enroute SMALL PARCELS
tomer rebates, a zone-based rate matrix for Express Mail
overnight deliveries, and volume-driven price incentives
for shippers using “competitive products” like Express
Mail, Priority Mail, and parcel services.
Says Jim Cochrane, vice president, ground shipping and
the executive in charge of the USPS’s parcel products, “I am
now able to sit down and negotiate different multi-year
contracts with all types of businesses for as much as they
want to give us.”
Businesses generally use the Postal Service’s “Parcel
Select” product, where bulk shipments are aggregated—
either by a consolidator or by the shipper—and transported to a USPS facility near the parcel’s destination for final
delivery. The closer the shipment gets to its final destination before entering the USPS system, the greater the savings. Shippers with the volume and infrastructure to manage the process themselves can pay as little as $1.71 per
unit for a five-pound parcel moved from the post office
nearest to the shipment’s destination, according to
Cochrane.
The latest chapter in the postal flexibility saga was written
in mid-January, when USPS launched “Commercial Plus”
pricing to give sizable discounts to big customers of Express
and Priority Mail. Express Mail users tendering at least
6,000 pieces a year will receive the equivalent of a 14.5-per-
can the supply chain save a city?
It is incorporated as a “city,” but it’s really a small farming
hamlet like hundreds of others dotting the state. It became
a major air-cargo hub almost by accident after Airborne
Express took over an abandoned Air Force base on the city’s
southeast side. Now, for the second time in less than 40
years, Wilmington, Ohio, finds itself staring into the economic abyss.
DHL’s decision to exit domestic U.S. parcel operations and
outsource its air services to rival UPS Inc. is expected to
bring an end to DHL’s operations at the Wilmington Air Park,
the company’s primary U.S. air hub and the largest employer in a seven-county region of southwest Ohio. All told,
between 8,200 and 10,000 jobs are expected to be lost in
the seven counties.
In Wilmington, which has a population of less than
12,000, one of every three households has someone
employed at the facility. Most of the job losses will be at
ABX Air, a local company that flew freighters for DHL and
which would no longer be needed should UPS take over the
flying for DHL. At this writing, DHL and UPS were still in
negotiations. But if the two reach an agreement, the operations would be moved from Wilmington to UPS’s main air
hub in Louisville, Ky.
Not since the U.S. Air Force left in 1970, abandoning an air
tanker refueling depot and leaving Wilmington to the weeds
cent per-piece discount off retail rates. Priority Mail users
who tender at least 100,000 pieces a year will get an 8.0-per-
cent discount.
Rates on the rise
If the Postal Service is getting aggressive, it can’t come soon
enough for large parcel shippers. DHL vowed to be the low-priced player, and, for the most part, it made good on its
pledge. On average, its rates were 15 percent below comparable prices from FedEx and UPS, according to Hempstead
Consulting.
Perhaps mindful of DHL’s impending demise, UPS and
FedEx rolled out 2009 pricing schedules that contained the
largest year-over-year tariff increases in their long histories,
says Hempstead Consulting. The Postal Service, for its part,
also raised its rates for 2009.
Jerry Hempstead, head of the firm bearing his name
and a former top sales executive for DHL and its predecessor, Airborne Express, says UPS and FedEx plotted
their rate strategies knowing DHL customers would have
few places to turn once the company announced last
spring it would reduce its U.S. exposure.
UPS and FedEx were “privy in advance that DHL was
going to exit and that the market would become a duopoly with the low-price leader eliminated,” Hempstead
for a decade, has the community’s future appeared so bleak.
That time, Airborne Express came to its rescue. In 1980, it
bought the property for the fire-sale price of about $100,000.
After making the necessary improvements—including a $1
million investment to fence 700 acres to keep cattle and
deer off the runway—Airborne made Wilmington its main air
hub. During its tenure, Airborne continued to expand and
modernize the air park, and as the facility grew, Wilmington
grew along with it. In 2003, DHL acquired Airborne and the
facility. DHL says it has invested another $250 million in the
air park since the acquisition.
Location, location, location?
This time, though, there is apparently no air-cargo firm stepping into the breach. And despite Ohio’s central location
and proximity to multiple interstate highways, which have
long made it a magnet for distribution services, there is considerable question as to whether Wilmington’s pull is strong
enough to attract a large shipper or supply chain service
provider.
Richard Armstrong, chairman of supply chain research and
consultancy Armstrong & Associates, has visited Wilmington
and says the city’s location is not suitable for shippers or
third-party logistics service providers looking to leverage an
Ohio market to build inter-regional or national exposure.
