Postal Service Bids for Quick-Delivery Packages
This Christmas, the government agency is challenging companies such as Federal Express and UPS on both price and service
THE United States Postal Service is chasing some fast competitors. It is promoting its express-mail service in an effort to snatch back some of the business it has lost to private carriers such as Federal Express and United Parcel Service (UPS).
The big test is coming in the next few days, including Christmas Day.
"The Postal Service wants to compete directly with Federal Express and UPS, because express deliveries are where the large money is," says Paul Page, associate editor of Traffic World, a shipping industry magazine. "It is a very lucrative market and the profit margin is good on this particular product, especially in the Postal Service, where we have transportation and routes already established to carry other classes of mail," says Marty Roberts, spokesman for the Postal Service.
Recently, the Postal Service launched a multimillion-dollar advertising campaign, "We Deliver for Yule," to promote its Express Mail and Two Day Priority Mail services around this holiday season. From Nov. 20 thru Jan. 2, the Postal Service expects to deliver 57 million items of Priority Mail and 3.8 million of Express Mail.
Since US Postmaster General Marvin Runyon took over the $45 billion government agency six months ago, he has expressed a strong interest in going into the express-mail business, Mr. Page says.
The Postal Service is going after three markets: parcel-post delivery by ground transportation, overnight express letters, and overnight package delivery, Mr. Roberts says.
The ground parcel-post market, which takes five to 10 days for delivery anywhere in the US, is dominated by UPS. But recent rate increases at UPS, which added a surcharge for residential delivery, created an opportunity for the Postal Service to undercut the UPS price, Roberts says.
"Our delivery service is very consistent, if not better than UPS, in most areas of household deliveries," Roberts says. For $2.90, Priority Mail delivers a two-pound package within two days in the US. However, this is not a guaranteed service like UPS's 2nd Day Air. More than 80 percent of Priority Mail items are delivered within two days, but in some rural areas, Roberts acknowledges, delivery may take more than two days. Jumping into the overnight game
Express Mail, a guaranteed overnight service, is where the Postal Service hopes to compete with carriers such as Federal Express and UPS. A letter under eight ounces costs $9.95, which is about the same price Federal Express charges for parcels presented to its offices for delivery. Unlike other carriers, Express Mail doesn't have additional fees for weekend deliveries.
The entry of the Postal Service into the express-mail market has already created some competition, but does not pose a major threat to UPS, says Susan Rosenberg, a UPS spokeswoman. "We have more than enough business to go around," Ms. Rosenberg says. UPS expects the public to give it about 2.45 million overnight packages for delivery on Dec. 21, the peak time for the shipping industry. That compares with a yearly average of 810,000 packages per day.
In the express-mail market, Federal Express can track parcels more quickly than the Postal Service. Customers can verify their delivery records instantly, compared with two to three hours for the Postal Service, says Sandra Munoz, spokeswoman for Federal Express. Priority Mail `going over well'
Roberts says the Postal Service was behind in tracking records until last year, when the Postal Service established its own tracking and tracing system. Next year, Priority Mail will also have a tracking system.
Last year, the total volume for Two Day Priority Mail was 530.4 million, up from 517.8 million in 1990. This year, the Postal Service projects a 15 percent increase.
The volume for Express Mail was 57.9 million in 1991, down from 58.5 million in 1990. This slight decline in Express Mail is due to the recession, Roberts says. However, he also notes that more people are turning from Express Mail to Two Day Priority Mail.
Priority Mail "is going over very very well" says Greg Smith, vice president of the Colography Group Inc., a consulting firm on the air-freight industry. "Even during the recession, people are not necessarily looking for a cheaper product, but a time-definite product," Mr. Smith says. If consumers know that their letter or package definitely will be delivered in two days, they'll be use more two-day delivery service rather than the more-expensive overnight mail, he says.
With more than 121.8 million existing mail slots in the US, "the Postal Service can be a tremendous competitor in the express-mail business," Smith says.
The Postal Service hopes to grab as much of the market as it can but faces some obstacles, Roberts says. While other carriers can make a quick decision on prices and volume discounts for their business customers, the Postal Service is slow to make a decision because of red tape. The Postal Rate Commission sets rates on all classes of mail except for international mail. That ratemaking process requires anywhere from 10 to 14 months.