News / USPS leads the charge as rates for parcel deliveries start to fall

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A few days ago, eBay and Etsy trumpeted good news to online sellers that use their platforms: shipping some parcels is actually getting cheaper.

After years of inexorable rise, gravity is finally catching up with parcel rates, and the US Postal Service (USPS) is leading the downward charge, with UPS is allegedly gearing up to follow suit.

The platforms reported that shipping parcels through the USPS’s Priority Mail service was going to be up to 18% cheaper, although most charges are sinking in single-digit percentages. Pricing is based on shipment weight and distance. According to Etsy, average savings are about 8%.

eBay informed its clients: “You will see UPS rates decrease as much as 18% for certain packages lighter in weight and moving across shorter distances, or increase up to 4% for heavier packages going farther distances.”

In a separate move, the USPS revealed the planned pricing structure for its new Ground Advantage product, supposed to go live on 9 July. This amalgamates two ground services, First Class Package (for shipments weighing under one pound) and Parcel Select Ground (for shipments up to 70lb), with a new offering for parcels up to 70lb where the price is based on the dimensions of the package.

For shippers the new line-up means rate decreases of up to 3.2% versus current rates.

The agency described the new offering as a “reliable and more affordable way to ship packages up to 70 lbs in two to five business days”.

Unlike most other segments of the transport sector, parcel prices seemed impervious to the slowing market, noted John Haber, chief strategy officer of Transportation Insight. Now the convergence of a softer market and inflation is changing the picture. The cost of shipping parcels is unsustainable, he pointed out.

Most years the big integrators have led the charge in the US market with annual tariff increases of about 5%-6%, but costs for shippers actually went up in double digits every year, as a result of higher surcharges piled on top of the general rate hike. Moreover, the standard increases heralded by the integrators usually applied mostly to lanes that did not make up the bulk of overall traffic, Mr Haber added.

As parcel shippers increasingly turn to lower-cost options in a stagnating e-commerce market, carriers are struggling to optimise their loads, a far cry from 18 months ago when they could afford to dump some customers to make room for higher-yielding business.

The battle over smaller shippers has heated up, Mr Haber added. He views the initiatives of the USPS as an effort to stem the loss of traffic to FedEx and UPS, which have courted this segment more aggressively.

Behind the scenes pricing has eased already, he said. “We’re seeing pricing is getting aggressive. It’s being done through discounting.”

Like annual general rate increase announcements, the current spate of price reductions does not apply across the board. The lower charges apply to lightweight parcels moving on shorter distances.

And Mr Haber is curious how UPS is going to leverage dynamic pricing, which CEO Carol Tomé signalled in a recent earnings call. She characterised this as a powerful tool to attract new customers and claw back business that had shifted to other carriers due to concerns over the UPS-Teamsters contract negotiations.

It is unclear at this point how UPS will use ‘dynamic pricing’, but the integrators are clearly leveraging technology in conjunction with pricing. This enables their sales forces to develop pricing plans for customers they are visiting on the spot, and the technology integration makes the ties stickier, said Mr Haber.