Push by UPS to get USPS to raise package prices, brushed aside by U.S. Supreme Court

Reports from earlier this week noted that the United States Supreme Court indicated it would not take up an appeal from UPS in which UPS wanted the Court to mandate that the United States Postal Service (USPS) to increase package deliver fees and charges.

An article in The Hill said that the Supreme Court rejected UPS’s request to appeal a lower court ruling upholding the USPS’s pricing methods, adding that UPS had sought to force the USPS to raise its rates because it maintains the USPS “has an unfair advantage over its private competitors.”

But the Supreme Court did not see things the same way. And both The Hill and Bloomberg said in their respective reportage that this development is viewed as a win for global e-commerce bellwether Amazon, as it contracts the USPS for package delivery services and had supported the USPS in this court case.  

Bloomberg said that UPS, whom competes with the USPS in the package delivery sector, maintains that the USPS has an unfair advantage because its pricing method does not track the true cost of delivery. But it added that all might not be lost for UPS, as President Trump’s task force, which is focused on overhauling the USPS business model in order to return it to sustainability and not shift additional costs to taxpayers, is recommending that the USPS raise package prices.

A UPS official told LM that: “UPS is disappointed that the Supreme Court decided not to hear this case.  We will continue to work with the Postal Regulatory Commission to advocate for transparent cost accounting at the USPS.”

Addressing this development, Jerry Hempstead, president of Orlando, Fla.-based Hempstead Consulting, explained that postal pricing could be viewed as part art and part science, coupled with a degree of lobbies and politics also involved. 

At issue for UPS in its battle with the USPS are attributable costs, which Hempstead said could be considered as slippery.

“As an example, let’s take a delivery truck for the USPS,” he said. “How much of the costs to acquire, maintain, man, insure, and fuel a vehicle should apply to a piece of mail, a magazine, or a package? UPS tried to argue that the USPS was not fully attributing the costs of a parcel to the pricing of a parcel and therefore subsidizing the transport of the package using monopoly pieces (First Class Mail). The debate of the application of the costs has been going on for as long as I have been in the business. The courts just didn’t want to hear UPS complaining. At the end of the day the USPS is losing money, and everything is under-attributed.”

Gordon Glazer, senior consultant for San Diego-based parcel consultancy Shipware LLC, raised the question of: what other major industry has to allow their competitors to sit at the same table while justifying their pricing models for market competitive products?

“UPS has spent a small fortune on lawyers and specialists trying to change the manner in which the USPS sets prices for its competitive (aka Shipping) products,” he said. “UPS's focus had been at the PRC (Postal Regulatory Commission) arguing cost methodologies for Operational costs.  The USPS just finished the 10-year review on pricing despite all the challenges from UPS while increasing the level of cost coverage via annual price increases.  Currently, USPS Shipping is overachieving the mandated Institutional portion of these costs, which was originally set at 5.5%. Last year they covered 23% of these costs.”

Glazer added that an argument could be made that UPS went to the Supreme Court after losing all the other court battles but has little to show for it, save a hefty legal bill for its efforts. But when looking at the historical USPS rate changes, he explained it is clear that UPS had a tremendous influence in forcing the USPS to raise rates more than it would have otherwise. 

“When looking at the PRC’s cost coverage chart…the coverage now is almost the same as the percentage of parcel volume in the USPS revenue mix and will likely match it very soon,” said Glazer. “So while not mandated to do so, the need for extra revenue along with the increased pressure to show that the competitive sales were carrying their fair share of the operational/institutional costs is what drove the pricing to what it is today.” 

The Supreme Court’s decision not to take up UPS’s case did not come as a surprise to John Haber, founder and CEO at Atlanta-based Spend Management Experts.

“I don’t believe this battle is close to being over,” said Haber. “We expect follow up arguments and strategies that are already in the works in anticipation of this current decision. The costing methodology argument is extremely complex and for each brilliant financial and economical mind that agrees with UPS, another disagrees. The trickle down effect of the decision impacts so many different organizations and special interest groups (shippers, consumers, carriers, governments, lobbyists, Wall Street, the global economy, etc.) that it is like putting together one of the most difficult puzzles to solve – stay tuned!”