USPS rate hike could have a small but positive impact on trucking demand

What appears to be a routine price increase announced Wednesday by the United States Postal Service does have one change that could have some impact on trucking.

If there is an impact, it is likely to be small. But a change in the pricing system for a service called First-Class Package Service—going to zone pricing from a flat price—is what could push some parcel movement to utilize a truck for part of the trip.

The announcement by the USPS takes the cost of a first-class letter—if approved by the Postal Regulatory Commission–to 55 cts from 50 cts, raises the price of metered mail to 50 cts/oz. from 47 cts, and sets various increases on flat rate priority mail boxes and envelopes.

First-class package service is designed to move packages that are less than one pound at a speed faster than regular mail but slower than Priority Mail. “The mail class also offers fast, nationwide delivery in three days or less, closely matching the speed of Priority Mail,” the USPS says on its website in describing the service.

But that description assumes a flat price, whether it’s going one mile or one thousand. That won’t be the case if the proposal to the PRC is accepted.

In its announcement of the move, the USPS said it was moving to zone pricing on first-class package service “to better align with the cost of service and improve value based on distance.”

Don Caddy, the COO of Engineering Innovation, an Indiana-based company that works with shippers and their mail requirements, said he can envision some shippers seeking to move goods a long distance through First Class Package Service instead choosing to move it part of the way by truck. He referred to it as “zone-skipping,” and it involves an arbitrage where the costs of getting the shipped item closer to the final destination—but not necessarily all the way to the end of the trip–are less than cost of moving it a long distance under the proposed zone pricing.

Caddy said he’s seen it now with customers utilizing other services that already are zone pricing. “We have a customer who has a facility in California and Colorado,” he said. “They drive a lot of product going east to Colorado from California because it skips two zones.” That movement drops the price enough to justify the shipment, though as he pointed out, that probably wouldn’t be the case if the customer tried to move it all the way to an East Coast destination.

“With zone skipping, you just have to get it further down the road,” he said.

Leo Raymond, the managing director of Mailers Hub, which also assists companies in their mailing needs, said the changes set by the USPS have little to no impact on the mail services used by such larger shippers as Amazon or Walmart. Such shippers have negotiated contract rates with a variety of companies that move product, whether it’s longer distance or final mile, and the changes announced by the USPS do not impact that, he said.

“Anybody who is a commercial shipper would use a commercial price and anybody who is big enough would have a negotiated price with the Postal Service,” Raymond said.

The new USPS prices, if accepted by the PRC, will take effect January 27, 2019.