US regulators back Parcel Post transfer to competitive products

US regulators have given the green light for the Postal Service to move its single-piece Parcel Post service from its monopoly products into its lightly-regulated competitive portfolio. The less-than-urgent ground package delivery service accounts for about 1.1% of the US ground package market, and accounts for 17.6% parcels sent via post offices and private-sector mailing stores in the US.

The service competes against the likes of UPS Ground and FedEx Ground, but generally offers lower prices and slower delivery times, around 24% lower than UPS ground retail rates and 15% lower than FedEx ground rates.

USPS estimates suggest 43% of Parcel Post customers are commercial users, 15% small businesses. Larger commercial users shipped around 2.5m Parcel Post pieces in 2011.

Transferring to the competitive portfolio of USPS products will mean that the Postal Service can set its own prices for the service, outside the inflation-based price cap limiting rate rises for its market-dominant products.

As it transfers, a 15% price increase will be required at the very least, to ensure the new competitive product covers its costs, and is not subsidised by USPS monopoly services.

The Postal Regulatory Commission gave a conditional approval for the transfer on Friday, with the Alaska Bypass Service retained as a separate market dominant product.

In granting the approval, the regulators said customers generally had sufficient alternative services available in the event that USPS raised its prices too high.

And, the Commission suggested that Priority Mail rates would effectively serve as a price cap on Parcel Post, since if rates were higher volume would shift to the Priority Mail service.

The Commission said: “Even with below cost single-piece Parcel Post rates, the Postal Service’s share of the market remains relatively small. To compete effectively, it must strive, in concert with increased prices, to improve the quality of service offered.”

Rural service

“Any changes to the Parcel Post product should include preserving the drop-off and pick-up access that rural post offices provide”

The public representative for the Commission did raise some concerns about how the deregulation of the Parcel Post service would affect service affordability in rural and remote areas.

Although the Commission ultimately decided there was no evidence to suggest that the Postal Service’s rivals were “inadequate” in servicing rural areas, as she concurred with the approval order, the Commission chairman Ruth Goldway urged the Postal Service to be mindful of rural communities when setting prices for the new competitive Parcel Post service.

Goldway said several studies published by the Commission back in February had indicated the Postal Service retail network had a “dominant position in rural and remote areas, providing a high level of regular and affordable service that would otherwise not be available”.

She noted that fedEx and UPS charge rural delivery area surcharges that make their retail parcel prices “much higher” than those of USPS.

“The Postal Service post office brick-and-mortar presence in rural and remote areas is significantly greater than its competitors and provides better service to rural locations,” said Goldway in her concurring opinion.

“Any changes the Postal Service makes to the Parcel Post product should include preserving the drop-off and pick-up access that rural post offices provide.”

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