Friday, August 26, 2011

Is it Christmas in August?

Yesterday, my 10 unit condo building in Silver Spring MD saw two deliveries by a letter carrier.  In the early afternoon,  letters, flats and some small parcels were delivered.  Later in the afternoon a second carrier delivered small parcels. The small parcels all appeared to be less than 10 pounds and all were Parcel Select shipments.

A second delivery to handle parcel shipments is not uncommon in the month leading up to Christmas.  But could demand for parcel delivery be so strong that a second delivery is needed in August?  Looking just a few months ahead, will the Postal Service have sufficient delivery carriers in December to handle the crush of e-commerce purchases that will come from a combination of peak-level retail sales and delivered retail sales coming closer to 25% of all deliverable retail sales.

The growth of e-commerce has shifted the proportion of all parcels that are delivered to consumers at home and has changed the mix of merchandise consumers have delivered. Home-delivered e-commerce is the reason that Parcel Select volumes are growing at seven (7) times the growth rate of the parcel industry as a whole.     Parcel Select is growing so rapidly because when combined with the sales, pick-up and transportation services of FedEx/UPS/DHL/Neugistics/Streamlite and others it provides the service quality shippers need at a price that makes free shipping possible.  

The cost savings of using a consolidator and Parcel Select have been obvious for some time.  Retailers, even those who can negotiate large discounts off of the commercial tariffs including discounts off of minimum charges and home delivery charges are able to meet their customer's delivery requirements at a combined consolidator-USPS price that can be between half and 80% of what UPS or FedEx ground delivery would be.   However, it is the service quality, and in particular service quality driven by drop-shipping parcels close to the recipient that makes Parcel Select delivery work.  Without service quality that meets a retailer's service quality requirements, no price differential would be sufficient.

The growth of Parcel Select and other Postal Service delivered parcel services sold to retailers by consolidators raises a number of interesting operating, cost and pricing issues for the Postal Service.
  • Does the Postal Service need real-time carrier routing optimization models to minimize the impact on delivery labor requirements of the growth of parcels?
  • Is the cost of delivering parcels under 10 pounds changed as the volume of parcels that must be delivered grows?
  • Is there a cost different in urban and rural areas, or in areas where delivery points are a few miles from a carrier depot and those where the delivery point may be 20 miles or more?
  • How much would it cost to upgrade information systems to integrate Parcel Select delivery information  into the tracking systems of UPS/FedEx/DHL/Neugistics/Streamline and how quickly could those upgrades be implemented? 
  • Is there an interest from UPS/FedEx/DHL/Neugistics/Streamline to provide financial support for this upgrade to make the joint-line product better?
  • Is there a differential in the market price for last-mile delivery of parcels in urban and suburban areas as opposed to ex-urban and rural areas?
  • How can prices for Parcel Select delivery reflect the Postal Service's full pricing power without undermining the price-advantages of Parcel Select delivery?
  • How can prices for Parcel Select delivery maximize the use of the service in urban and suburban areas where private sector delivery costs are lower?
  • How can the Postal Service price deliveries through its rural and ex-urban delivery networks to take advantage of higher costs of competitors without discouraging the use of the service?

1 comment:

Anonymous said...

Are you crazy......this will all end in the middle of Sept. as they are preparing to count all RURAL ROUTES IN THE UNITED STATES. OH YEA IT WILL PICK BACK UP IN THE MONTH OF OCT. as OUR SALARY has been SEVERLY CUT !!!!