Economy
16 August 2022
USPS is raising rates for the holiday season
Commercial and retail packages will be more expensive to send from October-January.
USPS rate increase arrives for the holidays. (Photo by Joel Moysuh on Unsplash)
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As brands and retailers get ready for the holiday season, they will once again have to factor increased costs of shipping through the US Postal Service into their plans.
The postal service announced a rate increase for commercial and retail parcels for the peak holiday season on August 9 that the agency said will help to cover extra handling costs during the busiest season for package delivery. The increases will be in effect from October 2-January 23, 2023.
“The Postal Service has some of the lowest postage rates in the industrialized world and continues to offer great values in shipping,” the USPS said, in a statement. “These temporary rates will keep USPS competitive while providing the agency with the revenue to cover extra costs in anticipation of peak-season volume.”
The temporary increase must still be approved by the Postal Regulatory Commission.
Under the plans, rates will increase from 25 cents to about $6 per package, depending on size and weight. There will be no price increase for USPS Connect Local, a recently-launched program providing next-day delivery service.
While Amazon has built a vaunted logistics network, the USPS remains a key carrier for packages throughout the country, including those being delivered to complete online orders. According to the Pitney Bowes Parcel Shipping Index, USPS continued to have the highest market share by parcel volume of any US carrier in 2021. The Postal Service is also in the midst of implementing a 10-year plan to improve service and financial sustainability, called Delivering for America. The agency indicated that rate increases are in line with this plan, noting that it calls for "appropriate pricing initiatives."
In its earnings report for the quarter that ended July 1, USPS said shipping and packaging volume was down 5%, or 92 million pieces. However, the agency said it believes a shift toward ecommerce in the pandemic has permanently altered sending habits, but is still seeing a dip in ecommerce activity amid a return to more in-person activities and spending on services.
“We believe consumer behavior has evolved during the pandemic, and our Shipping and Packages volume is not expected to return to pre-pandemic levels, as the nation has increasingly relied on the safety and convenience or e-commerce,” said USPS. “However, the surge in e-commerce has continued to abate as the economy recovers. Furthermore, competition in the overall market has increased as certain major customers have returned to delivering their volume from our network and aggressively pricing their products and services to fill their networks and grow package density.”
An outline of key changes to holiday season pricing follows:
Priority Mail and Priority Mail Express
Commercial
- $0.75 increase for PM and PME Flat Rate Boxes and Envelopes.
- $0.25 increase for Zones 1-4, 0-10 lbs.
- $0.80 increase for Zones 5-9, 0-10 lbs.
- $0.75 increase for Zones 1-4, 11-25 lbs.
- $2.80 increase for Zones 5-9, 11-25 lbs.
- $3.00 increase for Zones 1-4, 26-70 lbs.
- $6.50 increase for Zones 5-9, 26-70 lbs.
Retail
- $0.95 increase for PM and PME Flat Rate Boxes and Envelopes.
- $0.30 increase for Zones 1-4, 0-10 lbs.
- $1.00 increase for Zones 5-9, 0-10 lbs.
- $0.95 increase for Zones 1-4, 11-25 lbs.
- $3.20 increase for Zones 5-9, 11-25 lbs.
- $3.25 increase for Zones 1-4, 26-70 lbs.
- $6.45 increase for Zones 5-9, 26-70 lbs.
First-Class Package Service, Parcel Select Ground, and USPS Retail Ground
Commercial
- $0.25 increase for Zones 1-4, 0-10 lbs.
- $0.40 increase for Zones 5-9, 0-10 lbs.
- $0.75 increase for Zones 1-4, 11-25 lbs.
- $1.60 increase for Zones 5-9, 11-25 lbs.
- $3.00 increase for Zones 1-4, 26-70 lbs.
- $5.50 increase for Zones 5-9, 26-70 lbs.
Retail
- $0.30 increase for Zones 1-4, 0-10 lbs.
- $0.60 increase for Zones 5-9, 0-10 lbs.
- $0.95 increase for Zones 1-4, 11-25 lbs.
- $2.70 increase for Zones 5-9, 11-25 lbs.
- $3.25 increase for Zones 1-4, 26-70 lbs.
- $5.85 increase for Zones 5-9, 26-70 lbs.
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Operations
24 May
Target is taking an inside-out approach to scaling ecommerce
Sortation centers are helping the retailer build on its stores-as-hubs strategy.
Loading a van at a Target sortation center. (Photo courtesy of Target)
Like many retailers, Target undertook a massive digital buildout during the pandemic as ecommerce demand spiked.
