USPS Ups the Ante with 25% Average Increase on Parcel Select Service

by LJM Group

Retailers who rely on USPS Parcel Select Service for low-cost, high-volume ground shipping are bracing for a pivotal price increase of up to 25% that takes effect on July 14, 2024. Parcel Select, a cornerstone of USPS’s ground delivery services, is the focal point of adjustments that pushed last-mile consolidators like DHL eCommerce and Pitney Bowes to exchange valuable discounts for higher volume.

These changes are outlined in a notice filed with the Postal Regulatory Commission after approval by the Postal Service Governors. It’s a move that has sparked discussions about the potential impact on both merchants and Carriers. For any business involved in shipping, it’s important to contextualize how these developments will change the parcel management map.

Understanding the Implications

At first glance, the 25% average price hike seems huge, generating concerns with retailers who worry they will have no choice but to fold. However, a deeper look at the cards reveals the strategic rationale behind USPS’s decision and options. To grasp the full picture, let’s examine the specifics, starting with the reasons why Parcel Select is so popular with merchants.

Benefits of USPS Parcel Select Ground for Merchants

There are unique features of USPS Parcel Select Ground that make it especially advantageous for merchants. Importantly, this service delivers to almost every domestic location in the US in only 2 to 8 days. Other key benefits include the following.

  • Ideal combination of low-cost and high-quality delivery service
  • Designed for large and medium volume shipping
  • Tracking at no extra cost
  • No extra fuel charge, Saturday delivery charges, or residential charges
  • Delivery options available to military addresses and PO boxes
  • Facilitates deliveries to more locations by combining USPS’s extensive delivery network with parcel consolidation expertise
  • Packages can weigh up to 70 lbs. and have a dimension of up to 1,130 inches (length and width combined)

USPS Strategy: Delivering for America

The 25% average price hike for Parcel Select reflects the US Postal Service’s proactive approach to align pricing with operational realities. Dubbed its “Delivering for America” plan, USPS is aggressively reinvigorating its financially struggling shipping network in an effort to improve delivery service and lower costs.

Notably, the impact of these changes varies depending on where volume enters USPS’s network. Parcel Select shipments initiated at delivery units—the final stop before reaching end customers—will experience the most significant increases, averaging at 43.4%.

It’s essential to view these adjustments through a strategic lens, recognizing them as part of USPS’s broader efforts to enhance efficiency, sustainability, and competitiveness within the shipping ecosystem. By recalibrating pricing structures, USPS aims to:

  • Convey True Costs: Aligning pricing with the true cost of service ensures a more sustainable and resilient operating model, essential for long-term viability.
  • Foster Collaboration: While the price change may present initial challenges, they also pave the way for deeper collaboration and innovation among USPS and its shipping partners with a goal to create more value for customers.

However, the Postal Service doesn’t anticipate reaping the 25% average increase in full. As a result of the price hikes, Parcel Select is expected to bring in 1.5% more revenue in fiscal year 2025, which begins October 1. At the same time, it anticipates Parcel Select volume to decline by 2% over that period.

Merchant Strategy: Contract Negotiation

The proposed price adjustment for Parcel Select represents more than just a numerical shift; it’s a tactical maneuver aimed at improving service and cost efficiency. Merchants can counter with their own strategic moves focused on the same goals of lower costs and better delivery service.

The most effective way to do this is through Carrier contract negotiations that target high shipping rates, surcharges, and fees. Start with a comprehensive contract analysis conducted by professionals with longtime Carrier connections. This is a top area of expertise for LJM Advisors, who have worked with the major Carriers for decades and typically save clients 20% in shipping costs after renegotiation.

In terms of customer support and delivery quality, data analytics tools will reveal Carrier performance and areas where service can be improved. These metrics provide valuable leverage for contract negotiations as well as general insights on how to upgrade your company’s delivery speed, efficiency, and customer satisfaction.

As merchants face yet another move by Carriers to increase shipping costs, it’s critical to understand the long-term strategies involved and how they can be used to the best advantage. Just as critical are the cost-cutting countermoves that smart retailers can implement to stay ahead in the shipping game, from contract negotiations to data analytics. For strategic support in navigating the USPS Parcel Select rate increase, contact LJM Group to speak with a veteran Advisor.

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