USPS: Offering a regional approach for e-commerce parcels

James Cartledge speaks to USPS vice president, domestic products, Gary Reblin about how an emphasis on regional shipping and more flexible pricing is inspiring growth in the Postal Service package business. While its rivals FedEx and UPS are working to encourage more US online retailers to consider marketing their products abroad – thereby expanding international shipping volumes – the US Postal Service has been taking a different approach in its response to the potential for growth in the e-commerce package business.

Its package services have become a key priority for its new chief executive this year, US Postmaster General Pat Donahoe, as has the entire business-to-consumer channel – so B2C parcels cross over into two USPS priority areas for growth.

Gary Reblin, the Postal Service’s vice president, domestic products, says that e-commerce has helped drive B2C parcels to comprise 27% of the entire package volume and coming of similar growth in previous years, is therefore a particular target for new services.

The big push for the Postal Service this year is to facilitate more shipping within local areas and regions within the United States.

While private sector rivals are forecasting that 50% of e-commerce sales for US retailers will be to international markets within a few years, the US Postal Service is seeking to snap up more of the homegrown demand for internet shopping.

Its prediction is that more and more small businesses in America are developing a web presence, and as internet users grow more comfortable making online purchases, the resulting e-commerce will drive up local shipping.

Even for larger online retailers, Reblin explains that the market is moving towards a more regional distribution model.

“As the big guys get bigger, the bigger they get, the more warehouses they’re putting in nationally,” he says, “so the distances that they have to send a good is going down further and further.”

Along with the regional distribution trend, the major trend in e-commerce at the moment is the increasing public expectation that buying products from the internet should come with “free shipping”.

USPS vice president, domestic products, Gary Reblin

Reblin says that while shipping itself will never be free, the concept does mean retailers being pressed to look for the cheapest possible shipping services – meaning that regional shipping services, where prices can be lowered for shipping within 100 miles or so, become very attractive.

“We’re trying to put solutions out there that match different niches in the marketplace,” says Reblin. “If I’m a shipper and I know 95% of my product goes (zones) one to three, then this is a good product for me – if it’s 30-70 the other way around, then you should consider the flat-rate boxes that are really designed around a centralised shipper.”

The Postal Service has launched two new products this year offering different spins on the regional shipping concept for different types of online retailer.

The Priority Mail Regional Rate box, launched in January, offers fast shipping while undercutting rival express services, while the Parcel Select Regional Ground service, launched just last month, offers a service for higher-volume retailers seeking a predictable and reliable service for a very low price, but which might take a day or two longer.

Priority Mail regional rate

The new Priority Mail offering is particularly seeking to attract smaller e-commerce players – perhaps those fighting for good search rankings on Amazon or eBay marketplace platforms.

Priority Mail regional rate boxes offer a one- to two-day service based on the Postal Service’s “If it fits, it ships” concept, but with a pricing based on packages generally traveling within three USPS zones.

The regional rate box was developed following feedback from shippers, which had suggested that flat-rate boxes were fine for a centralized distribution model, but less than attractive for those shipping mainly within 100 miles.

And since January, Reblin says the shippers have responded very positively to the new offering. The USPS has already sold five million of the Priority Mail regional rate boxes through its website, taking in $2.5m in revenue in the process, with sales now accelerating to a million-dollar-per-month rate.

“We’ve actually had several large companies come back to us and said they’re now interested in looking at contracts to get on board with this regional rate box. So, we’re just scratching the surface,” Reblin says.

Parcel Select Regional Ground

Meanwhile, Parcel Select Regional Ground has been developed for larger online retailers finding their margins squeezed tightly by a sales backlash from bricks-and-mortar retailers, and the increasing expectation for “free shipping”.

Part of the high-volume, low-cost Parcel Select line of services for large and medium-sized mailers, it is a “no frills” service set up to keep costs as low as possible.

It means, for example, not including free packaging, and building in a one-day deferment period, where a package could wait up to 24 hours in order for the Postal Service to manage loads as efficiently as possible.

“This Christmas over 50% of what was shipped according to ComScore went out as free shipping,” Reblin says. “Free shipping isn’t free – there’s a cost associated with it, so it has to be put into the price that’s charged to the overall end customer. If that price goes well over what people are finding in retail, it’s no longer seen as a bargain, so people won’t shop online.”

Reblin says the Regional Ground service targets a delivery time of four days or less within zone three.

“As long as the proper expectation’s set, then they’re fine with it,” Reblin says of online shoppers. “It’s not going to be a rush delivery, but it is going to be a cost-effective delivery. And within zone one to three, four days isn’t that bad.”

Pricing developments

Away from the new regional parcel services, the Postal Service has also been reshuffling its Standard Mail and First Class Mail parcel services, splitting its retail offerings from its commercial parcel services and offering new prices for commercial parcels based on bulk entry.

“What we’re trying to do is follow the same paradigm that we did with Priority Mail,” says Reblin. “It’s obviously a less costly transaction if somebody brings us something in bulk than to have a retail transaction for every product.”

Though parcel are concerned about potential price hikes ahead with the USPS transferring its Standard Mail and First Class Mail parcel services from its market-dominant portfolio to its less-regulated competitive portfolio of services, Reblin says so far the new commercial parcels services have “really taken off” in the last month.

For commercial customers, Reblin explains that the move means more convenience, with an end to the First Class Mail and Standard Mail 13-ounce per piece limit – a limit that he said “doesn’t make any sense” to customers needing to find a different carrier for a package if it weighed slightly more than a pound.

“We made it difficult on the marketplace with that offering,” he says. “Commercial plus puts 14, 15 and 16oz packages into play.”

Pricing developments in the commercial side of the parcels business are also set to include more options to attract larger mailers to consider the Postal Service rather than its rivals, such as has been seen with the cubic concept of pricing, which Rebin says has been “extremely successful” since its introduction last year.

Cubic pricing means paying for bulk parcels by size of package, rather than by weight. Good for dense packages, it also helps with USPS transport costs.

It has also meant USPS customers working to ensure their packaging fits better with their products, meaning less waste of resources all round, Reblin adds.

On the retail side, USPS is expanding its “Forever” concept of expiry-free prepaid postage into Priority Mail flat-rate boxes, to encourage offices to stock up on the box packages, a move that also ties in with efforts to make using the Postal Service easier to use.

Another major development for the USPS parcels business will be the huge increase in visibility capabilities now on the horizon. As discussed previously on Post&Parcel (see this article for more details), the current Delivery Confirmation service will become not only free-of-charge to commercial parcel shippers, but also expanded to a full-out track and trace offering providing visibility from entry to final delivery.

The hope for all these changes is to move back into contention to compete with the private sector in the US and to some extent help counter declines in the mail size of the Postal Service, although with parcels representing just 12% of the overall business, it will only be a part of countering with mail volume declines.

“Every 1% decline in First Class Mail volume is $300m in revenue lost,” says Reblin, “so it’s hard to say the package growth is going to save the mailing side. But it helps defer, it helps share costs, and there’s a lot of positives associated with that – We have shown over the last two years a significant market share growth.”