The new capabilities proved to be the launchpad for impressive growth. In 2020, store pickup grew 600%. Same-day fulfillment grew 400% from 2019 to 2021. By 2022, the company was ready to double down on digital. It announced plans to invest up to $5 billion to scale operations, with store-based fulfillment capabilities among the big areas that would receive a boost.
It was an example of how the pandemic’s digital shift left a lasting imprint that would change a retailer’s footprint well into the future. But it’s worth remembering that Target already had the strategy that shaped this operational transformation in place well before COVID-19 arrived.
Stores-as-hubs
In the mid-2010s, Target adopted a stores-as-hubs strategy that put brick-and-mortar at the center of all operations, including digital. This meant that ecommerce orders would run through the store, just like in-person shopping. This has remained in place, and only grown. In the first quarter of 2023, more than 97% of sales were fulfilled by stores.
Stores-as-hubs was a radical approach at the time it was introduced. CEO Brian Cornell faced criticism that the two channels would cannibalize each other, and was out-of-step with the massive warehouse-based fulfillment network that Amazon was building. But in the end, Cornell was vindicated. The strategy put Target not only in position to capitalize on the pandemic’s digital shift, but to continue to see its stores be a destination when consumers returned to in-person shopping when restrictions were lifted.
At this point, Target’s nearly 2,000 stores are cemented as the center of ecommerce operations. But as it seeks to gain efficiency and speed in delivery, the retailer is bringing additional facilities into the network.
Now, Target sees opportunity to build ecommerce from the inside out.
Scaling with sortation centers
This year, evidence is emerging in the form of Target’s sortation centers. Positioned downstream of stores, these facilities combine technology and process logic to triage packages for last-mile delivery by the Target-owned service Shipt. Orders are still picked and packed at the store, but the sortation centers serve as the staging grounds that get packages out the door for delivery.
On the company’s first-quarter earnings call with investors, Target COO John Mulligan stressed that these centers are not highly automated.
“In fact, it's because of the relative simplicity in the design of these buildings and the efforts of an incredibly innovative and energetic team that we've been able to scale the number of these buildings so quickly,” Mulligan said.
Target is placing a big bet on these facilities. In February, it announced plans for a further investment in the supply chain of $100 million, focused on the sortation centers. It is enabling rapid growth. In 2022, the company had three centers, and now has nine. By 2026, it expects to have 15 centers in place.
These facilities are also serving as testing grounds as Target seeks to scale the delivery network.
A new facility in the Atlanta area is serving as an extension of the sortation center that has enabled Target to reach 3 million customers with next-day delivery.
“With this new facility, online orders that have been packed by Atlanta area stores continue to flow to the sortation center, where they're sorted and delivered via our national carrier partners or a ship driver,” Mulligan said. “However, a portion of local orders falling outside the sortation center's last-mile delivery area can now be transferred to the Smyrna extension, where Shipt drivers can pick them up and serve additional neighborhoods.”
Target and Shipt are also refining the path that packages take to reach customers. Shipt vehicles are being shifted to high-capacity models such as SUVs and minivans. These were used in 65% of last-mile deliveries in the first quarter, compared with zero a year ago. The vans service nearly five times as many packages, and enable route optimization that increases the number of packages delivered per hour.
It all adds up to reduced service costs for Target, and the company is continuing to build and refine processes at the sortation centers.
“Based on the success of these efforts, we're developing plans to begin testing high capacity vans at a larger scale,” Mulligan said. “In addition, we're developing a standardized faster way to load those vans, enabling package containerization and easy identification of the correct packages at delivery. In addition to simplifying the load process for the drivers, this new process will enable us to safely move a larger number of Shipt drivers in and out of our sort centers in a given amount of time, expanding our last-mile delivery capacity in these markets.”
Improving the ecommerce experience
To expand this last-mile capability, Target won’t be building massive fulfillment centers like Amazon. It already has large stores that offer proximity to large swaths of the population. Those can be outfitted to serve the same functions as large warehouses, and sortation centers help to expand them. Add in a delivery network via Shipt, and the pieces are in place to continue expanding and optimizing capabilities.
A scaled logistics network on the backend could also improve Target’s ecommerce experience on the frontend. For instance, increasing fast delivery could also open up more opportunities to deliver items with a shorter shelf life such as groceries, which is an area where Target is looking to expand. As Amazon has shown, consumers are also more likely to buy if they receive items in a convenient manner. Target’s stores have long benefitted from customers associating the shopping experience with their affinity for a retailer, just as much as they do the products they buy. Through fulfillment and delivery, it can extend the Tarjay cachet online, as well.
Ecommerce has always held the promise of being able to bring the store home. Target’s logistics strategy is putting that idea into action in a very literal way.
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