U.S. Postal Service poised to hike parcel rates in January

The U.S. Postal Service (USPS) will hit shippers of parcels weighing one pound or less with a nearly double-digit rate increase effective January 22, 2012, according to industry sources.

The USPS said it would announce the increase, which is expected to reach 9 percent and possibly higher, on Nov. 22. The postal service had originally discussed imposing an increase of 18 percent to 20 percent but later reduced that by about half, according to one source.

The November action will come seven months after the Postal Rate Commission, which reviews rate proposals and determines whether they are in line with market conditions, ruled that the USPS could reclassify its "standard mail" parcel product as "market competitive," a decision that gave the postal service greater latitude in pricing the product.

A USPS spokesman declined to comment on the magnitude of the increase.

The move will impact businesses with mail-order operations as well as retailers that ship to residential customers who've ordered merchandise over the Internet. Companies that ship small, lightweight parcels, mostly to fill online orders, would likely take the biggest hit from the increase. Examples include CVS/Caremark and Express Scripts, which ship medications by mail, check printers like Deluxe Corp., and Amazon.com.

According to unofficial industry estimates, about 30 percent of all merchandise ordered online is shipped in parcels weighing one pound or less. The weight of the typical online order is three pounds.

For decades, standard parcels have been classified as a "market dominant" product. The classification effectively restrained USPS from taking aggressive rate measures to combat market forces. However, in its March ruling the Rate Commission said that the product could no longer be considered "market dominant," noting that USPS would be vulnerable to market-share diversion to private sector competitors if it priced the product at too lofty a premium.

"Standard parcel" pricing varies depending on weight, the distance it's shipped, where it is deposited into the postal system, and how a parcel is prepared for shipping; however, the cost of shipping via USPS can be as much as $2 per unit less than shipping via rivals FedEx Corp. and UPS Inc. under their applicable ground parcel rates.

An industry source said customers "can't do squat" to fight or avoid the increase, adding that USPS is already the market leader and its rates are well below those of FedEx and UPS.

The source added, however, that should USPS get too carried away with its increases, a narrowing rate gap will make FedEx and UPS pricing more competitive and is likely to invite the carriers to aggressively court USPS customers and potentially take market share.