USPS ® FY15 STRATEGIES 1 The Future of Packages Bright or Dim? National PCC Day Chicago Postal Customer Council September 10, 2014 Dennis Nicoski

USPS® FY15 STRATEGIES« «1

«The Future of Packages«

«Bright or Dim?«National PCC Day

Chicago Postal Customer CouncilSeptember 10, 2014

Dennis Nicoski

USPS® FY15 STRATEGIES« «

Agenda

Marketplace trends – mail and packagesWhat is dimensional weighting?

DIM 101

Why does it matter? What does it mean?How do you capitalize?Proposed Priority Mail price reductionsQ&A

2

USPS® FY15 STRATEGIES« « 3

Industry Trends – Mail

• FCM erosion continues

• Battle for advertising dollars

• Changing demographics and buyer behavior

• Pace of change

• Security / privacy concerns escalating

• Technology integration / promotions

• Paper/print

• Exigency




2014 Mail Promotions


Mail NSA’s

• First catalog NSA filed March 5, 2014 – pending before PRC

• Key principles• Tiered discount on growth above base• Annual logical adjustment to baseline• 5 year term• Multiplier effect• Package commitment

• 25+ currently in discussion


Current Marketplace Trends FedEx and UPS DIM Changes

Proposed Priority Mail price reductions

Sunday, MetroPost/Same Day, Holiday, Next Day

Omnichannel (Ship-from-store, Endless Aisle, Flexible delivery)

Residential growing, commercial flat

Mode shifts – Air to Ground

Zone optimization

Business need assessment

Free shipping vs. transit time pressure from market leaders

Returns

DSV’s

Multi-carrier

Peak


IT / Engineering

Systems

People / Human Capital

Customer Experienc

e

Brand

First Mile Physical Network

Last Mile Digital

USPS Innovation Platforms

Enhance efficiency and convenience of pickup services and induction by fully utilizing USPS data, engaging with potential partners, and recognizing emerging customer needs. Enablers

Enhance efficiency and capacity of processing and transport networks by fully utilizing existing assets and augmenting services.

Maximize the value of USPS delivery by improving customer experience, cutting costs, and experimenting with adjacent offerings.

Develop technological solutions to enhance customer experience, increase revenue to USPS, and cut operating costs.

Four “Enablers” will build the capabilities necessary within the organization to support the development and implementation of

the Innovation Platforms.


Dimensional Weight 101

Shipping carriers use dimensional (also called volumetric) weight to compensate for the additional costs associated with handling packages that are light for their size

They take up more space on transportation and are more expensive to process and deliver

10


Dimensional Weight 101 With dimensional weighting, packages pay the greater

of the actual weight, or the result of a simple formula:

Length X Width X Height

Dimensional Weight Factor

11


Dimensional Weight 101 Step 1

weigh the package to determine actual weight For example, say the package weighs 4 lbs

Step 2 Measure the length, width, and height of the package Multiply the dimensions to determine volume/cube in cubic inches

(UPS rounds – 0.4” down, 0.5” up) For example – a box that’s 12” long by 12” wide by 6” high would be 12X12X6 =

864

Divide by the dimensional weight factor to determine dimensional weight

864 / 166 factor = 5.2

Step 3 – Compare the two Pay the greater of the actual weight or dimensional weight, which

now becomes the billable weight 5.2 rounds up to 6 lbs, which is greater than the 4 lb actual weight –

package pays the 6 lb price

12


Dimensional Weight 101 Today, the major commercial carriers apply

dimensional weighting in the following manner

Domestic Air (ON, 2D, 3D) – All packages – Factor = 166

Domestic Ground – Only >3 cf (5184 ci) – Factor = 166

Postal Service Priority Mail – Only >1 cf (1728 ci) – Only Zones 5-8 – Factor = 194

International – Factor = 139 (Canada import 166)

13


Dimensional Weight 101 In January 2015, dimensional weight will apply to ALL

domestic Ground shipments with Fedex and UPS

Domestic Air (ON, 2D, 3D) – All packages – Factor = 166

Domestic Ground – All Packages – Factor = 166

Postal Service Priority Mail – Only >1 cf (1728 ci) – Only Zones 5-8 – Factor = 194

International – Factor = 139

14


Dimensional Weight Benchmarks

15

Dim Wt

Paid Wt

Max Cu In

Max Sample Box (Notebook paper) = 8.5 x

11 x ?"

