Economys woes affect parcel shipping volumes

The average weight-per-piece in Periodicals Mail has gone down this year, which probably means many publications have less advertising due to the slowing economy.
Since the advertising portion in Periodicals rates makes up a larger part of the cost coverage than the editorial portion, one has to wonder what impact this might have on the cost coverage in Periodicals Mail.
Data from the Postal Service’s third quarter Revenue, Pieces and Weight (RPW) report show that total volume in Periodicals Mail increased in the quarter by 1.3% compared to the third quarter in 2000. Periodicals Mail revenue also went up over last year by 6.7% due to the rate increase. But the weight of Periodicals Mail in quarter three declined 4.5% compared to Q3 in 2000. That likely indicates a lower weight-per-piece in Periodicals.
Industry experts say it’s a fair assumption that publications have less advertising pages because of the slowing economy. The rate structure in Periodicals Mail has a piece portion and a pound portion to it. If all of the
reduction in the weight-per-piece of Periodicals is in the advertising portion (due to the economy), then advertising pages have gone down. The mark up on the advertising portion of the rate structure is greater than the editorial portion. Assuming 100% coverage in Periodicals, advertising covers about 140% and editorial only about 80%. When you lose advertising, you lose your bigger contributor.
Consider further that when the advertising percentage comes down, the USPS gives away more in its per-piece editorial discount. So the USPS could be losing revenue there as well.
Of course all of this information could just be an interesting side note. If the USPS files its rate case in the fall, it will have to use 2000 as the base year. The 2001 Billings Determinants Document won’t be released until March 2002. That means this dip in advertising in 2001 and its effect on Periodicals wouldn’t even make it into the rate case. Further, we don’t know how other factors might have decreased costs in Periodicals this year.
The base year should prove important for Periodicals
The drop in Priority Mail volumes could have more to do with the slowing economy than with the recent rate increase, suggests data compiled by Alan Robinson, an economist and president of Direct Communications Group.
FedEx has also seen a drop in its deferred air volumes, Robinson’s data show. In its third quarter of this fiscal year, the USPS posted a drop in Priority Mail volumes of 5.3% compared to the same period last year (SPLY). FedEx saw a decline in volume in its deferred air products of 9.1%. See chart below.
United Parcel Service posted a gain in volume of 2.6% in its deferred air services, but had a slight decline in ground volumes in the quarter of 1.3% compared to SPLY. Airborne Express had a marked jump in volume in the third quarter 2001, up 27%. The third-quarter time periods for the four carriers are not identical but do overlap. See note at bottom of chart.
Another indication of the economy’s effect on
shipping is the decrease in volumes for all carriers in overnight services. Airborne posted the largest decrease from 2000 to 2001 of 5%, with FedEx close behind with a loss of 3.1% in overnight volume. UPS’ volume was flat and the Postal Service’s Express Mail volumes dropped 1.5% from SPLY.
The USPS’ loss in Priority Mail was offset to some degree by gains in Parcel Post. Parcel Post volumes were up 9.3% in quarter three compared to Q3 in 2000. Robinson says the volume data suggest shipping in the business-to-business market has shrunk hut the businessto-household market appears to be growing. Of course, deferred air is the profitable market for the carriers as it generates the highest revenue-per-piece.
The RPW data, along with some anecdotal evidence,
suggest the USPS is losing heavier-weight shippers in
Priority Mail. The average weight per piece of Priority
Mail did go down in the third quarter, which means the
USPS is handling lower-priced packages.