHL are making investments in their parcel infrastructures. USPS is no different in that regard.”

Paul Huppertz, also with Crimson & Co., noted that the USPS is close to break-even operationally if you back out the massive pre-funding of retiree health benefits, an albatross the carriers don’t share. “Maybe USPS isn’t as inefficient as we tend to think when we hear about massive losses every quarter,” Huppertz said.

Charles Dimov, vice president of marketing for order management software firm OrderDynamics, said shipping rate increases in general are forcing retailers to step up omnichannel tactics like buy online or reserve online and pickup in store.

“The move to increase parcel pricing points in the last mile is still one of retail’s biggest challenges and continues to get more expensive,” Dimov said. “(Store pickup) helps them curb the impact of price increases from USPS and other carriers and offset margin erosion.”

With Amazon launching an army of contractors to handle more of its last-mile deliveries, Hempstead suggested the USPS price increases may push some volume that way. Others observed that the UPS until now has been much less aggressive in annual price increases than the carriers, and this is a bit of a catch-up based on market forces.

“(The increases) may also have UPS and FedEx and DHL reconsider which weight breaks to use the USPS for, which is bad for the USPS but not bad for those hybrid postal products offered by the carriers,” he said.

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