Max Sample Box (iPad) = 9.5 x 7.25

x ?"

PM CPP Cubic Tier

0.99 1 164 1.76 2.39 0.1

1.99 2 330 3.53 4.80 0.2

2.99 3 496 5.31 7.21 0.3

3.99 4 662 7.08 9.62 0.4

4.99 5 828 8.86 12.03 0.5

5.99 6 994 10.63 14.44

6.99 7 1160 12.41 16.85

7.99 8 1326 14.19 19.26

8.99 9 1492 15.96 21.67

9.99 10 1658 17.74 24.08


Dimensional Weight Benchmarks

16

L W H CU IN CU FTCubic

Tier DIMDIM

WEIGHT

PM E-MEDIA 7.6875 5.5625 1.5 64.1 0.037 0.1 0.4 1

SFRB 5.5 8.75 1.75 84.2 0.049 0.1 0.5 1

O-1096L 9.375 6.375 2.125 127.0 0.073 0.1 0.8 1

O-BOX4 7.25 7.25 6.25 328.5 0.190 0.2 2.0 2

O-1097 11.75 13.375 2.625 412.5 0.239 0.3 2.5 3

O-1092 12.375 13.625 3 505.8 0.293 0.3 3.0 3

MFRB 11.25 8.75 5.75 566.0 0.328 0.4 3.4 4

SHOE 7.75 5.375 14.625 609.2 0.353 0.4 3.7 4

MFRB-2 12.125 3.625 13.875 609.8 0.353 0.4 3.7 4

O-1095 12.75 15.75 3.25 652.6 0.378 0.4 3.9 4

LFRB 12.25 12.25 5.75 862.9 0.499 0.5 5.2 5

O-BOX7 12.25 12.25 8.25 1238.0 0.716 NA 7.5 7


Dim Weight vs. Cubic Pricing

Dimensional weighting effectively penalizes customers who have poor density

Large boxes that are light

Cubic pricing is exactly the opposite – it REWARDS customers who have good density

Example:

A 2 lb shipment in a 8.5x11x6” box (0.3 cf) would pay the 4 lb price by dimensional weight

The same item in a slightly smaller box that’s 8.5x11x3.5” (0.2 cf) would pay the 0.2 cf Tier PM CPP Cubic price, or roughly a 2 lb price

18


Why PM CPP Cubic?

Incent small rather than penalize large packages

Weight is a traditional, “easy” proxy for cube

Cube never used before – difficult to measure

Transportation and delivery costs based more on cube than weight

Planes and trucks virtually always “cube-out” before reaching weight limits

Drives smarter, more environmentally-responsible packaging policies

Less corrugated, less void-fill, less fuel


Calculating the Cube

What is the “cube?”The cube is a term for the cubic volume of the package, in inches or cubic feet.Calculating this figure correctly is one of the most important parts of the qualification process.

How do I calculate cube? Measure the length by the width by the height, in inches, rounded down to the nearest 1/4”(6.375” or 6 3/8” rounds down to 6.25 or 6 ¼” )Multiply the length X width X height and divide that number by 1728. This number is the “cube,” or cubic volume in cubic feet.

What do I do with the cube I’ve calculated?Take that number and consult the pricing table to see where the package fits. Always round

up.

Here’s an example:A box measuring 11”” by 8.5” by 3” has a volume of 297 cubic inches (11x9x3).297 cubic inches ÷ 1728 = 0.172 cubic feet.Because 0.172 is greater than 0.1, it falls in the next higher cubic category: 0.2.


How to measure non-rectangular packages

For soft packs, tuck the flap under the package when measuring.

Measure the height at the thickest point.

For triangular packages, measure it as though it would fit into a rectangular box.

Measure length and width as usual, and measure height at the tallest point.


