Aug. 11 2006 12:52 PM

Even with the U.S. Postal Service's latest rate increase, in which the average cost to ship a package Parcel Select increased by 4.8%, shipping via the Postal Service/consolidator provides shippers with tremendous cost advantages. Consider the following cost comparison in which a "typical" five-pound package is shipped from Oak Park, Illinois to Bedford, Pennsylvania using the three most common methods: UPS (2002 rates), Postal Service (June 30 rates) and the consolidator (using current transportation averages and Postal Service June 30 rates). (See Figure 1 on page 30.)


The price variance between UPS the "high cost" model and the consolidation model is amplified by the addition of UPS' $1.50 Delivery Area Surcharge. A deceptive phrase, Delivery Area Surcharge could almost lead a shipper to believe that this is a special fee assessed by a particular carrier only when the delivery area (ZIP Code) was particularly difficult to reach. A quick examination of the "offending" ZIP Codes achieved by mapping the file titled "Delivery Area Surcharge Zip Code Listing" from the UPS Web site produces startling results. The Delivery Area Surcharge applies to most of the surface area of the United States! In other words, a shipper can more often count on incurring the Delivery Area Surcharge than avoiding it. (See Figure 2 on page 30.)

The Postal Service, with its Universal Service and six-day delivery mandate across the United States, begins to look more and more attractive. The same package shipped directly via the Postal Service using the inter BMC rate gets to its destination for two percent less than UPS.


But for the most dramatic cost advantage of all, you have to consider the cost to deliver the same package through the Postal Service using the services of a package consolidator. The consolidator charges for shipping the identical five-pound package from Oak Park, Illinois to Bedford, Pennsylvania decreases to $4.85, which is a 31.7% savings over UPS.


Since the mid-80s, when the first package consolidator arrived on the scene, the primary resistance to this mode of shipping stemmed from a lack of total visibility as the package moved from the consolidator's network to the Postal Service's network. After all, UPS had already been offering its customers package tracking for a while. Visibility has consistently provided an advantage for UPS for those shippers that wished to offer this service to their customers.


This is the year all that changes. Several years ago, the Postal Service began equipping its carriers with scanning equipment to capture delivery data for their Delivery Confirmation (DelCon) service. With the advent of the new postal rates which include DelCon in the standard Parcel Select pricing structure the information age has finally reached the Postal Service in this important area, making it possible for consumers and package shippers alike to track their Parcel Select packages from end to end for no additional charge, regardless of whether they ship directly with the Postal Service or take advantage of the dramatic savings made available by the package consolidators. (Consolidators vary in their abilities to interface directly with the Postal Service systems and thus in their abilities to provide this seamless end-to-end visibility.)


The new capability was brought about through the efforts of a joint team of IT professionals from the U.S.  Postal Service and package consolidator, RR Donnelley Logistics. The consolidator first began tracking packages through its own network and reporting tracking events to customers in 1997. In 2000, it began using the same data as a part of its ongoing Six Sigma/Continuous Improvement program; the tracking capability allowed the company to keep track and improve its own on-time delivery performance.


Last fall, RR Donnelley Logistics shared the positive results of this initiative with the Postal Service and agreed to work together to merge this information with the Postal Service's own scan data. This enabled the development of an integrated Web-enabled tracking tool that would give shippers and consumers alike a window into the progress of their shipments as they move from the fulfillment center, through the distribution network, on through the Postal Service and all the way to the consumer's home.

With the new system, the same end-to-end tracking data can be viewed in three different environments: on the Postal Service Web site, the Donnelley Logistics site or on the merchant's own Web site through a Donnelley Logistics program called StoreFront. Consumers simply key in the package ID number provided by the shipper to follow their packages through the delivery stream.


"Because the Postal Service's new rates include Delivery Confirmation for no additional charge, end-to-end tracking will now be possible for 100% of our customers' Parcel Select packages. This is going to have a tremendous impact on our industry because it further narrows the gap between UPS and the much more affordable package consolidator," predicts Bill Naughton, chief technology officer for RR Donnelley Logistics. "In addition to saving money on your package delivery expense, you are providing revenue to the Postal Service, which in turn helps minimize the extent of future rate increases."


"Offering seamless end-to-end visibility will soon become 'table stakes' for consolidators, and when that happens, look out! The demand for consolidation will just take off. The business case for using a consolidator sells itself," says Naughton. "We can now provide affordable, universal service with end-to-end visibility. Why would anyone choose another way?"


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