USPS seeks deregulation of cross-border parcel service

Significant price rises are on the way for parcels being shipped by the Postal Service out of the United States, if regulators allow USPS to move its international First Class package service to the competitive side of its portfolio. The US Postal Service asked regulators last week to transfer its First Class International Packages and Rolls service out of the current regulated market-dominant portfolio.

It said the service is already effectively a competitive service, competing in a “vibrant” marketplace against the likes of FedEx, DHL and UPS, and should therefore be treated by regulators as a competitive service.

Transferring the service to the competitive portfolio would allow the Postal Service more freedom in setting prices for First Class parcels sent out of the United States, with the service no longer bound by its annual inflation-based price cap.

The move could be significant for ecommerce shippers, particularly for items sent from the US to Canada, but would allow the struggling Postal Service to make the most of growing demand for Internet shoppers to buy from US-based websites.

Service standards would remain the same following the transfer, with the only major change likely to be prices.

Review

The Commission launched a review of the request today, inviting interested persons to send in comments under Docket No. MC2012-44. Comments are due by 24th August, 2012.

The request would see the existing Outbound Single-Piece First-Class Mail International Packages service withdrawn, to be replaced by a new “First-Class Package International Service” within the USPS competitive services portfolio.

Most of the service’s customers are believed to be commercial businesses, who do not send their parcels via post offices.

USPS is asking for a decision from the regulators by 10th September, 2012, to allow price changes to be included within a notice of market-dominant price changes expected to be issued mid-September.

The service transfer would not affect outbound single-piece international First Class letters, postcards or large envelopes/flats, which would remain on the Postal Service’s highly-regulated market-dominant product list.

Last month the Postal Regulatory Commission granted USPS permission to move its single-piece domestic ground service Parcel Post from its market-dominant portfolio to the competitive list. That service represents around 1.1% of the US ground package market.

Struggling severely financially, the Postal Service has found good growth in its express and package shipping services this year, including 9% year-on-year growth in its most recent quarter, up to the end of June.

Material impact

In its filing, USPS withheld data from the public domain on the potential impacts of the changes, describing the information as “commercially-sensitive and proprietary”.

However, in justifying its request for the transfer, the Postal Service cited the recent ruling from the Postal Regulatory Commission on Parcel Post that suggested that “most shippers, including small businesses” are already using private sector international parcel shipping alternatives, and that a price increase for the USPS international parcel service would therefore “not have a material impact on small business shippers”.

Under US postal law, the Postal Service is not allowed to subsidise its competitive products with income from its protected market-dominant services. USPS said its first class international packages service has a “healthy” cost coverage already.

The Postal Service said it does not wield enough market power in international packages to set its prices substantially above costs without risk of losing a “significant level of business” to competitors.

It said competitors have more than half of the market for US air exports under 70lbs (31kg).

However, USPS conceded to regulators that there could be opposition to its proposals regarding the modification of prices.

“One would expect this to be true of any customer of a product that is transferred from a market dominant classification to a competitive one,” said the Postal Service filing.

“First-Class Mail International customers ship in a broad competitive environment and currently shop the marketplace for prices and services comparable to their needs. Therefore, customers should not have major price concerns.”

USPS said following the service transfer, it intends to offer price discounts for larger volume customers, which may include small businesses.