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Package Rate Increases From USPS, UPS Add to Cost Woes

Companies already dealing with increased costs from raw materials and tariffs will now have to pay more for delivering packages in the crucial last mile of order fulfillment.

The United States Postal Service this week filed notice with the Postal Regulatory Commission for price hikes to take effect Jan. 27. The proposed prices would raise mailing services product prices around 2.5%, while shipping services price increases vary by product. The increases range from 70 cents to $1.05 per parcel, depending on package size.

USPS noted, for example, that Priority Mail Express will increase 3.9% and Priority Mail will increase 5.9%. Although Mailing Services price increases are based on the Consumer Price Index, Shipping Services prices are primarily adjusted according to market conditions. The postal service said these new rates will keep it competitive and at the same time provide the agency with needed revenue.

Charles Dimov, vice president of marketing for logistics firm OrderDynamics, said, “The move to increase parcel pricing points to the fact that the last mile of delivery is still one of retail’s biggest challenges. It is costly and continues to get more expensive.”

Dimov said that’s a key reason why omnichannel retailing makes good business sense. He noted that 69 percent of consumers in the United States have tried in-store pickup and are starting to expect it from their retailers.

“Not only does click and collect enable shoppers to get orders faster on their own terms, but it also saves the retailer the cost of shipping,” Dimov said. “More and more retailers need to start upgrading their retail systems to give customers what they want. It helps retailers curb the impact of price increases from USPS and other couriers. The best part is that it offsets the margin erosion from increases like these.”

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USPS said if approved, First-Class Package Service, a lightweight expedited offering used mainly by businesses for fulfillment purposes, will move to zone-based pricing to better align with the cost of service and improve value based on distance. USPS noted that unlike some other shippers, it does not add surcharges for fuel, residential delivery, or regular Saturday or holiday season delivery.

As of Oct. 1, United Parcel Service (UPS) began applying a peak surcharge to cover maximum limit packages through Dec. 22, 2018. Packages weighing more than 150 pounds or exceeding a certain size are charged an extra $165 per package.

At the same time, a ground fuel surcharge increase of 0.25% for all thresholds will be based on the National U.S. Average On Highway Diesel Fuel Price and adjusted weekly. Effective Oct. 15, the international air-import fuel surcharge will increase 0.5% for all thresholds. These surcharges will continue to be based on the national average U.S. Gulf Coast jet fuel price and adjusted weekly. Ocean carriers recently imposed fuel surcharges, as well.

While UPS and other global freight companies are highly profitable, USPS reported a net loss of $2.7 billion in fiscal 2017 and has been the target of critics for what they claim are operational deficiencies, including charging rates that don’t support its overhead.

In August, a diverse group of leading American retailers, e-commerce and logistics companies came together to form The Package Coalition. They include Amazon, Columbia Sportswear, Pitney Bowes and QVC.

Its goal is to work proactively with policymakers and the public to highlight the importance of the postal service. The coalition said USPS’s package delivery business more than covers its costs, contributing an additional $7 billion to the postal service’s bottom line last year.

“Reliable and affordable postal package delivery is a key engine of the American economy,” said John McHugh, chairman of The Package Coalition. “We support policy solutions to preserve this channel of commerce for all Americans, especially those in remote and rural areas that do not have consistently affordable alternatives to the postal service. Members of The Package Coalition partner with the U.S. Postal Service to deliver their goods over the last mile to more than 150 million American homes and businesses.”

For its part, FedEx has not announced any rate increases, but in September it said it has boosted its capacity and operational innovation to expand FedEx Ground U.S. operations to six days per week. This came in response to the growing e-commerce demand and record influx of volume expected this holiday season and beyond.

Also on a positive note, the World Container Index assessed by Drewry, a composite of container freight rates on eight major routes to and from the United States, Europe and Asia, was down 2 percent, to $1,635.87 per 40-foot container, for the week ended Thursday, although it was still up 27.6% compared with a year earlier.