USPS seeks to make Commercial First Class Mail Parcels a competitive product

Taking steps to gain more share in a challenging market, the United States Postal Service recently announced that it has asked the Postal Regulatory Commission (PRC) to reclassify Commercial First-Class Mail Parcels as a competitive product.

USPS officials said that this is a formal request to move Commercial First-Class Mail Parcels from the market-dominant product list and add “Lightweight Commercial Parcels” to the competitive product list.

This filing is akin to one made by the USPS last August, when it petitioned the PRC to move its Standard Mail parcels from its market-dominant product list to its competitive products list. This measure would have enabled fulfillment parcels to become a lightweight subcategory of Parcel Select, a package delivery service geared towards large shippers. It was part of the USPS’s exigent price case to raise rates filed on July 6, which the PRC rejected in late September on the grounds that the USPS “failed to justify rate increases in excess of its statutory CPI (consumer price index) price cap.”

If the PRC signs off on the USPS proposal, effective April 17 qualifying customers will receive Commercial Base Pricing for parcels weighing 13 ounces or less and can receive Commercial Plus Pricing for parcels weighing less than one pound. Commercial Base and Commercial Plus offerings are specifically geared towards shippers.

“This product serves a highly competitive marketplace, with many participants offering similar products,” said Gary Reblin, vice president, Domestic Products, in a statement. “By moving to a competitive product classification, we have greater flexibility to make this offering more attractive to commercial shippers.”

Commercial First-Class Mail Parcels are a competitive product from the point of view that it is part of the parcel business and because these parcels weigh less than one pound does not mean it should stay on the monopoly—or market dominant—side, according to Satish Jindel, president of SJ Consulting.

And making it a competitive product would allow the USPS to focus on what it does best and assist them in coming up with pricing for customers who tender small parcels to them in the USPS network in which they are most efficient in, said Jindel.

“It may be considered a competitive product, but it mainly will be a complimentary product for UPS and FedEx….allowing them to handle long-haul shipments from Los Angeles to Boston, for example, and then leverage the USPS to move shipments from Boston to surrounding areas in the Massachusetts area,” said Jindel.

According to SJ Consulting Data, USPS First Class Mail Parcels represented 574.6 million shipments in 2010, with $1.134 billion in revenue.

Doug Caldwell, president of ParcelResearch, said that moving First Class Parcels to the Competitive category “makes perfect sense,” because First Class parcels are widely used by the shipping community, as 1-13 oz packages (typically merchandise, blank checks, CD’s & DVD’s etc) with an extremely attractive price point are an extremely popular offering—with the USPS moving more than 2 million pieces per day.

Despite whatever verdict the PRC hands down on this proposal, Jerry Hempstead, principal of Hempstead Consulting, pointed out that for parcels weighing less than one pound, the USPS is a monopoly, explaining that the minimum charge for UPS and FedEx for the closest similar offerings are the Zone 2, 1 pound rate, as neither UPS or FedEx bills in ounces.

“Because parcels under a pound (standard parcels as compared to parcels over a pound which is express mail, priority mail and parcel post) are currently part of the ‘monopoly’ or ‘market dominant’ products, the USPS is restrained on how it prices those parcels and the rules of engagement in the preparation, tender, and discounting of that service type,” said Hempstead. “Market Dominant products have a CPI cap on how much rates can increase in a class. Now because these parcels are in with other types of mail currently like flats the USPS is taking the rates up considerably on standard parcels that have workshare discounts although the ‘class’ is only going up by the cap. Unfortunately, for many large shippers they will see rates increase as much as 34 percent starting April 17.”

The USPS announced earlier this month it lost $329 million in the fiscal first quarter, following an $8.5 billion loss in fiscal year 2010.

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