Who could have imagined, even just three years ago, that the United States Postal Service, UPS, FedEx and DHL fierce competitors in the parcel business would have anything in common? And more interestingly, that the common link between them would be the U.S. Postal Service. And thats just the beginning of what is to come.
Traditional competitors, now business partners. The U.S. Postal Service improving access, chasing service, valuing information, controlling cost/price, developing new products. These are just some of the directions of the highly energized Postal Services Package Services unit. And heading the charge is a group of forward-thinking, in-touch persons at the U.S. Postal Service, determined to make a difference in how the Postal Service plays in the very competitive arena of parcel shipping. Leading that group is Jim Cochrane, manager, Package Services, who was cautiously optimistic on some points of discussion and ecstatically optimistic on others as I talked with him about bringing the post office to the door as well as the newly coined phrase first and last mile.
Bringing the Post Office to the Door
While FedEx and UPS are trying to get closer to their customers with the acquisitions of Kinkos and Mail Boxes Etc., respectively, the U.S. Postal Service is bringing the post office to the customers door, notes Cochrane. The Postal Service has 40,000 offices (38,000 retail points and 2,000 contract retail) across the nation. So while its competitors are creating their brick-and-mortar solutions, the Postal Service, which has a presence that dwarfs the efforts of UPS and FedEx, is going the next step by taking the post office the last mile to the customers doors something the Postal Service is in a unique position to do, rather effortlessly.
Customers have always been able to hand their mail to their letter carriers, says Cochrane. However, while customers know the Postal Service picks up mail, they tend to leave us just their documents their letters and their flats. They dont associate us with packages, he explains. We are increasing our communi-cations with our customers and leveraging what I think is the most significant asset we have, and thats our letter carriers. We are at every door, at every household, at every business, six days a week. The customer relationship with the letter carrier is second to none. Cochrane sees those carriers as the Postal Services link to its customers and its path to the future.
We know we are getting business from our competitors with our combination of new conveniences printing labels online and paying postage online and the convenience of online ordering of our free packaging supplies for Express Mail and Priority Mail. Online label access is referred to as Click-N-Ship, available at www.usps.com. And finally, says Cochrane, shippers are beginning to understand how much they are really paying for delivery after surcharges (see Battle of the Budget Bulge on page 26).
Square Deal for Businesses of All Sizes
The Postal Services Package Services team is developing solutions for shippers of all sizes by understanding the challenges of each. For the most part, I look at the Click-N-Ship service as an on-ramp for small- and medium-sized businesses. As businesses grow (more than 50 packages a day), they tend to move from Click-N-Ship, which is more like a transaction system, to our PC postage partners. This may be a better solution because our customers get a little more robust software, and they can do more business management monitoring and reporting.
As companies get even bigger (200 plus packages a day), they will typically open up a permit with the U.S. Postal Service and use an indicia-based permit for shipping. [We have provided] a path to move them from a growing small business, shipping 10 packages to a larger business. Thats how Amazon.com started; 10 packages, being thrown on our dock [each day] to where now we are delivering up to 40,000 packages a day. Thats a great success story. We want to approach business in such a way that we help shippers grow their businesses and provide a solutions for every business, regardless of size, notes Cochrane.
The Postal Service is enhancing the array of services offered to shippers, concentrating on customer convenience by providing more online solutions and more door-to-door options both forward and reverse. For lower volume shippers, having the ability to go online and schedule a pickup alleviates a business task. For high-volume shippers, the Postal Service continues to enhance existing services, especially by providing attractive price points for delivery into Destination Delivery Units (DDU).
Competitors Converge at the Mile Mark
Parcel Select is a ground program targeting large shippers in which other transportation companies partner with the Postal Service to deliver packages into DDUs for last mile delivery by the Postal Service, optimizing price points for the shipper. Parcel Select is a real success story; we are pleased with the growth in this service. It is a product that appeals to customers, especially ones shipping business-to-residential or business-to-consumer, Cochrane points out. Delivery of packages into the DDUs has grown at a rate of over 50% annually, from 12 million to 170 million parcels in the last three years. The last mile is worksharing at its best, and many shippers are leveraging the Postal Services greatest asset delivery into every household.
The Postal Service started the program with some very large printers, namely R.R. Donnelley and Quad Graphics (under the name Parcel Direct). Cochrane continues, And we have since added a traditional package delivery company, American Package Express (APX), as well as competitors and other regional carriers. For instance, DHL/Airborne Express ships a lot of packages with this product. And now UPS is leveraging Parcel Select in the UPS Basic Program. We are having ongoing conversations and will soon be starting to work with FedEx.
In the future, Cochrane hopes that the Postal Service will get all residential-bound volume, regardless of who shippers use to · enter it into the system, be it a consolidator, UPS, FedEx, DHL or other competitors. As he notes, the residential surcharges or higher rates by competitive carriers are applied because they have inefficiencies in their systems, specifically for residential, rural or isolated deliveries. In many instances, the Postal Service, according to Cochrane, can provide shipping for less than the discounted rate compounded with the surcharge applied by competitive carriers.
With the traditional carriers taking advantage of Parcel Select, what does that do to the role of the consolidator? Cochrane responds, The consolidators are still very healthy in that market. Consolidators, unlike the Postal Service, have the ability to do some tier pricing; R.R. Donnelley and Parcel Direct, as examples, can drive down price points for shippers by including some Bound Printed Matter along with some parcels. APX [another consolidator] has great efficiencies and has critical mass to move things at attractive prices and good service levels, he adds. And regional consolidators, such as DDU Express and Parcel Corporation of America, play a critical role in providing great price points for their areas of delivery, according to Cochrane.
