USPS Raises Rates

On Sunday, the United States Postal Service raised the rates of some of its services mostly impacting business customers. The base cost of a first class letter remains at $0.44 while rates for mailing advertising, and sending printed matter such as magazines, have increased. These latter are based on a complex mix of parameters including dimensions, weight, the type of item being mailed and whether the pieces are pre-sorted. Post cards will go up a penny to 29 cents and some international rates have also increased.

Last year USPS lost $8.5bn, due in part because the internet is increasingly the medium of choice to send correspondence and pay bills. In addition the down-turn in the economy had a significant negative impact on the volume of directly mailed marketing and advertising material. Unfortunately the increase in postage rates is estimated to bring in only an additional $340m which will not have much effect in reducing the overall deficit.

USPS is limited to increases at or below the rate of inflation. A request last year to exceed that was rejected by the independent Postal Regulatory Commission (see earlier posting: Regulators deny USPS Request for Rate Increase).

The rates for rapid priority and express services were increased in January.

USPS Cuts Jobs & Closes Offices

The United States Postal Service announced last week that it would cut 7,500 jobs (out of a workforce of 585,000) and close 7 district offices and 2,000 post offices as it handles less mail and faces greater staff costs and competition from FedEx and UPS. In November, the Postal Service reported a net loss of $8.5 billion for fiscal year 2010; its fourth consecutive year of losses. USPS relies on the sale of products and services to fund its operations and does not receive tax-based funding.

Joanne Veto, a spokeswoman for the Postal Service, said,

“We know that we cannot look the same 10 years from now. The mail volume isn’t there. We have to adjust to keep up with the mail and customer needs.”

The agency said the job cuts and office closings would save about $750 million per year. In the first round of job cuts, due by the end of May 2011, the Postal Service said it was offering voluntary early retirement of $20,000 paid over two years to employees 50 years old with 20 years of service, or any age with 25 years of service. At the present time it is unclear how the cuts are being apportioned between USPS headquarters in Washington and offices elsewhere in the country, or how many of the 7,500 positions are currently filled.

Congress did not approve a request by USPS last summer to raise rates on first-class mail beyond the rate of inflation and to cut Saturday mail delivery. The Government Accountability Office observed in a report in February that the Postal Service had been slow to modernize, and it recommended looking into alternative delivery methods, such as digital mail or allowing customers to pick up parcels from machines 24 hours a day.

On Thursday, the Postal Regulatory Commission issued a report indicating that reducing mail delivery to five days a week, as proposed by USPS, would save the Postal Service only $1.7 billion, significantly less than the $3.1 billion in savings estimated by USPS itself. The Commission also calculated that even after reducing deliveries to five days a week, USPS would lose as much as $600m, substantially in excess of USPS’s $300m estimate.

FedEx Confirms DOJ Antitrust Investigation

In its quarterly report to the US SEC, FedEx confirmed that initial inquiries launched by the US Department of Justice have now become a full civil investigation. The DOJ is investigating the policies and practices of both FedEx and UPS with respect to third-party shipping consultants. While both carriers had previously acknowledged the probe, its status as an official rather than a preliminary investigation had not been disclosed.

In its filing, FedEx confirmed that federal officials have requested the company provide information and documents in connection with the investigation. A spokesperson for Fedex said:

“We do not believe that we have engaged in any anti-competitive activities, and we are cooperating with this investigation and vigorously defending against the litigation.”

The case relates to allegations that FedEx and UPS tried to dissuade customers from working with shipping consultants in order to lower their shipping rates. It was prompted by the filing last summer of a civil antitrust lawsuit by shipping consultancy AFMS of Portland Oregon. FedEx and UPS have argued that dealing directly with them is the most cost-effective route for customers since their sales teams are better able to determine the most appropriate services and customers do not have to pay a consultant a percentage of the fees. Third-party shipping consultants argue that they are able to obtain up to a 30% reduction in shipping costs for their clients and that their fees are usually based on savings achieved.

