United Parcel Service announced a 4.9% net increase (i.e. rate increase minus decrease in fuel surcharge) in rates today. Logistics Management reports on some of the details that suggests that UPS rate changes could provide the Postal Service could increase its competitive advantage in delivering small light-weight parcels or give it more room to raise rates on parcels weighing less than five pounds. These details include:
- UPS is raising minimum charges by 6.2%. The minimum charge is what shippers pay even when their contracts have significant discounts. UPS minimum charges affect shipments that weigh less than 2 pounds, a market that the Postal Service has the largest market share.
- UPS’s highest increase is for a 3-pound package going to zone 2 which is 8.81%. This is a product that the Priority Mail is more than price competitive, although its service often is a day slower than what UPS or FedEx Ground offer.
The increase in UPS’s zone 2, 3-pound rate raises two questions:
- Do other low weight or short distance rate cells have rate increases above the 4.9% average?
- How will the increases in low weight cells affect the application of minimum weight charges?
In the next few weeks the Postal Service will adjust its Priority Mail rates. UPS’s rate increases gives the Postal Service the opportuntiy to set prices that increase market share and/or set prices that maximizes the profitiability of Priority Mail. Given the Postal Service’s financial situation, Priority Mail users can expect the Postal Service to favor profitability goals. However, even after the Postal Service’s rate increase next year, shippers will likely find that the number of rate cells that Priority Mail provides a price advantage will increase, given the private-sector carrier increases in minimum charges and low-weight, short-distance shipments.
