PROTECTING SMALL BUSINESS, PROMOTING ENTREPRENEURSHIP

USPS Backroom Pricing Deals Leave Small Businesses Footing Higher Bills

By at 19 November, 2021, 9:43 am

These special rate deals aren’t working: In 2020, the USPS delivered more packages than ever and still lost $9.2 billion.

By Karen Kerrigan

The holiday shopping season is kicking into high gear early, and 2021 will be an important one for local small businesses. They are facing challenging cost headwinds, which is why consumers need to do all they can to support these businesses. Moreover, many larger companies have an advantage in their consumer deliveries courtesy of the United States Postal Service (USPS). These deals are centered within what the Postal Service calls its negotiated service agreements, and do not give consideration to the competitive impact on small businesses

The arrangements aim to create “customized and mutually beneficial” agreements between the agency and high-volume delivery entities. The USPS reports that 40 percent of the Postal Service’s 5.5 billion package volume is mailed under these agreements. That’s a lot of packages.

Large companies negotiate these USPS subsidies in private meetings, and provide access to under-market pricing that their small business competitors do not receive. This creates an obvious disparity, providing large companies with a sizeable competitive advantage in the delivery market to reach American consumers.

These exclusive deals leave small businesses in the dark, and create significant cost uncertainty. To wit: Take a look at the Postal Service’s recent announcement on rate increases for this year’s holiday season.

For all delivery companies, eCommerce outlets, and small businesses, this means withstanding price increases by as much as $5 per package delivered. The largest of deliverers are insulated from full impact as a result of the returns to scale they receive via these special service agreements. Obviously, this price advantage – negotiated in a non-transparent process – over small businesses will be felt even more harshly this year given growing inflationary pressures and other operational challenges that are chipping away at their thin margins.

Small businesses already face a competitive landscape when it comes to promoting and pricing their products. They have the tools at their disposal to market and reach customers, but it is very difficult to compete with deliveries subsidized at under-market rates. They shouldn’t have to guess when it comes to pricing or try to anticipate what larger companies haggle through these exclusive agreements.

So why does the USPS enter into these preferential agreements that put small businesses at a disadvantage? Small businesses constitute the core of the Postal Service’s consumer base, so it’s a head-scratcher as to why they would undermine their growth and market success. Small businesses must pay significant amounts for the systems that the Postal Service uses each year to prepare for the holiday increase in packages. Still, they are not asking for special treatment- only a fair shot at competing in what has become an inequitable process.

These agreements are not fair for rural communities either. Americans with limited access to consumer goods are disadvantaged the most because they rely more heavily on smaller shops at the local level, and many of those sellers have little choice but to directly pass on shipping costs to consumers.

By concealing and redacting the specific details of service agreements, the Postal Service is creating an unequal playing field and compromising its commitment to providing a public service to all. Companies that can follow its volume and payment requirements are given an unfair advantage in the marketplace.

As the holidays approach, the large businesses have baked-in competitive advantage from the start. They will have clear budget numbers and a better idea of how to price because of their special deals with the USPS. Again, these larger companies were able to negotiate with the USPS to create a deal that works best for them. This is being done even though the USPS has experienced long-term and well-known financial sustainability issues. As a reminder, the Postal Service now carries $188 billion in debts and liabilities. In 2020, the USPS delivered more packages than ever and still lost $9.2 billion.

Small businesses are not as lucky to navigate into a deal that subsidizes their shipping rates. The local bookstore, gift shop or hardware store in neighborhood or on Main Street will not see pricing relief this holiday season. Unfortunately, the disparities will only grow as the Postal Service continues its use of  non-transparent service agreements with larger businesses each and every year.

To assist all Americans this holiday season, USPS should establish just and fair standards for everyone. And, as a reminder, please Shop Small this holiday season!

Karen Kerrigan is president & CEO of the Small Business & Entrepreneurship Council.

 

 

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