The AFMS filing accuses FedEx and UPS of anticompetitive practices and conspiring jointly to adopt a policy to decline to deal with third-party consultants that act on behalf of shippers for price and rate negotiations. The filing alleges that the national carriers raised their shipping rates in “lock-step” with each other for years and of simultaneously announcing their change of policy on third-party shipping consultants. They reference an industry conference when both shipping companies announced their policy on the same stage and memos on their policy with respect to third-party consultants issued to staff by both companies.

The use of third-party shipping consultants has grown as rate and billings structures used by national carriers have grown more complex and shippers find it difficult to analyze rates and determine the best service and pricing for their business. In addition, smaller shippers are often unable to get the discounts offered to larger shippers and are therefore at a competitive disadvantage when it comes to online retailing where customers are highly attuned to shipping costs.

A UPS spokesman strongly denied the allegation made by AFMS that UPS and FedEx jointly adopted a policy of declining to deal with third party consultants and noted that UPS is fully cooperating with the DOJ investigation.

The DOJ is still in the process of researching information and data and collecting witnesses, which likely pushes the trial date to 2012 at the earliest.

Deliveries to Japan

International deliveries are among the services impacted by the nuclear power plant crisis in Japan following last week’s earthquakes and tsunami. FedEx has restarted flights to and from Tokyo’s Narita airport and is accepting inbound shipments except for perishable goods. FedEx has also suspended ground deliveries in eastern Japan.

UPS has suspended deliveries in northern, eastern and parts of central Japan due to extensive damage to the transportation infrastructure. It resumed flying to Narita this week after suspending operations immediately after the earthquake.

FedEx is offering relocation assistance to employees and their families in Fukushima prefecture near the quake-damaged nuclear plant. The company has about 12 workers in Fukushima, and they and the FedEx facility in the prefecture are outside the evacuation zone around the stricken facility.

The charitable arm of UPS – the UPS Foundation – has pledged $1m in relief for earthquake and tsunami victims in Japan. The funds will be used for in-kind transportation of emergency supplies, trained humanitarian logistics personnel and financial support. UPS is coordinating with the Red Cross and the Salvation Army to determine needs.

FedEx Announce Expansion of Express Services

FedEx Express announced this week that it is adding new services for customers – notably FedEx First Overnight Freight and FedEx 2Day AM. It will also be making further enhancements to FedEx First Overnight. The aim is to provide customers with faster, time-definite shipping options supported by a money-back guarantee. The new service offerings will be available starting February 28th 2011.

FedEx First Overnight Freight will provide early-morning delivery, with a 9am commitment in most markets, of critical air freight shipments. The service is targeting customers with time-sensitive critical deliveries who have palletized shipments weighing more than 151lbs.

FedEx 2Day AM is a new two-day service that will provide a 10:30am delivery commitment time in most areas of the US. The new service will also be available for return shipments.
There will also be an expansion of FedEx First Overnight to include most dangerous goods types including shipments inbound to the U.S. from Canada, Europe and Latin America. Additionally, the on-call pickup time for FedEx Express will be extended giving customer up to one additional hour at the end of the day to prepare shipments.

Said T. Michael Glenn, president and CEO, FedEx Corporate Services:

““FedEx Express continues to enhance its portfolio, adding new, relevant services to meet customer needs. Customer service is a top priority at FedEx and we are committed to providing an industry-leading suite of shipping options.”

While FedEx remains focused on overnight, for shippers who can’t wait until can’t wait until 9 or 1030 the next day and need same-day delivery, LaserShip offers a cost-effective service. Items large or small can transported across the country in just hours using LaserShip’s extensive world-wide network of expedited couriers and access to thousands of immediate flights daily. As experts in immediate expedited shipping, LaserShip supports just-in-time manufacturing logistics, critical parts replenishment and life science situations which might require an organ, blood, tissue or medical equipment to be in place for a 7am operation or a midnight emergency.

FedEx Ground Building New Distribution Facility in Norcross, GA

Last week FedEx announced plans for building a 215,000 sq. ft. facility on a site in Norcross, GA for their Ground distribution operations. It plans to develop the site into a major Southeastern hub employing several hundred including 240 full-time and part-time employees and 75 independent contractors. The cost of the development is estimated to be in the region of $55m. Preparation of the 52 acre site has begun and construction will begin shortly. The facility, which is scheduled to open in Fall 2012, is designed to process packages/hour with the capacity to dispatch up to 175 delivery vans daily.

