USPS Postal Rates 2017: The Good News and the Bad
How will the upcoming USPS domestic rate change, scheduled to take effect on January 22, 2017, affect your shipping budget? Our partner and postal shipping expert, Gordon Glazer, weighs in with some very insightful examples to help you plan. Read on….
While the announced average increase for Priority Mail (PM) is 3.9%, a deeper analysis reveals many variations across weights and zones. To gain a more insightful perspective, we compared the pricing year over year and the cumulative changes since January 2014. The results may surprise you.
One of the changes we did not see was the elimination of the Commercial Plus Pricing (CPP) for PM. CPP shippers will still enjoy a flat 3% discount off Commercial Base Pricing (Base), even though the USPS advised last year that they planned to eliminate CPP in 2017.
Parcel Select (PS)
The post office delivers more than 50% of all residential packages. The highest volume service within shipping and packaging is Parcel Select, although many may not recognize the name. Shippers are more likely to recognize popular brand names like UPS SurePost, UPS Mail Innovations, FedEx SmartPost, 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 induction deep within the USPS network for final mile delivery.
- Ounce-based Parcel Select Lightweight (PSL) will increase an average of 8.5%. The PSL 2016 rate change set a flat rate for 1 to 8 oz. and the 2017 change creates a new price bracket for 5 to 8 oz. which helps to explain the bump there. See Table 1.
- The average increase for PS DDU entry for packages weighing 1–10 Lbs. is 5.3%. See Table 2.
- As Table 3 shows, the average cumulative increase since 2014 is 22%.
First Class Package Services (FCPS)
- Like PSL, FCPS sees a new pricing tier 5-8 oz. (Table 4)
- While the 2016 rate change saw a large decrease in the higher ounce range with the merging of Base and CPP, this year the higher ounce lanes will see the biggest increase.
- If you compare all the cumulative increases since 2014, 14-15.999 ounce cells have only increased 3%, while the lightest packages (1-3 ounces) increased 35% (Table 5)
Priority Mail (PM)
- CPP pricing remains in effect. Same 3% flat discount off “Base” as in 2016.
- The 3.9% increase is not linear, notice the wide variations in the price change deltas. (Table 9)
- Flat Rate Products will increase an average of 17% (Table 6)
- Regional Flat Rate will increase an average of 7% (Table 8)
- Cubic pricing, on the whole, increases 4.2%, but the popular .2 cube faces an average 14% increase (Table 7)
- Notable changes: 2017 offers decreases in some lanes and large increases in the heavier weights and inner zones, a reversal from the major decreases instituted with the September 2014 rate change. (Table 9) Although these same lanes saw big increases in 2016, and again in 2017, pricing remains mostly below January 2014 rates. (Table 10)
International single unit pricing remains unchanged except for Global Express Guaranteed (GXG) which is increasing 4.9%. International economy products used primarily by consolidators and high volume shippers include International Priority Airmail (IPA), International Surface Airlift (ISAL) and Airmail M-Bags which are increasing 3.8%, 3.9% and 4.9% respectively.
How did shippers react to the much larger January 2016 rate change? Fortunately, year-end financials were recently released.
Fiscal 2016 Financial Results (SEC 10K filing 11-15-2016)
- Priority Mail (PM), with 51.7% of the revenue, is the section leader. This is down from 56.1 in 2015. This might be the last year as Parcel Select will likely eclipse in 2017. The higher rates grew PM YOY revenue by 6.7% and actual volume still increased 2.4% while 2015 saw only 4.8% revenue growth and a volume increase of 6.2%.
- While Shipping and Packages represented a mere 3.3% of total postal volume in F2016, it rang the bell with 24.2% of total postal revenue, up from 2.9% of volume and 21.9% of revenue in F2015. Despite a 9.5% increase in prices in January, this sector still increased revenue by 15.8% on 13.8% volume growth.
- First Class Package Services (FCPS) in 2016 saw a 21.1% increase in revenue and a 10% increase in volume, compared to 2015’s 15.8% increase in revenue and a 19.7% increase volume. Like PM, FCPS price changes drove more revenue despite smaller volume growth.
- Parcel Services (Parcel Select, Parcel Return & Standard Parcels) E-Commerce-fueled growth accounted for 27.9% of this sector’s revenue up from 23.6% in 2015. Revenue grew by 37.3% on 24.1% volume growth, compared to 28.6% revenue increase in 2015 and 24.4% volume growth. There is a noticeable positive impact of higher 2016 pricing on revenue while only slightly impacting volume growth.
These financial results indicate that last year, the USPS accurately figured out how to selectively increase prices while maintaining growth in both revenue and volume.
What about this year’s pending increases? I wanted to see if this year’s increase might affect my ability to help shippers modally optimize with the USPS, so I ran a rating scenario comparing what a typical low- to medium-volume UPS shipper might see* in the marketplace compared to USPS PM CPP for 2014 vs. 2017.
- Green cells indicate the USPS % advantage. As Tables 11 and 12 show, there are more green cells in 2017, an indication that the USPS is better positioned in 2017 to compete that it was in 2014.
- How much better? Here is a chart that compares the two. In this comparison, green cells show % improvement in how CPP will compete against *UPS. (Table 13)
While very few shippers are likely to welcome the postal rate increases, the reality is that the USPS needs to raise prices as a matter of solvency, and even so, still remains a strong value today.
The Shipping and Packages segment continues to grow at robust double-digit rates helped by competitive improvements in tracking, day-specific delivery, and free insurance.
Rest assured, the USPS is well-positioned to be a competitive shipping option in parcel delivery today and into the future.
*UPS rates calculated using a 35% discount on 1-10 Lbs. and 40% on 11-20 Lbs., 10% Min Charge relief, 25% off Residential and Delivery Area Surcharge plus the average Fuel Surcharge for 2014, and the 2016 average was used for the 2017 rating.
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Gordon Glazer, CMDSM, CMDSS, MDP, MDC is Director of Modal Optimization & Affiliate Strategies at Shipware LLC, an innovative parcel audit and consulting firm that helps volume parcel shippers reduce shipping costs 10%-30%. Gordon is a postal industry veteran with 30 years’ experience and is a sought-after speaker and industry thought leader. He welcomes your questions and comments, and can be reached at 858-724-0457 or email@example.com.