Monday, December 2, 2013

UPS Praises Postal Service's Improvements, But Not Its Rate Hikes

United Parcel Service recently praised “impressive efforts by the Postal Service to reduce costs and improve productivity” but criticized USPS's request for emergency rate hikes.

The Postal Service’s request for “exigent” rate increases on “Market-Dominant” mail is “an unsustainable business model which can only lead to continued postal deficits and more requests to exceed the rate cap,” UPS wrote in a filing last week with the Postal Regulatory Commission. Instead, USPS’s “Competitive” products should bear a larger share of the agency’s institutional costs, according to UPS, which is a major competitor, customer, and vendor of the Postal Service.

Market-Dominant mail includes such classes as First-Class, Standard, and Periodicals, where USPS’s mailbox monopoly is a huge barrier to competition. Rate increases for such mail can generally be no greater than the rate of inflation, except USPS is seeking higher rates starting in January to compensate for revenue it lost as a result of the recent recession.

By contrast, “Competitive” services include expedited and parcel delivery, where USPS tends to compete head on with UPS, FedEx, and other private businesses. For such mail, USPS can charge what the market will bear. But much of the category’s profit gets tied up in a Competitive Products Fund that the Postal Service cannot easily access.

In the past six years, “Competitive Product revenues have grown by more than 40%, while Postal Service mail and services revenues as a whole have fallen by about 13%.”

Nevertheless, Competitive Products have continued to pay only 5.5% of USPS’s institutional costs, while the unprofitable Market-Dominant category covers the rest.

“Competitive Products’ share of total Postal Service revenue has risen from approximately 11% in FY2008 to over 18% in FY2012,” UPS wrote. “This trend is likely to continue, with Competitive Products expected to account for more than 20% of total postal revenue in FY2013 and over 23% in FY2014.”

Yet the Postal Service’s pricing strategy runs counter to the customary tactic of hiking prices based on rising demand.

“The Postal Service proposes a Market-Dominant average rate increase of more than 5.9%, while it proposes a Competitive Products average rate increase of only 2.4%, with no rate increase for Priority Mail overall,” UPS notes.

Breaching the inflation-based price cap on Market-Dominant mail will “accelerate” the ongoing decline in such mail, UPS claims.

“In short, it is unsustainable for the Postal Service to continue to rely on shrinking Market-Dominant volumes to pay the vast majority of institutional costs. The Commission should require growing Competitive Product revenues to contribute a more equitable share.”

The UPS filing doesn’t spell out the company’s motives. Its proposal would tend to cause larger price increases for the Postal Service’s Competitive Products, which go head to head with UPS’s own offerings and are gaining market share. But because it often outsources the “last mile” of delivery to the Postal Service’s vast carrier network, UPS also has a genuine interest in the health of Market-Dominant mail.

UPS’s filing doesn’t seem to be the work of a company that, as some conspiracy theorists claim, secretly wants to take over the Postal Service. Instead, its actions are consistent with its 2009 statement that, "We believe that the government plays a role in terms of ensuring that every mailbox is reached every day. That is not a responsibility that UPS would want.”

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6 comments:

just concerned said...

OF COURSE UPS DOESN'T WANT THE POSTAL SERVICE TO RAISE THE TRUE COST OF DELIVERING TO EVERY ADDRESS EVERYDAY, IT WOULD AFFECT THEIR BOTTOM LINE....COZY DEAL THEY CHARGE USPS TO FLY MAIL AROUND THE COUNTRY, THEN GET USPS TO DELIVERY THEIR PARCELS TO THE MOST EXPENSIVE AREAS IN THE COUNTRY, PLUS USPS PICKS UP PARCELS FOR UPS, FEDEX....
BOTTOM LINE IS THAT UPS USES THE POSTAL SERVICE TO DELIVER THEIR MOST COSTLY PRODUCTS, AT A LOSS FOR USPS.

D. Eadward Tree said...

Just Concerned, I don't think the proposed "exigent" rate increases would affect what UPS pays the Postal Service for deliveries. It seems that UPS is more concerned about what USPS charges for products that compete with UPS than it is with how much it has to pay USPS for deliveries.

Anonymous said...

Confused as this was in the news two weeks ago...

"Atlanta-based United Parcel Services Inc. plans to increase overall prices across many ground and air freight services an average of 4.9 percent in 2014".

D. Eadward Tree said...

That makes perfect sense, Anonymous. The Postal Service is already gaining share on services that compete with UPS. Next year the advantage could grow, as the relevant USPS prices will rise only 2.4% versus UPS' 4.9%. So, naturally, UPS is looking for a way to get USPS to increase its prices on Competitive products.

Anonymous said...

Not complicated. UPS wants their competitor to raise prices in the area they compete, we all do.

Dolma said...

Republican heavy USPS bosses and people on the make who want to get rich privatizing the USPS will no challenge UPS.

USPS--according to right wing--is supposed to compete--but supinely.

Yes--heritage foundation, cato, and Republican re-election committees all get non-profit below cost rates.

Of course, we know that UPS has raised its rates to a higher level than USPS is asking.

According to government studies-- nonprofits, high saturation bulk mailers and UPS may be getting below cost rates.

UPS gets special rates under eVS-- and USPS management has made it removed from transparency and the ability of general USPS personnel to verify correct postage and actual payment.

Today, UPS gets unfettered access to restricted federal premises and are able to self-certify delivery.

Like Pitney Bowes, UPS knows the right buttons to push--for privatization.