USPS strengthens position in shipping market
USPS said it has gained market share in the weakening domestic package shipping market after being allowed to offer competitive pricing for the first time. USPS said it has gained market share in the weakening domestic package shipping market after being allowed to offer competitive pricing for the first time.
The government agency said it has raised the estimated 15% share claimed in September last year for its priority mail service, much of it in the wake of the virtual withdrawal of German rival DHL from the market following a failed and costly six-year expansion.
USPS has emerged as the key competitor to UPS and FedEx.
All three claim to have benefited from the decision by DHL, a unit of Deutsche Post, to end US domestic service.
DHL's withdrawal has helped alleviate some of the sharp slump in demand suffered by the sector, though much of its business is viewed as low margin because the German company offered heavy discounts to stay afloat.
The weak economy also has rendered big shippers more cost-conscious overall and open to competitive pitches, according to USPS executives.
"People are reevaluating every aspect of their business (amid the slow economy), and what we have been able to do is go in there and show them another alternative," said Gary Reblin, vice president for expedited mail at USPS.
Reblin said the postal service has signed up 18 new accounts from large customers – defined as generating $2.5m or more in annualised revenue – over the past few months.
Market share for USPS' priority mail service registered about 15% as of 30 September, the close of the agency's 2008 fiscal year. Reblin contended that the percentage has gone up since then, although he added that the gains haven't been quantified yet.
UPS and FedEx, which reports quarterly earnings 19 March, declined to comment on the competition from USPS.
The postal service competes with both for some services but also is a customer, using them for air transport, for instance.
USPS has a deal to provide pick-up and delivery services for DHL in rural areas, although the business has shrunk as DHL has scaled back its domestic service. Meanwhile, DHL's decision has also slowed talks between it and UPS regarding a deal for UPS to handle DHL's air freight.
The postal service is best known for mail delivery, but the agency generated about 11%, or $8.35bn, of its $75bn in fiscal 2008 revenue from shipping services.
A law passed at the end of 2006 empowered USPS to offer volume-related price discounts on some of its shipping services for the first time, lifting a previous mandate for a uniform price for all. It took until early last year for USPS to gear up the competitive offerings and start rolling them out.
Beforehand, "we competed without being able to compete," Reblin said. "The gloves were taken off" by the 2006 law.
But the market aggressiveness over the past year hasn't been able to shelter USPS from the impact of the weak economy.
With shipping demand slumping industry-wide, USPS' shipping-service volumes dropped about 3%, to 1.58bn pieces, in fiscal 2008. The agency's shipping volumes were off about 10% in its recent fiscal 2009 first quarter ended on 31 December, at 401m pieces.
Reblin voiced optimism nonetheless, noting that USPS' volumes have yet to reflect the full impact of the large new contracts it has signed up. He also said USPS sees opportunities to win more new business, with a major new national television advertising effort slated to begin in May.
"We're seeing an uptick" in recent volumes, he said. "We think we can bring (quarterly volumes) back to at least last year's numbers by the end of this year."
