This week, the U.S. Postal Service (USPS) suddenly changed the dynamics related to shipping costs in B2C/B2B online commerce and the beneficiaries may well be online customers and mass retailers. The agency aggressively cut shipping prices involving small packages in what the Wall Street Journal described as: “..aiming to steal business from both FedEx Corp. and United Parcel Service Inc.,”

In effect, the Postal Service is acknowledging that its parcel rates were not competitive with its market competitors and it wants to do something about that.  The steepest rate cuts are targeted to large volume shippers with packages of less than 5 pounds, with cuts involving other package weights and volumes. In its reporting, the Wall Street Journal (paid subscription or free metered view) cites an industry observer as indicating that a number of E-commerce shippers are either considering or have elected to now utilize the USPS as a result of this rate price change. In its article, WSJ further features a table that contrasts carrier shipping costs for 5-10-20 pound packages which clearly depicts more competitive USPS rates, especially when shippers factor the added fuel and other surcharges incurred by both FedEx and UPS. The USPS does not apply surcharges and has been the last-mile delivery mechanism for many rural addresses in the United States.

In previous Supply Chain Matters commentaries, we raised awareness that planned dimensional-based rate increases initially announced by FedEx and subsequently UPS  would have definite impacts to E-commerce shipments in 2015. These rate hikes especially involved low weight but high bulk item shipments such as a case of toilet paper or paper towels.

Both FedEx and UPS were not at all pleased by the latest USPS pricing move and have each logged formal protests and claiming foul. No doubt, certain members of the U.S. Congress may be receiving protest calls.  Then again, the cry concerning the USPS was to stop hemorrhaging money and this may well be a bold step in that direction. Officials at the USPS indicate that they will make money with these more competitive rates.

The USPS has made other important moves including partnering with online retailers Amazonfor Sunday deliveries, This week provided an additional announcement that Amazon, specifically its Amazon Fresh unit, and the USPS will partner in a trail to shuttle insulated containers of food products and groceries to residences in San Francisco, and perhaps other urban markets as well.

In the view of Supply Chain Matters, this latest move sets-up a whole different dynamic for B2C/B2B online customer fulfillment in the forthcoming holiday buying peak period.  Online retailers who want to maintain attractive free shipping options now have a potential new alternative to control costs of such programs.  Both FedEx and UPS will have to deal with a different competitive landscape in terms of rates.

Readers will recall that during the 2013 holiday surge period, the prime headline was the blame game directed at package delivery carriers carrier’s UPS, and to some extent FedEx, inability to handle the last-minute online fulfillment volumes that swamped logistics networks in the two days prior to the Christmas holiday. Both carriers have since invested in added logistics capabilities and have alerted online retailers that there may be a premium cost involved in supporting last-minute or time-sensitive shipments. Amazon for one has also been working on developing its own parcel delivery network.

The USPS has in all likelihood, added itself to this dynamic in the upcoming period. Reducing rates is one strategy, but delivering on-time at the height of crunch periods when all networks are tapped is the other test of competitiveness. We will all have to wait and observe.

In the meantime, we extend a Supply Chain Matters thumbs-up to the USPS for finally making bold moves.

 

You and I as online consumers, and many online retailers and businesses stand to benefit with these latest USPS moves.

Bob Ferrari