Why USPS Spurned Peak-Season Surcharges
The U.S. Postal Service (USPS) will not add surcharges for customers this holiday season in a major departure from competitors UPS and FedEx.
The government agency first implemented the fees in 2020 to offset elevated holiday operating expenses as delivery demand surged during the pandemic. There will be no additional fees for residential area delivery, for Saturday delivery or for minimum volumes this year.
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Jacqueline Krage Strako, chief commerce and business solutions officer of USPS, called the decision “a competitive advantage” in a Tuesday webinar. “Do we expect it to help us grow volume?” she said. “Absolutely.”
FedEx was the first to announce it was raising peak surcharges in August, rebranding them as “demand” surcharges and extending them beyond the holiday season when necessary. UPS followed suit a month later in the wake of a lucrative new contract for 340,000 employees unionized under the Teamsters.
Like the Postal Service, Amazon’s recently relaunched ground delivery service, Amazon Shipping, won’t tack on peak surcharges this year.
USPS ruled against adding the seasonal surcharges despite reporting a net loss of $1.7 billion in the third quarter on revenue that fell 0.9 percent to $18.6 billion. It has lost $5.2 billion in the first three quarters of fiscal 2023.
USPS has tried to recoup costs elsewhere, raising the price of first-class stamps from 63 cents to 66 cents in July, marking the third time in a year that “Forever” stamps got more expensive.
“If I had to offer a guess [why USPS did not implement surcharges], it is because USPS wants to try and pull market share now that they have their new USPS Ground Advantage program,” said Jason Miller, interim chairperson, department of supply chain management at Michigan State University’s Eli Broad College of Business.
Launched in July, USPS Ground Advantage aims to be more affordable for e-commerce merchants with fee- and fuel surcharge-free residential delivery of packages up to 70 pounds within two-to-five business days. It consolidated three previous services—USPS Parcel Selected Ground, USPS Retail Ground and USPS First-Class Package Service.
Sharing data from the U.S. Bureau of Labor Statistics (BLS), Miller noted that the increase in Product Price Index (PPI) for both the USPS and other delivery services since the start of the Covid-19 pandemic was nearly identical, “which is in stark contrast to where we were last year. This would also help explain the lack of a holiday surcharge.”
USPS has expanded its daily package processing capacity to approximately 70 million, up from 60 million last year. Since 2020, the USPS has nearly tripled its daily package processing capacity. This means it can move packages through the postal network more quickly and eliminates the need to lease temporary annexes.
Dr. Tom Goldsby, professor and Haslam Chair of Logistics at the University of Tennessee’s Global Supply Chain Institute, believes excess capacity helped USPS come to the surcharge decision.
“USPS feels that it has ample internal and external capacity to handle volume in the coming year, so the rates did not need to change noticeably,” Goldsby told Sourcing Journal. “It remains a good time to lock in capacity, as the transportation market in general has softened a good bit over the past year.”
USPS has installed 100 new sorting machines since last peak season, and 348 new package processing machines since 2021. It expects to install another 47 sorting machines ahead of the holidays—part of its $40 billion investment in new technology under the “Delivering for America” turnaround plan.
USPS attributes its service levels to the 10-year plan, which aims to help the carrier reverse more than a decade of losses. Ninety-eight percent of the American population currently receives their mail and packages in less than three days, while approximately 40 percent of first-class mail and packages are delivered a day in advance.
“More impressive than the maintenance of rates for the USPS, is the pretty robust performance they have shown for on-time delivery in recent times,” said Goldsby. “Nationwide on-time delivery stands at 95.4 percent, greatly exceeding the arguably modest 90 percent level, and it bodes well for USPS moving forward.”
In 2022, the Postal Service processed more than 11.7 billion mailpieces and packages during the holiday season, with delivery times averaging just 2.5 days.
USPS is hiring 10,000 workers for the peak season, well below the 28,000 holiday hiring goal for 2022, which it said is because many of last year’s temporary hires moved into “career positions.”
Currently, 95 percent of first-class Mail and more than 95 percent of first-class packages move through the USPS ground delivery network.
