Synergistic Symbiosis

Or

How UPS uses the Post Officeto make money

U.S. Ground Shipping Business

30 years ago the United States Post Office (USPS) had a near monopoly on ground parcel shipments.

Today, United Parcel Service (UPS) has claimed a majority share of that market.

USPS still has a major share (approx. 25%) and since it is a government run agency, has a public service mandate to serve all that request service, even its competitors.

Consolidators

Consolidators are businesses that take large quantities of parcels from shippers and separate them by ZIP code and deliver them to local post offices for delivery by the USPS.

USPS charges consolidators a fixed rate of $2.01 to handle the final delivery. The consolidator charges its clients on average about $3.00 for delivery.

Priority Mail with USPS costs $3.85.

Enter the ever-looming Giant

UPS has initiated a new service called UPS Basic.

UPS is essentially assuming the role of consolidator with one difference. UPS is “cherry picking” the profitable parcels.

They are choosing to deliver parcels with low associated variable costs (direct labor, vehicle usage) themselves. They send parcels that have high direct costs (rural and other difficult deliveries) to the USPS.

What are you gonna’ do about it? The US Post Office has a duty to:

Honor its published rates Serve all those who want them without discrimination

As long as any company meets the Postal service’s one-size-fits all rules, it must be allowed into the Parcel Select program (USPS pre-sort program).

“I can’t treat one customer different than another. We have to take it and deliver it.”

John Rapp, USPS Senior VP of Operations.

Down Side for UPS

By introducing a bare-bones service (UPS Basic) UPS risks cannibalizing existing customers from its higher priced services

UPS could suffer damage to its reputation by less reliable letter carriers.

The Teamsters Union is upset that this service constitutes the use of outside labor which might displace union members.

Source: Wall Street Journal, Nov. 6, 2003.