USPS asks to remove price cap from budget parcels service

The US Postal Service is requesting regulators allow it to move its Parcel Post service from its portfolio of monopoly services to its competitive shipping portfolio. The move would mean a “nearly identical” less-than-urgent parcel product but without the inflation-based price cap that the Postal Service’s market-dominant parcel service currently faces.

The Postal Service said it would leave its special “Alaska Bypass” service, using third-party aircraft to ferry household essentials up to remote parts of Alaska, out of the move into competitive products.

Parcel Post is mainly a ground package delivery service that accounts for just 1.1% of the Postal Service’s packages overall, but a greater proportion – 17.6% – of packages shipped from post offices.

Data from last year suggests around 57% of Parcel Post shipments were sent by consumers or small businesses through post offices and other outlets like FedEx Office and The UPS Store.

Filing with the Postal Regulatory Commission, USPS attorneys insisted the move to competitive pricing would not have a “disproportionate” impact on small businesses because they accounted for just 15% of the volume, with 43% of the volume sent by larger commercial mailers – including UPS and FedEx.

The two US shipping giants used Parcel Post to send more than 2.5m items to American households during the 2011 financial year.

Competitive

USPS, which filed for permission to make the change at the end of April, said it believed the US parcel market was generally of a competitive nature, and therefore USPS parcel services should have a competitive pricing flexibility.

Should regulators at the Postal Regulatory Commission agree, the move of Parcel Post to the competitive portfolio would almost certainly come with a price increase attached.

Last year the Parcel Post service covered only 89.2% of its operating costs, and under US postal rules competitive services cannot be cross-subsidised by other products or services.

Currently, Parcel Post prices are on average 24.1% lower than UPS Ground retail rates and 14.7% lower than FedEx Ground retail rates, although the USPS service is not quite as fast, and does not come with a guaranteed delivery day.

In its filing, USPS argued that this meant it did not hold a real monopoly on the economy parcels market with its Parcel Post service.

USPS received approval from the regulators last year to move its commercial Standard Mail Parcels service from its market-dominant to its competitive portfolio. The new Lightweight Parcel Select subcategory that replaced it now avoids the annual inflation-linked price cap that the Postal Service must generally stick to for its monopoly products.

The Postal Service ended its International Parcel Post service in 2007, after 120 years of existence, turning it into part of International First Class Mail.