The Norcross site was chosen because of its ease of access to major highways, its proximity to customers’ distribution centers and a strong local labor pool from which to recruit employees. Said Robert E. Holcombe, vice president of the southern region for FedEx Ground:

“Enhancing FedEx Ground’s distribution capability in the Southeast is critical to increasing the size, speed and efficiency of our network. This new facility is evidence of the Southeast region’s increased presence in the distribution and logistics business, and the growing confidence of local shippers that we are their best choice for their ground shipping needs.”

FedEx Ground is FedEx’s fastest growing business division. Since 2002, it has added 10 distribution hubs and more than 500 local facilities have been expanded or relocated. These enhancements have improved time to delivery with FedEx Ground now delivering more than 60% of packages in two days or less and more than 80% in three days or less. This year, it plans to continue to expand its nationwide network further in order to grow daily package volume capacity and enhance the speed and service capabilities of its network to meet increasing demand. Average daily volumes have increased by more than 60% from 2003 to over 3.5 million packages per day. In line with other national and regional carriers, FedEx Ground is benefiting from the increase in online retail sales which have risen 36% since 2009 and is set to remain high in 2011 (see previous blogs: Record Ecommerce Sales Push Delivery Volumes and Online Retailing Reaches New Highs).

Industry analysts are also speculating that FedEx may be positioning itself to benefit from the expansion of the eastern U.S. ports. The new Atlanta facility would be well placed to handle the increase in volumes of inbound shipping resulting from the expansion of the Port of Savannah to handle the larger container ships traversing the Panama Canal after 2014.

UK Parcel Delivery Service Targets Consumer Convenience

A new parcel delivery service started in the UK this month focused on solving the problem faced by many consumers: how to deal with deliveries when they are not at home. Not everyone lives in a place where parcels can be left – safe from the weather or thieves – and even if shipping to the workplace is possible, carrying packages home may be inconvenient particularly when travelling by public transport.

Collect+ claim to have a solution to this problem by allowing deliveries to be collected from over 3,500 local convenience stores and pubs UK wide. Unlike post offices, local convenience stores are typically open seven days a week from early morning to late at night, so customers will be able to manage their deliveries at a time and on a day that is convenient for them.

Consumers and small businesses will also be able to send parcels through the same network of stores. Sending a parcel will require users to place a delivery order online, pay by credit card or PayPal, print out a shipping label and then drop-off the package at the nearest PayPoint affiliated store.

Not only are Collect+ offering a more convenient method of drop-off and delivery, they are also pricing parcel deliveries at significantly lower cost than the UK’s Royal Mail. Parcels up to 5kg (11lbs) in weight will cost £4.99 (approx. $8) and between 5-10kg (11-22lbs) will cost £6.99 (approx.$11.2): prices which are around 45% lower than the Royal Mail.

Collect+ is a joint venture between Yodel, formerly Home Delivery Network, and PayPoint, a retail network for convenient local payment of household bills and mobile top-ups. Collect+ has been in operation since February 2009 facilitating returns from consumers to online and catalog retailers. Parcels are moved by Home Delivery Network, one of the UK’s largest courier networks, delivering over 100m parcels a year.

Mark Lewis, chief executive of Collect+, said:

“Customers tell us that it is inconvenient to drop their parcels off during the working day and that they want a more convenient option. Today’s launch extends that convenience to personal deliveries, allowing us to offer a simple parcel send alternative matched to modern lifestyles.”

In response to the Collect+ expansion, a spokesman from the Royal Mail said:

“Royal Mail is continually looking at ways in which we can invest in new services to give our customers even greater control over the delivery of items. As well as extending the opening hours of around 600 of our busiest delivery offices until 8pm on a Wednesday, Royal Mail has launched a trial of evening deliveries in the M25 area to give consumers even greater choice over the delivery of their items.”

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