Packaging L W H CU IN CU FT TIER

PM E-MEDIA 7.6875 5.5625 1.5 64.1 0.037 0.1

SFRB 5.5 8.75 1.75 84.2 0.049 0.1

O-1096L 9.375 6.375 2.125 127.0 0.073 0.1

O-BOX4 7.25 7.25 6.25 328.5 0.190 0.2

O-1097 11.75 13.375 2.625 412.5 0.239 0.3

O-1092 12.375 13.625 3 505.8 0.293 0.3

MFRB 11.25 8.75 5.75 566.0 0.328 0.4

SHOE 7.75 5.375 14.625 609.2 0.353 0.4

MFRB-2 12.125 3.625 13.875 609.8 0.353 0.4

O-1095 12.75 15.75 3.25 652.6 0.378 0.4

LFRB 12.25 12.25 5.75 862.9 0.499 0.5

Standard Priority Mail Packaging


Specialized Priority Mail PackagingSpec Pkg L W H CU IN CU FT TIER#2 5 7.5 1.5 56.3 0.033 0.1

#9 7.75 5.625 2.5 109.0 0.063 0.1

#12 5 5 5 125.0 0.072 0.1

#10 8.75 11.75 1.5 154.2 0.089 0.1

#1 11.1875 8.5625 2 191.6 0.111 0.2

#4 6 6 6 216.0 0.125 0.2

#13 9 7 4 252.0 0.146 0.2

#18 10 6 5 300.0 0.174 0.2

#14 11 8 4 352.0 0.204 0.3

#3 12 9 3.5 378.0 0.219 0.3

#11 10 8 6 480.0 0.278 0.3

#5 12 10 4 480.0 0.278 0.3

#16 13 11 5 715.0 0.414 0.5

#15 12 9 7 756.0 0.438 0.5

#6 10 10 8 800.0 0.463 0.5


CPP Cubic Opportunities

Who fits? Anyone with good density► Any printed matter (includes literature fulfillment, books, photos, forms,

documents)► Foodstuffs (coffee, candy, fruit, etc.)► Parts► Electronics (cell phones, cameras, laptops, pda’s)► Lotions, potions, and pills


Jan 2015 Published Dim Impact (166) Package count that changes by cell between from today to January

63% of packages will now be paid by dim weight rather than actual weight

25

WT 2 3 4 5 6 7 8 Total 0.5 (27,754) (22,482) (34,752) (27,446) (7,937) (7,637) (9,091) (137,099) 1 (9,190) (8,819) (17,062) (15,558) (4,474) (3,859) (1,897) (60,859) 2 (1,443) 4,466 12,786 7,228 2,063 1,190 (3,565) 22,725 3 11,489 8,663 11,047 11,238 2,786 3,215 3,526 51,964 4 (16,378) (11,441) (18,800) (15,736) (5,225) (5,471) (8,769) (81,820) 5 2,394 (633) 3,169 2,669 1,605 1,741 5,623 16,568 6 (10,920) (7,767) (11,823) (9,744) (3,016) (2,846) (3,964) (50,080) 7 7,167 6,317 10,156 9,639 2,705 2,531 1,526 40,041 8 (6,517) (5,068) (8,542) (7,150) (2,244) (2,309) (2,703) (34,533) 9 (10,813) (7,335) (14,113) (10,621) (3,988) (3,008) (3,042) (52,920) 10 (11,361) (8,154) (12,618) (9,685) (2,774) (2,924) (3,965) (51,481) 11 19,233 11,568 18,073 13,906 4,291 3,222 4,388 74,681 12 (3,110) (3,327) (6,209) (3,673) (1,341) (1,144) (2,021) (20,825) 13 (4,222) (2,351) (3,512) (3,035) (692) (1,287) (669) (15,768) 14 20,762 15,377 22,361 17,944 5,565 6,002 8,605 96,616 23 19,306 14,189 24,328 20,182 5,856 6,561 8,265 98,687 28 22,327 16,273 24,136 17,201 5,139 5,149 6,995 97,220