Parcel volume has been on the rise since the early 1990s, and there is no indication that volume will level off in the near or even distant future. As Cochrane states, There are plenty of packages and there are plenty of price points for all of the Postal Service partners, from regional consolidators to the national consolidators.
Cochranes excitement in the success of Parcel Select is warranted. As we have grown Parcel Select, our overall time in transit keeps going down. At the end of the day, thats how shippers make decisions; they will aggregate our time in transit using consolidators, and they will aggregate UPS ground or FedEx ground. Then they balance that with money they are saving, and they are typically saving money when they use Parcel Select, against the time in transit.
As far as the future, Parcel Select is morphing into maybe two tiers of time in transit. One is a higher price that is a two- to four-day delivery; and a lower price that is a four- to seven-day product. Cochrane believes that the Postal Services traditional competitors and the consolidator partners will find their niches in this tiered Parcel Select service.
A Four-Square Future for Priority Mail
Another sought-after service, Priority Mail, has been attractive to shippers because of the price to delivery time balance. Although the past two years have seen a decline in Priority Mail, Cochrane believes there will be future growth. Stabilized rates are Cochranes projection for the future resurgence of Priority Mail use. The rates have really gone through some unnatural price point changes, and Im excited that we are going to have rate stability going into the future.
Ensuring even more success with the service, the Postal Services partnership with FedEx has helped achieve a highest-ever level of service in Priority Mail. Cochrane says that there is great value in Priority Mail with most being delivered in two to three days. There are no hidden costs, and some attractive packaging programs are provided by the Postal Service. And he adds, We are finding that a lot of shippers are very intrigued with Priority Mail as an alternative to the rising ancillary costs and surcharges [by the competition]. Shippers having less than 100 packages a day, according to Cochrane, are most attracted to Priority Mail because they dont get very deep discounts from the competitors, and then they have to pay surcharges. And its not just business-to-consumer, its business-to-business opportunities coming our way in Priority Mail.
No One-Box-Fits-All Solution
The Postal Service has a complex world of products beyond Parcel Select and Priority Mail and the two other standards, Express Mail and Parcel Post. Other service offerings are more content-or weight-driven and are excelling in the marketplace. Standard Mail provides a very economical ground solution for parcels weighing less than a pound and is doing well. The Postal Service delivers at least 700 million Standard Parcels a year. In the future, Cochrane thinks the Postal Service can create some pricing to have these lightweight parcels entered into the DDUs, much like Parcel Select service.
First Class mail provides a very economical solution for light-weight parcels needing a more expedited delivery time. The U.S. Postal Service delivers just shy of a half-billion First Class parcels yearly.
Media Mail, a flat-rate service for books, music and CDs, has done very well in the last two years as consumers buying habits have changed. The Postal Service is looking to enhance this service to meet the growing demand. Bound Printed Matter, for catalogs, directories and books weighing up to 15 pounds, has also grown in the last two years. Most industry analysts dont look at these niche products, but Cochrane notes that the Postal Service does very well in these niches. And savvy shippers utilizing sophisticated warehouse management systems take advantage of sorting parcels or SKUs and tagging them for the most cost-effective niche service, saving dollars on delivery costs.
New Equipment and Technology Around the Corner
With the wide choice of services, Cochrane is banking on Package Services technology strategies to continue to build volume. The more volume the Postal Service puts into its system, even if it is only for the last mile, the more the Postal Service can do in terms of upgrading technology and leveling the playing field in a parcel market that is getting more and more competitive, despite the competitive cooperation.
We are excited about the first significant capital investment in parcel sorting in a couple of years, notes Cochrane. The Postal Service is deploying its first Advanced Package Processing System (APPS) and will fully deploy throughout 2004 and 2005. These systems will allow the Postal Service to extensively increase its efficiencies. APPS has passive scanning, which will allow the Postal Service to increase its visibility on packages and have more events in product tracking. We are also exploring the next generation of scanners on the street, which will be state-of-the-art, the best on the market that will take the Postal Service into the next decade, comments Cochrane.
Online technology will also continue to be enhanced. For instance, Click-N-Ship will be enhanced to include e-mail verification of delivery and a shipping cart, which will let shippers batch up to 20 packages in one online visit. And borrowing from the world-class technology developed for processing letter mail, the Postal Service plans to add video monitoring of parcels so when the machine cant sort the package to a destination, a camera will take a picture and send it to a remote encoding center for address analysis. This technology alone will help further control costs, a benefit passed on to shippers.
Universal Service The Total Package
Expect to see the Postal Service in more and more places. A recent agreement with Hallmark will put the Postal Service in Hallmark retail stores. Anyone can bring in mail, and Hallmark and the Postal Service will handle it from there. Another place you can now find the Postal Service is eBay. As you check out of eBay, the delivery option has now been expanded to include the Postal Service.
If people want to ship packages with us, we want to make that an easy experience. We hope that with the next rate case, we can take steps to simplify the make-up rules to make our parcel services easier to use, says Cochrane.
The bottom line for Cochrane and the Package Services team is to capitalize on its assets most importantly universal service to bring solutions to all customers regardless of size, business type or location. The Postal Service has developed strong partnerships with competitors, consolidators and equipment vendors to help customers get any package from point A to point Z at the best price within the optimal delivery time. We are never going to cherry pick; we are going to provide great service to everyone. We provide universal service and that is and will continue to be our biggest strength, concludes Cochrane.
And lets just see where the Postal Service takes parcel delivery in the next three years. Im sure we will be just as surprised as we have been over the last three years.
For more information, please visit www.usps.com.