Proposed USPS rate increases may influence express carriers' pricing
Earlier this year, the United States Postal Service (USPS) Board of Governors requested that the Postal Rate Commission (PRC) sign off on proposed increases for almost all of its domestic postage rates and fees, which would go into effect no sooner than May 2007.
The cumulative average of the proposed increases is 8.5 percent. Rates for priority mail and express mail would rise 13.8 percent and 12.5 percent, respectively. Parcel post rates would increase 13.7 percent.
If the commission approves those increases, the largest express carriers—FedEx, UPS, and DHL—could well use that to their advantage when developing their 2007 rate schedules, suggested Michael A. Regan, CEO of transportation-rate analysts TranzAct Technologies. “For the Big Three, the USPS rates can be viewed as the floor level [of pricing],” he says. “… If the floor rises 12 or 13 percent, they can raise their own rates by more than 4 percent.”
Thus, parcel and express shippers should watch where the USPS is going with its rates if they want some idea of what the big integrated carriers will do. One way to prepare for rate increases, Regan suggested, is to negotiate multiple-year contracts with locked-in rates.
The rate proposal tells the market that the USPS plans to focus more heavily on its mail business, where it has a universal service mandate, said Evan Armstrong, president of consultants Armstrong and Associates Inc. If that is indeed the case, then more business is likely to shift to the parcel carriers.
“This could really open the door for express carriers, because companies like FedEx and UPS Ground will continue to increase revenues from package services, while USPS revenues [for its package service business] have really gone down year-over-year since 2003,” said Armstrong.
