Consultant Insight: USPS losing its differentiation

The United States Postal Service’s (USPS) 10-year plan introduced in March continues to draw fire with plans to implement temporary holiday charges and slow mail delivery beginning in October. On top of the service changes, USPS recently reported another less-than-stellar earnings quarter. For the period ending June 30, the USPS reported a $3.0 billion loss compared to a $2.2 billion loss for the same period last year. [caption id="attachment_69752" align="alignright" width="298"] Cathy Roberson, Cargo Facts Consulting senior consultant and Air Cargo World columnist[/caption] “Excluding the combined effects of non-cash workers' compensation adjustments due to fluctuations in discount rates and other actuarial revaluations, the loss for the quarter would have been approximately $2.3 billion, compared to a loss of approximately $2.4 billion for the same period last year,” the USPS press release stated. As the USPS right-sizes its financials, it also needs to right-size some of its volumes. First-Class Mail volumes increased by 1.1% while Marketing Mail jumped 38.6% year-over-year. Marketing Mail includes printed matter, flyers, circulars, advertising, catalogs and small parcels. While both categories include some parcels, the Shipping and Packages category, which is mostly packages and is the area on which the USPS wants to focus, based on its plan, declined 14.1% year-over-year. Despite the year-over-year decline in Shipping and Packages volumes, the volumes remain higher than pre-pandemic levels. However, the USPS is facing stiff competition as it noted, “competition in the overall market has increased as certain major customers have returned to diverting their volume from our network and aggressively pricing their products and services to fill their networks and grow package density.” Whether or not the USPS chooses to directly compete with the likes of FedEx, UPS and others, or to carve out a unique niche for itself — a strategy that could be its best move — the changes are coming at a time when alarms calls are growing louder for the quasi-government entity to better control its costs and start to report profits. Surcharges One of the key competitive differentiators that USPS had was its lack of surcharges. However, in an unprecedented move last year, the USPS introduced holiday peak season surcharges, “in response to increased expenses and heightened demand for online shopping package volume due to the coronavirus pandemic and expected holiday e-commerce.” From Oct. 18 through Dec. 27, all commercial domestic competitive packages were impacted. This year, the USPS is implementing holiday peak season surcharges once again with just a few tweaks from last year. “This seasonal adjustment will bring prices for the Postal Service’s commercial and retail customers in line with competitive practices,” according to its announcement. This year’s holiday peak season surcharges will go into effect Oct. 3 until Dec. 26, pending approval from the Postal Regulatory Commission (PRC). We’ll likely see more surcharges introduced as the USPS works to control costs. In January, for example, it added a $100 fee on parcels “found in the mailstream” that exceed the maximum mailable size limit, which is a combined length and girth greater than 130 inches. In its latest earnings announcement for the period ending June 30, USPS cited an 8.3% increase in transportation expenses. Higher average jet and diesel fuel prices were among the contributors to the increase. To offset fuel surcharges, it would not be surprising if the USPS introduces a fuel surcharge. USPS is either among the very few carriers or perhaps the only one that does not have a fuel surcharge. Slowing down the mail In an Aug. 11 filing with the Federal Register, the USPS noted that it would add one to two days to service standards for certain First-Class Mail and periodicals beginning Oct. 1 which is just ahead of the beginning of the peak holiday season. The additional days in service standards will come as the USPS shifts a portion of its First-Class Mail from air transportation to surface transportation. According to the filing, “air transportation is subject to a number of factors that make it less reliable than surface transportation, such as weather delays, network congestion, and air traffic control ground stops; air transportation also tends to cost significantly more than surface transportation.” End-to-end service standard day ranges for mail originating and destined within the contiguous 48 states and the District of Columbia: Mail Class End-to-End Range (days) First-Class Mail 1-5 Periodicals 3-9 USPS Marketing Mail 3-10 Package Services 2-8 Possible USPS Outlook With just a few months into its 10-year plan transformation, the USPS appears to be losing what differentiated it from the rest of the competition, primarily its lower costs that particularly benefited smaller shippers. In an environment where speed helps to differentiate, adding days to any service standard is not the answer for success. Changes obviously need to be made to optimize its network and services. But, do we really need another FedEx or UPS? I think not. While FedEx and UPS are fantastic express companies, there is plenty of room in the last-mile delivery market for a new and different type of player. USPS could have been that player with a little more thought toward strategy.

Consultant Insight: USPS losing its differentiation

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