• on Jun 9th, 2014 in Ideas Worth Exploring | 4 comments

    Dim weight. Sounds like something you might call your not-so-smart cousin. It’s actually a way to price parcels based primarily on how much space they take up during transport and delivery.

    FedEx is the first major carrier to announce plans to charge prices based on the dimensional weight of all its ground shipments. Retailers and other shippers are bracing for a nasty hike in shipping costs come January 2015, when the FedEx changes take effect.

    Shipping costs are heavily influenced by how much cubic volume a parcel takes up in the back of a truck or plane. If parcels are roughly uniform in density (weight in relation to size), then charging by weight makes sense. But if parcels are light yet bulky, such as shoes, diapers, and many other goods ordered online, then weight-based pricing doesn’t reflect costs. Dim weight pricing will let FedEx charge more for these light yet bulky packages – for example up to 30 percent higher on a 32-pack of toilet paper – that take up more space in the truck.

    Analysts say FedEx’s change will result in the most dramatic rate spike the parcel shipping industry has seen in decades. And these increases will affect either online shoppers or retailers, or both. As the Wall Street Journal recently noted: “Someone will have to swallow the estimated hundreds of millions of dollars in extra shipping costs.” Could free shipping for consumers become a casualty of this pricing change?

    Analysts expect UPS to follow suit with a similar pricing strategy. If so, the Postal Service and small regional carriers could see an uptick in volume – albeit higher-cost and lower-yield volume – as shippers look for ways to reduce the expected sticker shock from dim weight pricing. The move also could accelerate Amazon’s reported plan to launch its own fleet of trucks and drivers for local deliveries.

    Do you think FedEx’s change in its pricing structure will benefit the Postal Service? Or is it likely to primarily shift less-profitable packages to the Postal Service? Should the Postal Service consider a move to dim weight pricing for its ground services as well? Or would it hurt the Postal Service’s standing as the lowest-priced competitor?

     

  • on May 9th, 2011 in Strategy & Public Policy | 1 comment
    Globalization is not a new phenomenon. Throughout history, people sought better ways to correspond and trade over great distances. In recent times, a number of key forces emerged to fuel globalization. Perhaps most important, technological advancement like the internet, personal computers, mobile devices, and global positioning systems (GPS) energized globalization at an unprecedented pace by facilitating instant information transmission, regardless of distance, at a decreasing cost. The result was a dramatically changed business environment. Businesses and governments, capitalizing on new technologies to improve efficiency, trade, and financial performance, spurred international policy integration, operations standardization, and deregulation and privatization of many public monopolies like power companies. The postal services were no exception. The competitive pressures resulting from an increasingly interconnected marketplace such as the rise of integrators and electronic substitution created profound changes in the postal service ecosystem, which both threatened traditional mail segments and created new opportunities. As a result, the postal sector entered a new era that stimulated many foreign posts to adapt their business model to enter novel markets, diversify product offerings, and develop opportunities in non-traditional sectors to stem the posts’ declining mail businesses. Here are some options that foreign posts are already exploring:
  • E-commerce – Connect global shippers and consumers by extending customs clearance services to new products, offering international mailers access to domestic U.S. shipping, billing, or IP addresses for the easy purchase of U.S. goods, and creating competitively priced small parcels and packet products.
  • Border-free solutions – Provide global-direct retailers a cost-effective method to clear customs and remit duties, taxes, and shipping costs to the appropriate parties while providing an end consumer one total price. Consumers will flock to a provider that can deliver an affordable product with superior logistics, returns, payment, security and authentication services globally.
  • Logistics strategies and alliances beyond national borders – Collaborate with private carriers and other posts to provide the end-to-end service and comprehensive, world coverage that customers increasingly expect.
  • Foster exports-based prospects for Small to Medium Enterprises – Launch an integrated, multi-channel platform of e-commerce services and customized solutions that allow these companies to easily expand their export business online while reducing cross border costs and language barriers. Marginalized groups – Cater to the specific needs of citizens left behind by globalization by addressing underserved areas with a lack of infrastructure and technology necessary to connect to the global economy, provide cash card redemption, and distribute government services.
  • Bilateralism – Negotiate improvements to the Universal Postal Union rates posts pay to one another as well as enact direct entry and worksharing agreements to better meet customer needs and maintain profitability. Diplomacy can drive mutually beneficial outcomes even as globalization increases competition in liberalized home markets.
  • Global citizens – Develop a lean, one-stop integrated communication and transaction services including digital/physical address link, e-mailbox, digital concierge services, hybrid and reserve hybrid, digital currency and bill presentment. Ultimately, by reinventing itself as the comprehensive “communications platform,” the Postal Service can better serve an increasingly globalized American people.
  • Security concerns – Solve security and law enforcement challenges for consumers concerned with protecting sensitive information. Since an internationally accepted standard for user authentication and identity management does not currently exist, the Postal Service could leverage its trusted brand to develop a secure platform for sensitive messages and transactions.

  • Which option do you think for the most promising for the Postal Service to pursue? This blog is hosted by the OIG’s Risk Analysis Research Center (RARC).