DC Velocity - June 2011

newsworthy
Is USPS playing with fire?

As this issue went to press in late May, the U.S. Postal Service (USPS) was on track to move one of its core parcel products from regulatory protected status and open it to the unpredictable winds of the free market. Only time will tell if the decision ends up being the right one for the financially struggling organization.

On April 6, the Postal Regulatory Commission, the body that approves changes to postal rates and services, blessed USPS’s decision to shift its first-class mail parcel product from “market dominant” status to what’s known as a “ competitive product” classification. The change, which affects bulk shipments of parcels and not single pieces tendered at postal counters, was expected to take effect by early June, according to David Lewin, a USPS spokesman.

The commission’s action ends the USPS’s historic monopoly on parcels weighing 13 ounces or less, a category that accounted for 44 percent of the postal service’s total parcel business in its 2010 fiscal year, which ended last Sept. 30. USPS officials say the change frees it to modify rates beyond annual adjustments pegged to the Consumer Price Index. It also enables the agency to offer bulk-shipping discounts to large users, though there are no immediate plans to change the product’s pricing schemes, according to Lewin.

“This product serves a highly competitive marketplace, with many participants offering similar products,” Gary Reblin, USPS’s vice president, domestic products, said in a late February press release announcing the move. “By moving to a competitive product classification, we have greater flexibility to make this offering more attractive to commercial shippers.” However, the change would also give private carriers like FedEx Corp. and UPS Inc. an opportunity to compete for business previously not available to them.

Like other first-class mail, the USPS first-class parcel business has been protected by the Private Express Statutes, a law passed in 1792 barring private companies from setting competitive rates with USPS on certain products. As a

ground breakers

Testa Produce Inc., an independent wholesale produce distributor, opened a $20 million DC in the Chicago Stockyards Industrial Park. According to the company, the facility is on track to receive the U.S. Green Building Council’s LEED Platinum certification. … Caro Trans, a non-vessel operating common carrier and ocean freight consolidator, has opened a new office in Dallas. The office will handle less-than-containerload and full-containerload shipments moving to and from U.S. East and West Coast ports. … Ocean

result, UPS and FedEx don’t offer service for parcels weighing less than one pound. First-class mail parcel service is mostly used by fulfillment houses and other businesses that ship lightweight merchandise.

Jerry Hempstead, a former top parcel executive who now runs his own consulting firm, said the post office may move too aggressively to hike prices on the parcel product in an effort to stem mounting losses. If it does, USPS risks losing significant share to private rivals, Hempstead said.

“The USPS, in their effort to right the ship, may do something stupid and take a big increase—because they can— and put some of these pieces into a [price] range that makes them attractive to UPS and FedEx,” Hempstead said.

Kevin Smith, a former supply chain executive at CVS Caremark who now runs a supply chain sustainability firm, said USPS may box itself in by raising its rates on first-class parcels while at the same time ending Saturday deliveries as a cost-cutting measure. Many online retailers who ship the small parcels have long relied on Saturday service.

“In their effort to increase revenue and decrease costs, they could just about put themselves out of the parcel business,” Smith said.

Hempstead echoed those remarks, saying a substantial price increase could turn the private carriers from users to competitors. In such a scenario, “one has to question if the USPS should be in the parcel business at all, since it’s successfully and competitively handled by the private sector,” he said.

UPS spokesman Norman Black said the company would evaluate the post office’s move to see if it presents any opportunities for the Atlanta-based shipping giant. “But it’s really too soon to say at this point,” Black added. FedEx did not respond to a request for comment.

Lewin, the USPS spokesman, said the organization is aware of the competitive risks. “Any plans for future price increases have to be weighed against the potential for loss of business in the segment,” he said. ;

World Lines, a global single-source non-vessel operating common carrier, has opened its third office in Warsaw, Poland. The Warsaw branch office offers air, ocean, cargo management, warehousing, and customs clearance services. … Hegele Logistic, a logistics service provider specializing in high-tech products, has signed a lease for a new logistics center in Wood Dale, Ill. Hegele will expand its refurbishing and spare parts business for medical equipment and other high-tech products at the facility.