Who’s the cheapest overnight shipper?
I came across an article from the Consumer Reports about overnight shipping costs and since I just wrote about shipping last week (and 2 years ago), I thought I’d share some thoughts on the article.
Let’s start with the conclusion of the article. Based on two tests, Consumer Reports determines that the Post Office is the cheapest by far. Of course, this isn’t a fully conclusive test. They didn’t test multiple start and end points, package weights or formats (box, envelope, etc).
Anyway, aside from Consumer Reports lack of understanding of the scientific method, there are some interesting things in the article.
Asked how the Postal Service, an independent part of the U.S. government’s executive branch, can deliver overnight shipping for less, a spokeswoman, Yvonne Yoerger, said: “We have an infrastructure in place and letter carriers everywhere. We’re simply adding package delivery to a network that already exists.”
This supports my earlier assertion that the Post Office package delivery is heavily subsidized by their federal government mandated monopoly on first class mail. First class mail provides all the revenue they need to have the “infrastructure in place and letter carriers everywhere”. Adding packages, then, have a low marginal cost.
If you need a letter or package delivered faster than next-day, FedEx and UPS have the edge. Both offer same-day service and delivery first thing next morning. All the Postal Service can do is promise delivery by sometime the following business day, depending on destination and shipping time.
This part interesting because it gives us insight into the infrastructure that the companies in place. UPS and Fedex can schedule each leg of delivery. Each truck driver is given a specific itinerary of when to make pickups and deliveries. On the other hand, the post office’s final leg of delivery is not customizable. The mailman will always run his normal route and as necessary drop off a package.
Anyway we can’t forget the intangibles. There’s a rarely a line at FedEx or UPS; the Post Office on the other hand? It’s an exercise in patience. :-)
Yvonne Yoerger wrote:
From Yvonne Yoerger, the Postal Service spokesperson quoted: The quote used is accurate to my remarks. What isn’t included is additional information I provided. I also made the point that
that the cost of operating the postal network is covered in the pricing of all of our products upfront, not by surcharges added to the product price afterwards, the method used by other shippers. Residential delivery surcharges are one example. The Postal Service is prohibited by law from any product subsidizing others. Each has its “cost coverage” factored into pricing and is required to contribute to overall Postal Service costs. This is mandated in the Postal Accountability and Enhancement Act and is overseen by the Postal Regulatory Commission, an independent agency whose members are appointed by the President with advice and consent by the Senate.
Posted on 05-Nov-08 at 6:46 am | Permalink
Vijay wrote:
Thanks for the response Yvonne!
The point I was making was that the marginal cost of the additional package is low, because first class mail contributes so much to the common infrastructure.
So when you calculate the “cost coverage” of a package delivery, do you calculate (1) its “overall cost to ship” or (2) the cost to ship if only packages were paying for the infrastructure?
The latter is the more interesting number when comparing your service against FedEx and UPS.
And while I have your attention, the Post Office in Boulder Colorado at Valmont and 55th St is by far the best run post office I’ve ever been to. I been mailing lots of packages and this office rarely has a line and the workers are friendly and efficient.
And again, thanks for reading my blog. :-)
Posted on 05-Nov-08 at 11:49 am | Permalink