The United States Postal Service (USPS) announced a 25% average rate increase for its popular Parcel Select service, effective July 2024. This increase, part of the USPS's strategic "Delivering for America" 10-year plan to enhance service delivery and ensure the organization's financial sustainability, is expected to have a major impact on high-volume carriers such as FedEx and UPS, who leverage this service to reach regional destinations. Shippers should consider mitigation opportunities now as these carriers adjust their rates to maintain their margins in the face of revenue declines for both FedEx and UPS in 2023 and a drop in U.S. parcel revenue for the first time in seven years.
While the rate hike might initially appear challenging, viewing it within the broader context of USPS's service offerings and overall network improvements is important. Shippers should ask a few key questions as they consider the impact of this increase and their response:
- Is this pricing change a strategic decision by USPS to attempt to claw full distribution volume away from UPS and FedEx rather than be a last-mile provider for them?
- Does this impending price increase on UPS Mail Innovations and FedEx SurePost make USPS a more appealing option, or does it push shippers towards UPS Ground and FedEx Home Delivery?
- Will UPS and FedEx prioritize top-line revenue or profitability when making their pricing decisions due to this USPS change?
Once these questions are answered, shippers can follow this checklist to find the best formula to balance price and delivery commitments.
- Optimize shipping methods
- Review shipping profiles: Analyze your shipping data to identify the most frequent destinations and package characteristics. This can help in selecting the most cost-effective service options.
- Mix and match services: Consider using a combination of USPS services. For instance, USPS Ground Advantage remains a cost-effective option with no price increase, offering 2-5 day delivery, $100 insurance, and free pickup).
- Negotiate with carriers
- Bulk shipping discounts: Discuss negotiating bulk shipping discounts with FedEx and UPS. Despite the Parcel Select rate increase, these carriers might offer competitive rates to retain your business.
- Service Level Agreements (SLAs): Ensure that your contracts with carriers include flexible terms allowing adjustments based on service and cost changes.
- Leverage Technology
- Shipping software: Utilize shipping software that automatically selects the most cost-effective shipping method based on destination, weight, and delivery time. This can streamline operations and reduce costs.
- Data analytics: Implement data analytics tools to monitor shipping trends and costs. This proactive approach can help make informed decisions and optimize shipping strategies.
- Enhance operational efficiency
- Packaging optimization: Reduce dimensional weight by optimizing packaging. Smaller, lighter packages can lower shipping costs, especially with weight-based pricing models.
- Consolidate shipments: Where feasible, consolidate multiple shipments into one package to save on per-package costs.
- Explore alternative carriers
- Regional carriers: Consider regional carriers that may offer competitive rates and reliable service for specific areas. This diversification can reduce dependency on any single carrier.
- Hybrid services: Investigate hybrid shipping services such as "zone skipping" that combine the strengths of multiple carriers to achieve cost savings and efficient delivery.
Meeting home delivery expectations cost-effectively
According to the AlixPartners 2023 Annual Home Delivery Survey, consumer expectations around free shipping have evolved, with a current expectation of delivery within roughly three days. This is a significant decrease from the five-and-a-half days expected a decade ago. Additionally, 96% of consumers indicated that free delivery is a critical factor in their purchasing decisions. While the USPS Parcel Select rate increase may present a challenge to managing consumer expectations economically, it also allows shippers to reevaluate and optimize their shipping strategies. By leveraging a mix of USPS services, negotiating with carriers, employing advanced shipping technologies, and enhancing operational efficiency, shippers can effectively manage costs and continue to deliver value to their customers.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.