Saturday, July 26, 2008

Is the Postal Service as Good as UPS and FedEx?

Recently, the Postal Service proudly announced its latest service performance results.

  • Overnight service was 97 percent on-time, up from 96 percent the same period last year.
  • Two-day service was 95 percent on-time, up from 93 percent the same period last year.
  • Three-day service was 94 percent on-time, up from 91 percent the same period last year.

According to the New York Times, these results showed that First Class mail service performance is now at levels that rival the quality of a $40,587 Rolex. While this comparison is a bit factitious, comparing the Postal Service to private sector carriers suggests that it is possible for them to offer the same or better service quality. Firms that audit the bills of private sector carriers looking for refunds for missing service guarantees on overnight, second-day air, and ground services, have found that private sector carriers miss their service commitments on as many as 4% of all shipments.

The level of quality for measured First Class mail suggests that the Postal Service should be thinking really seriously about how improving service quality, and increasingly public reporting of improved service quality can increase revenue and market share in both competitive and market dominant products.

For competitive products, the Postal Service has two products that are now service competitive with DHL, United Parcel Service, and FedEx; Express Mail and Priority Mail.

Express Mail is price and service competitive with the private sector's economy overnight signature products when used as an overnight product. In addition, Express Mail is a price and service competitive alternative to the private sector's 2nd day air product over longer distances (e.g. Washington D.C. to Saint Paul, Minnesota) when tendered to the Postal Service after the final daily Express Mail pick-up. Express Mail is especially competitive with the competitors two day product when used in conjunction with carrier pick-up. In addition, if the Commission approves the proposed Express Mail Contract, contracts for Express Mail services may make sense for a wide range of potential customers interested in longer-distance 2nd Day service.

Currently, Priority Mail is possibly service competitive only in areas where private sector carriers currently have a two-day service commitment. For shorter distance routes (e.g. New York to Washington DC), the private sector generally offers overnight service for all products including their lowest cost ground parcel service. Priority Mail may offer overnight service for some items delivered within a Processing and Distribution Center's (PDC's) service area but does not make a commitment in that regard as the private sector carriers do and a PDC's service area is only a geographic subset of the area that the private sector commits to overnight delivery of ground parcels. However, service information reported in the quarterly reports suggests that Priority Mail is slower than First Class Mail for both local and longer distance mail. Therefore, one can assume that Priority Mail meets its service commitment at a lower lever than measured First Class mail information. Until more detailed service performance information is made public, the true service competitiveness of priority mail will not be known.

For short-distance Priority mail and all other products, the Postal Service could begin to use service as a competitive tool once it can tell customers exactly the service quality that is provided 95% of the time. At that point, mailers and shippers can more comfortably set their printing/shipping schedules to fit both the date they want delivery and the time that it takes the Postal Service to deliver. Given the current financial challenges, the future of the Postal Service may depend on delivering this service information.

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