USPS to levy temporary parcel hikes on high-volume shippers

The U.S. Postal Service (USPS) said Friday it plans to impose temporary rate increases on a broad range of domestic parcel delivery products as it copes with higher volumes and costs due to the coronavirus pandemic and seeks to generate additional revenue to help it stay afloat.

The increases, which would begin Oct. 18 and are slated to run through Dec. 27, will be directed at high-volume commercial shippers using USPS’ “competitive” parcel products subject to market competition and not protected by a government-mandated monopoly. These customers receive extremely low per-unit pricing in return for meeting certain volume quotas.

The new measure will not affect retail shippers, USPS said. The quasi-government agency said it does not plan any deeper changes in conjunction with the initiative. The planned increases must still be approved by the Postal Regulatory Commission, the agency that oversees USPS pricing actions.

For example, the rate for a small parcel shipped from a local post office to a residence would increase by 24 cents per parcel from a starting base of $3.19. The product, Parcel Select, allows high-volume users to induct large volumes deep into the postal delivery network for final delivery to residences. Parcel Select has been extremely popular with merchants and with firms like UPS Inc. (NYSE:UPS), FedEx Corp. (NYSE: FDX), and Inc. (NASDAQ:AMZN) because it offers deliveries to every address and post office box in the U.S. at attractive rates. The three companies have used the product to provide their customers and consumers with reliable deliveries without having to dispatch drivers and vehicles to do it themselves.

Rates on Priority Mail Commercial, a two- to three-day delivery service that USPS handles from origin to destination, would increase by 40 cents per parcel from a starting base of $7.02, USPS said. Prices for USPS’ Priority Mail Express next-day delivery service would increase by $1.50 per unit from a starting base of $22.75, USPS said.

In a statement, USPS said its Board of Governors believed the rate hikes will result in “much needed revenue” for the agency. USPS would not estimate how much additional revenue might be generated.

The decision to keep retail rates unchanged is designed to protect individual consumers “during a vulnerable economic period” while responding to elevated volumes from big commercial shippers, USPS said.

USPS’ parcel-delivery volumes have spiked in the past four months as government-mandated lockdowns closed off virtually all buying channels except for e-commerce. USPS delivered 701 million parcels in July, up 46% from the year-earlier period, according to data published Thursday by consultancy ShipMatrix. In the second quarter, the period that covered the harsh lockdown measures, USPS shipped 2.12 billion parcels, a near-50% year-on-year increase, according to ShipMatrix data.

USPS has lost billions of dollars since the pandemic began as demand has tanked for its core first-class and marketing mail products. Those products have been under severe secular pressure for years from digital alternatives. USPS’ costs to serve have also increased significantly since the outbreak.

USPS had asked Congress for a $75 billion cash infusion to keep it solvent through the pandemic and beyond. The House of Representatives has voted to provide it with $25 billion in the next pandemic relief bill. However, neither Senate Republicans nor the White House appears willing to come close to matching that figure.

So far, all USPS has received in pandemic relief is a conditional $10 billion loan from the Treasury Department. One of the conditions has been for USPS to provide the Treasury with confidential information about USPS’ relationships with its largest shipping partners. 

President Donald Trump had gone so far as saying he would veto any relief bill that included aid to USPS unless it quadrupled parcel rates. Such a move would result in Amazon, USPS’ largest shipping customer, moving most of its delivery business, experts said. It would also be disastrous for the many smaller merchants that have long relied on USPS’ low rates to offer cheap — or free —  shipping to their customers. 

Contrary to Trump’s assertions that USPS’ parcel rates are largely giveaways to big customers like Amazon, USPS has raised Parcel Select rates for the past two years. In addition, Amazon has, in many cases, found that it would be cheaper to deliver goods on its own network than use USPS, according to independent analyses.

Eventually, the administration relented and agreed to the strings-attached $10 billion loan. However, Trump has maintained his hard line on giving USPS any relief that the agency might find substantial.