USPS 2019 Commercial Plus Pricing & Its Impact on Shippers – Part 1

The USPS just proposed a major multi-dimensional price and structure change with a planned January 27, 2019 implementation.  There are a lot of moving parts, including a 10% increase to mail a 1 oz letter with a 29% reduction on the 2^ndoz.  Business mailers will see a nice increase in the discount to use a Postage Meter with savings per letter increasing from 3 to 5 cents.

The focus of this article is understanding how the proposed changes in the USPS Commercial Plus Pricing will impact shippers.  Part 2 will go into more depth and include some actual case studies to see how the USPS will fare in 2019 with their continuing goal of earning more business from UPS and FedEx shippers.

Highlights of the Proposed 2019 USPS Shipping Rate Changes

• Priority Mail (PM) Commercial Plus Pricing” (CPP) will be the same as “Commercial Base” (CBP).
• Reported 5.9% increase for PM is understated, with CPP users taking a bigger hit.
• First Class Package Services (FCPS) switching to zone-based pricing and a reported 11.9% increase.
• Dimensional Divisor for Priority Mail (PM) is being reduced to 166 from 194 and will now include ALL zones. These Dim Policies will also apply to Priority Mail Express (PME) and Parcel Select (PS)
• “Balloon” pricing is removed in all categories that include the new Dimensional rating rules.

First Class Package Services (FCPS) – Commercial

• Eliminated “no zone” pricing making YoY comparisons more difficult. See Chart 1
• Commercial + 11.9% (Note: Retail + 13.3%)
• Inner zone (Zones L-4 = less than 600 miles) +6.7%.
• Outer Zones 5-8 up a whopping +15%.
• Shippers with high zone 8 profile, very common with only a single Distribution Center (DC) on one of the coasts, will see a 21% increase. This will entice those to consider opening a second DC or use 3^rd party fulfillment options.  For example, Amazon should see an increase in subscriptions to their FBA programs.
• Over a lb. To give you a better perspective on how massive this increase is, using Zone 5 rates as the median and a cumulative 5 yr. comparison, this year’s change raises the 5-yr. average to 31% from 19% (2014-2018).

Priority Mail (PM)

• Priority Mail (PM) “Commercial Plus Pricing” (CPP) will be the same as “Commercial Base” (CBP).
  • Most low volume shippers today are getting CPP via one of the Reseller Programs.
  • The USPS provided guidance prior to the 2016 rate change that CPP pricing would go away in 2017. This never happened.
  • In 2018, the USPS indicated their intention to make CBP pricing relevant again.
  • The USPS will reap a quick 3% revenue jump by eliminating the current delta between the rate tables.
• Reported 5.9% increase for PM is understated, with CPP users taking a bigger hit.
  • For example, let’s compare average increases in the highly used lanes (≤ 2 lbs, zones L-8).
    • CBP +4.6% (Chart 3)
    • CPP +8.2% (Chart 4)
  • Dim Divisor for affected packages will be reduced from 194 to 166 and will now apply to all zones; balloon pricing for zones L-4 is eliminated.
    • Negotiated Service Agreements (NSA) to allow for custom dimensional weight divisor, dimensional threshold, non-rectangular dimensional adjustment factor, or limit the applicable weights and zones.
    • 1728 cubic threshold is maintained. (no Dim policy in effect for packages under 1 cubic foot)
  • Flat Rate Products
    • Flat Rate Envelopes and Sm Pkgs.
      • CBP + 6% (Chart 5)
      • CPP +9% (Chart 6)
    • Flat Rate Med & Lg Pkg
      • CBP – Minor price decrease. (Chart 5)
      • CPP +3% (Chart 6)
    • Regional Flat Rate +4%.
    • Cubic pricing +6.6%. (Chart 7)

Parcel Select (PS)

With the huge growth of e-Commerce “free” shipping, e-tailors favor economy shipping options.  A majority of these are inducted via Parcel Select, although many will not recognize the name.  They are better known by their popular brand names like UPS SurePost, UPS Mail Innovations, FedEx SmartPost, Pitney Bowes Newgistics, OSM Worldwide and DHL SmartMail. Collectively known as “Consolidators”, these companies perform and enjoy “workshare incentives” from the Postal Service for: collection, sortation, transportation, and deep induction within the USPS network for final mile delivery.

• Important to realize that Consolidators use these programs differently, with some offering as many as 3 service levels. It is possible to get 2-3-day transit times and compete with FCPS and PM.
• New (PM) Dimensional rating policies will apply (see PM Dim policy above).
• PS Destination Entry (DDU) +9.9% and PS Sectional Center Facility (SCF) +9.6%.
  • 5 Yr. cumulative average increase down slightly to 30% from 31% (2014-2018). (Chart 8)
• Parcel Select Lightweight (PSL)
  • Ounce-based – no zones, based upon induction point.
  • + 11.5% for DDU induction, and +10.8% for SCF. (Chart 9)
  • New Dim policies do not apply to PSL
• Parcel Select Ground
  • Single Piece, 1-70 lbs., zone based.
  • Often used for OMRD – Haz Mat to avoid Air transport.
  • Was closely aligned with PM Base, now is about $.20 less on average per lane.

USPS International Shipping Rate Changes

• Retail – no changes to outbound pricing.
  • Flats limited to 15.999 ounces from previous 64 ounce limit. Earlier removed ability to ship products in this category.
• Commercial (note: Base and CPP are the same).
  • Expedited Global Express Guaranteed (GXG) +4.9%
  • Priority Mail Express International (PMEI) +3.9%
  • Priority Mail International (PMI) +3.9%
  • International Priority Airmail (IPA), International Surface Airlift (ISAL) including associated M-Bags +19.9%
  • Airmail M-Bags +5.0%
  • First Class Package International Service (FCPIS) +3.9%

This is a major increase, no way to sugarcoat it. Shippers will be well advised to analyze their shipping distribution profile to gauge how these changes will impact their costs.  It will be a good time to look for savings by examining routing logic, review carrier contracts, and network with industry peers.

Part 2 of this topic will include in-depth studies to estimate how USPS will compare to discounted FedEx and UPS rates that larger shippers command in the marketplace.  I believe the USPS has done their homework and carefully raised rates where they continue to dominate with little competition.  For those who control pricing in their own business, you know how challenging it can be to raise pricing.  This is not lost on the USPS, they know there is a much stronger elasticity in the “Competitive” (Shipping) arena than in the Market Dominant (Mailing) side, which means that there is a known significant drop % in volume for every % increase in price.