Proposed Sept 2014 PM Commercial Base Price Reductions

26

(Pounds) L, 1 & 2 Zone 3 Zone 4 Zone 5 L, 1 & 2 Zone 3 Zone 4 Zone 5

10 $ (1.13) $ (4.69) $ (5.99) $ (6.43) -12% -36% -39% -30%

11 $ (2.79) $ (5.28) $ (7.18) $ (7.45) -25% -37% -43% -32%

12 $ (3.39) $ (6.00) $ (8.29) $ (8.31) -28% -40% -46% -33%

13 $ (3.91) $ (6.74) $ (9.14) $ (8.74) -30% -42% -48% -33%

14 $ (4.53) $ (7.47) $ (10.19) $ (9.70) -33% -44% -51% -35%

15 $ (5.01) $ (8.13) $ (11.20) $ (10.96) -35% -45% -53% -37%

16 $ (4.93) $ (8.60) $ (11.95) $ (12.08) -34% -45% -53% -39%

17 $ (5.40) $ (9.19) $ (12.88) $ (13.25) -35% -46% -55% -40%

18 $ (5.60) $ (9.73) $ (13.70) $ (14.36) -36% -47% -55% -41%

19 $ (5.89) $ (9.81) $ (13.83) $ (14.79) -37% -47% -55% -42%

20 $ (6.42) $ (9.70) $ (13.90) $ (14.89) -38% -46% -54% -41%


Proposed Sept 2014 PM Commercial Plus Price Reductions

27

(Pounds) L, 1 & 2 Zone 3 Zone 4 Zone 5 L, 1 & 2 Zone 3 Zone 4 Zone 53 $ - $(0.54) $ (1.02) $ - 0% -9% -15% 0%4 $ (0.49) $(1.36) $ (2.12) $(1.28) -8% -20% -26% -12%5 $ (1.12) $(1.67) $ (1.57) $(2.54) -17% -23% -19% -21%6 $ (1.50) $(1.84) $ (1.62) $(4.02) -22% -25% -19% -28%7 $ (1.77) $(1.99) $ (3.17) $(5.32) -25% -26% -31% -32%8 $ (1.99) $(3.98) $ (5.85) $(6.29) -27% -41% -45% -35%9 $ (2.58) $(4.82) $ (6.62) $(7.04) -32% -45% -48% -36%

10 $ (3.71) $(5.59) $ (7.26) $(7.58) -40% -46% -50% -36%11 $ (4.09) $(5.61) $ (8.05) $(7.80) -42% -45% -52% -36%12 $ (3.38) $(6.04) $ (8.85) $(8.26) -33% -46% -54% -36%13 $ (3.49) $(6.19) $ (9.22) $(8.75) -33% -46% -55% -36%14 $ (3.73) $(6.58) $ (9.90) $(9.21) -35% -47% -56% -36%15 $ (4.10) $(6.97) $(10.66) $(9.65) -36% -48% -58% -37%16 $ (2.94) $(5.87) $ (9.67) $(8.98) -25% -39% -51% -34%17 $ (3.21) $(6.08) $ (9.76) $(9.15) -27% -39% -50% -34%18 $ (3.38) $(6.44) $ (9.94) $(9.35) -28% -40% -50% -34%19 $ (3.69) $(6.47) $ (9.92) $(9.51) -29% -39% -49% -33%20 $ (3.83) $(6.41) $ (9.96) $(9.54) -30% -38% -49% -33%


What Shippers Can Do?

28

Know the data – PLD Rules

Get data on box sizes – if not through systems, from the current carrier, or collect box usage data

Evaluate packaging usage compared to weight – How many boxes of each size vs. how many shipments of each weight?

Watch for bulging packages

Know the round rules - Rounding (0.5 up, 0.4 down)

Renegotiate – new dim factor, phased approach, or net minimum

Look at product packaging - designed for retail or b2c fulfillment

Poly vs corrugated

Void fill


Questions?


Thank you.

Documents

USPS ® FY15 STRATEGIES 1 The Future of Packages Bright or Dim? National PCC Day Chicago Postal Customer Council September 10, 2014 Dennis Nicoski