One of the most fascinating speakers at the 2007 National Postal Forum was Michael J. Greene, Certified Financial Analyst for Morgan Stanley Research. His said,
The USPS may a more serious competitor to UPS and FedEx.
You, the small-parcel shipper, should be aware of the strengths and weaknesses of all the carriers. There is a place for all of them, but you can save thousands of dollars a year by knowing which carrier is most appropriate for which categories of your shipments.
Driven by e-commerce, the fastest growth in the domestic parcel market is B2C - meaning 1-5 lb packages going to residences. This is the USPS's sweet spot.
TransGuardian Delivers Your Options
By integrating the services of the USPS and the private carriers to our site (http://www.transguardian.com), we bring you the ability to choose any of the carriers’ most advantageous products and insure your small parcels up to $150,000 each.
We bundle these with many other tools and services that put you in greater control of your logistics solutions. Our goal is to keep abreast of the best options in the marketplace for you and then to position those services so that you can access them in ways that are cost- and labor-efficient.
The Players
For perspective, let's compare some of the assets of the USPS and the private carriers:
For perspective, let's compare some of the assets of the USPS and the private carriers:
USPS Manned Drop Off Locations: 38,000
UPS Manned Drop Off Locations: 3,300
FedEx Manned Drop OFf Locations: 1,500
USPS Annual Revenue: $73 billion
UPS Annual Revenue: $48 billion
FedEx Annual Revenue: $32 billion
The drop off locations are important in the rapidly growing e-commerce B2C world, because for return or repair shipments, consumers usually will find a Post Office in their neighborhood, whether their neighborhood is in New York, Puerto Rico, Alaska, or Guam.
And now that the USPS offers free carrier pick up (which you can book online at http://www.transguardian.com/), the playing field is further leveled.
Also important in the B2C world is the fact that only the USPS can delivery to Post Office Boxes; and only the USPS has the legal right put parcels in an actual mail boxes; the commercial carriers must leave parcels “on the porch.”
Priority Mail is the USPS "2-3 Day" product and is most competitive with the ground and deferred air products of the private carriers.
Rate Increases
The New Postal Law that embodies the postal rate change is the most sweeping change in postal regulations in 35 years.
The law does more than raise prices; it also gives the Postal Service to more flexibility create new products and prices in response to fluctuating market demands.
It's true that the USPS will increase its prices for Priority Mail by an average of 13.6%. But the Postal Service hasn't raised rates in 5 years, while UPS and FedEx have increased their ground rates for 1-5 lb packages from 2002 to 2007 as follows:
Total Published Increase: 22.89%
Actual Commercial Delivery Increase: 28.02%
Actual Residential Delivery Increase 37.85%
Also, the USPS does not have accessorial surcharges, like fuel surcharges, residential surcharges, Alaska/Hawaii and Saturday Delivery surcharges.
So, while UPS and FedEx officially raise their rates each year in January, they actually adjust their accessorial surcharges monthly.
Many large shippers at NPF told me that, in their opinion, the private carriers are eagerly awaiting the USPS rate case this summer as an opportunity to hike their accessorial charges and boost profits in the short term. FedEx, for example, begins its fiscal year in June, so this might be a timely move, if it happens, to attempt to support the FDX stock price.
Many large shippers at NPF told me that, in their opinion, the private carriers are eagerly awaiting the USPS rate case this summer as an opportunity to hike their accessorial charges and boost profits in the short term. FedEx, for example, begins its fiscal year in June, so this might be a timely move, if it happens, to attempt to support the FDX stock price.
Service Standards
A common complaint about the Postal Service is that it still does not provide the same level of tracking, tracing, and customer service as the private carriers.
But, the USPS has made tremendous strides in this area; for example, its air services are now carried by FedEx, which has caused USPS Express Mail on-time performance to exceed 90%. The online tracking and tracing services with the USPS are improving measurably.
A common complaint about the Postal Service is that it still does not provide the same level of tracking, tracing, and customer service as the private carriers.
But, the USPS has made tremendous strides in this area; for example, its air services are now carried by FedEx, which has caused USPS Express Mail on-time performance to exceed 90%. The online tracking and tracing services with the USPS are improving measurably.
And the improvements are likely to continue. The new law mandates that the USPS can no longer be content with breaking even; it must show a profit.
To hit those goals, the USPS is rolling out new technology. The forthcoming "Intelligent Mail" barcodes will allow for end-to-end visibility through the entire Express and Priority Mail network.
To hit those goals, the USPS is rolling out new technology. The forthcoming "Intelligent Mail" barcodes will allow for end-to-end visibility through the entire Express and Priority Mail network.
Turf Wars
The USPS is already the low-price leader in many markets. That means it puts a lot of pressure on UPS and FedEx pricing. This is especially true in vertical markets where packages are light-weight, like the gem & jewelry trade and most B2C commerce.
This may pose a real threat to UPS and FedEx. UPS is the dominant player in the ground parcel market, and increasing market share in that segment is one of FedEx's most important goals. Why? Because it is the fastest growing and the most profitable segment.
If the USPS is poised to defend its share of this market and win market share, this means UPS could lose some of its most valuable turf and FedEx could be denied the chance to expand in this area critical to its profit performance.
Conclusion
How does the struggle of giants benefit you?
In the 1970s, when the Cold War was at its height, the President of Indonesia once stood up in a conference of Asian nations and said,
How does the struggle of giants benefit you?
In the 1970s, when the Cold War was at its height, the President of Indonesia once stood up in a conference of Asian nations and said,
“We must take care that the Soviet Union and the United States do not come to open war. Let us remember that when elephants fight, they trample all the grass around them.”
Then-Prime Minister of Singapore, Lee Kwan Yu, replied,
“We must also take care that they do not become too friendly, for when elephants make love, they also trample all the grass around them.”
The bottom line is that competition is good for you and for the whole market, as long as you pay attention to where new pricing and service changes can benefit you the most.
TransGuardian’s commitment is continually to analyze the changing market and bring you the cutting edge.
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