photo credit: wall street journal

It’s no secret that the United States Postal Service has been on a mission to grow its parcel business. But the rate cuts that went into effect on Sept. 7 may be one of its most aggressive moves yet. The pricing changes affect two Priority Mail offerings – Commercial Base and Commercial Plus – and spotlight USPS’s increasing focus on attracting large e-commerce customers. For customers shipping at least 50,000 parcels a year, price cuts could be more than 50 percent.

As one would expect, UPS and FedEx are none too happy, especially after they’ve just announced they will charge shippers by dimensional weight for all package sizes come 2015. Documents filed by UPS and FedEx with the Postal Regulatory Commission claim the USPS is using its near monopoly status to gain more commercial business, which is an interesting claim considering many shippers have voiced their own frustration over duopolistic behavior from UPS and FedEx throughout the years.

Over the last five years, the USPS has grown its parcel business by 20 percent, earning status as a viable option. While UPS and FedEx continue to increase margins with price increases and high fuel surcharges, the USPS is playing the game differently. It will continue to price by weight, rather than dimension, and forgo fuel surcharges altogether. While UPS and FedEx do offer a wide range of discounts to volume customers, the carriers’ long lists of accessorial fees and complicated contractual terms have made it more difficult to predict and control costs.

The USPS continues to surprise the industry. Taking market share away from large players is no small feat. Still, a few questions remain: How will these changes impact the long-term partnerships between the USPS and FedEx and UPS for last mile delivery? Is this strategy sustainable for the USPS, which has operated at a loss for the last 21 out of 23 quarters? Finally, how will this impact capacity and service? Is the USPS prepared to handle the volume given a $10 billion need for new trucks and sorting equipment?

USPS Slashes Rates, But Can it Handle the Surge? « Spend Matters.