There has been a good deal of press in recent months regarding the USPS Rate Case and the impending impact on non-profits and direct marketers. But what about the cost-conscience Priority Mail user? The Governors of the Postal Service voted in March to implement the Postal Regulatory Commission's recommended rates on May 14. If you use the USPS Priority Mail services considerably, the changes may have a significant financial impact on your business. The Postal Service made changes that vary based on package weight, package size, travel distance (zone) and selected service, so the net results to your business are not so cut and dry.
A Popular Product?
Priority Mail is a popular and cost-effective alternative to one- to three-day air services offered by other industry carriers. However, the recent changes could impact how large parcel shippers view Priority Mail and result in a volume shift back to FedEx, UPS and DHL. There are five significant changes that should be explored.
Price increases and decreases depending on weight and zone combination.
Segregation of the Zone 3 prices from Zones 1 and 2.
Introduction of dimensional weight pricing for Zones 5 through 8.
Increase of the oversize charge to the 20-pound price for Zones 1 through 4.
Permanent implementation of the flat rate box regardless of weight or zone.
Priority Mail's weight and zone price changes will have a positive or negative impact on shippers' overall transportation costs. Pricing changes increased or decreased depending on package weight. But it's not as easy as simply evaluating weight alone; shippers also need to analyze where they are shipping packages by weight break to understand the true cost implications. Depending on the zone, average price changes can range from a decrease of one percent to an increase of 22% for packages weighing between one and 15 pounds.
The Postal Service segregated Zone 3 from Zone 1 and 2 prices. This will result in increased costs for parcel shippers who utilize a regional shipping strategy. There are double-digit price increases up to 15 pounds. If your network strategy is a regional model, you may benefit evaluating other value services with similar short-haul transit times.
Adding to the challenges that shippers face evaluating costs related to the zone-weight price changes, they must also consider a new dimensional weight pricing structure for Priority Mail. The Postal Service expressed the need to switch to dimensional weight to adequately reflect air transportation costs for large, lightweight parcels. Considering FedEx and UPS transport Priority Mail on their airplanes, moving toward a dimensional weight pricing structure is not all that surprising.
Packages with a length plus girth over 84 inches used to be billed at a 15-pound oversize rate regardless of zone. Now, a dimensional weight pricing structure applies to Zones 5 through 8 parcels and kicks in when parcels exceed one cubic foot (1,728 cubic inches). Similar to the zone-weight price changes, shippers need to evaluate their packages sizes and where they are shipping them to in order to understand the dimensional weight cost impact.
Dimensional weight charges for Zones 5 through 8 could result in parcel billings over twice the rates shippers paid last year. For example, shipping an 8,000-cubic inch square package (20" x 20" x 20") to Zone 8 costs $29.30 under the old 15-pound oversize pricing method, but costs $61.10 using the new dimensional weight pricing. If you are shipping large, lightweight parcels, then you will need to get to work performing a detailed financial analysis. By determining if an alternate shipping strategy is in order, you can keep shipping costs from spiraling upward.
Oversize pricing applies to Zones 1 through 4 parcels measuring 84 to 108 inches in combined length plus girth and weighing less than 20 pounds. When the new rates are implemented in May, oversized packages will be charged the 20-pound rate, as opposed to the current 15-pound standard. The silver lining is that the 20-pound rate decreased in some zones, thus lessening the cost impact.
For shippers who enjoy the convenience of the Priority Mail flat rate box, this product will be made a permanent fixture. However, the price of the box is planned to increase to $9.15 at the Governors' recommendation. The price increase may indeed be a motivation for some shippers to source their own boxes for one to two pound packages and ship them standard Priority Mail, resulting in a savings of $1.00 to $4.00 per package. For certain zones, the flat rate box remains a good value if you can squeeze over three pounds in the box.
In summary, the USPS price changes illustrate the increased complexity of parcel industry pricing practices. As a result, shippers are continually challenged to understand the impacts to their costs and parcel network. You can eliminate the uncertainty by performing a detailed analysis of your shipping data and rates to simulate the impacts. The output of the analysis provides the information you need to develop short- and long-term strategies to optimize your network performance.
Mike Lambert is Director of Consulting Services at