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What have you heard about the future of Surepost?
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<blockquote data-quote="worldwide" data-source="post: 859137" data-attributes="member: 2193"><p>I think you are missing my point. Look at it from the customer view and not a UPS centric view.</p><p></p><p>A rate comparision may make it easier. Take a 1-lb ground residential package going to zone 5 to a rural zip code and compare with USPS:</p><p></p><p>UPS rate = $11.99 ($5.75 + $2.45 residential surcharge + $2.75 delivery area surcharge + $1.04 fuel surcharge)</p><p>USPS Priority Mail rate = $5.20 small flat rate box or $5.35 for customer packaging</p><p>Package consolidator rate = less then Priority Mail--custom rates for accounts</p><p></p><p>UPS would have to discount their rate more than 56% to come close to the best Priority Mail rate.</p><p></p><p>Would you as a consumer pay more than twice as much to use UPS ground versus Priority Mail? Most consumers, given the choce, would not. Because of this, e-tailers demand lower rates from UPS or they threaten to divert business. Since neither one of us know the exact operating ratio of UPS ground residential products, we do not know the profit margins but logic would indicate that the margin is not there to support a 56% discount on ground residential service profitably. If it did, UPS would likely make the offer. In order to offer service at a profitable level, a lower cost alternative has to be available to the e-tailer if UPS hopes to retain business or gain new business.</p><p></p><p>In the case of a dense urban area like your area, the UPS rate would be $8.98 (no delivery area surcharge). UPS would have to offer a 25% discount--very sizeable for a 1-lb package.</p><p></p><p>Fedex Ground has a lower cost structure than UPS but they have done the same thing with introducing SmartPost and that service has seen dramtic growth and based on commentsmade on the Fedex investor relations calls, the profit margin is good and the growth has been dramatic. That volume is coming from UPS Ground customers and Priority Mail shippers. UPS can either offer a competitive response or continue to lose market share in the ground market. It appears that with SurePost, they are trying to hold on to some of this market at profitable levels.</p></blockquote><p></p>
[QUOTE="worldwide, post: 859137, member: 2193"] I think you are missing my point. Look at it from the customer view and not a UPS centric view. A rate comparision may make it easier. Take a 1-lb ground residential package going to zone 5 to a rural zip code and compare with USPS: UPS rate = $11.99 ($5.75 + $2.45 residential surcharge + $2.75 delivery area surcharge + $1.04 fuel surcharge) USPS Priority Mail rate = $5.20 small flat rate box or $5.35 for customer packaging Package consolidator rate = less then Priority Mail--custom rates for accounts UPS would have to discount their rate more than 56% to come close to the best Priority Mail rate. Would you as a consumer pay more than twice as much to use UPS ground versus Priority Mail? Most consumers, given the choce, would not. Because of this, e-tailers demand lower rates from UPS or they threaten to divert business. Since neither one of us know the exact operating ratio of UPS ground residential products, we do not know the profit margins but logic would indicate that the margin is not there to support a 56% discount on ground residential service profitably. If it did, UPS would likely make the offer. In order to offer service at a profitable level, a lower cost alternative has to be available to the e-tailer if UPS hopes to retain business or gain new business. In the case of a dense urban area like your area, the UPS rate would be $8.98 (no delivery area surcharge). UPS would have to offer a 25% discount--very sizeable for a 1-lb package. Fedex Ground has a lower cost structure than UPS but they have done the same thing with introducing SmartPost and that service has seen dramtic growth and based on commentsmade on the Fedex investor relations calls, the profit margin is good and the growth has been dramatic. That volume is coming from UPS Ground customers and Priority Mail shippers. UPS can either offer a competitive response or continue to lose market share in the ground market. It appears that with SurePost, they are trying to hold on to some of this market at profitable levels. [/QUOTE]
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