The increasing use of the internet has reduced snail-mail traffic, hurting USPS revenue, while the internet has increased the traffic of package delivery services as sites like Amazon.com (NASDAQ: AMZN) and eBay (NASDAQ: EBAY) continue to expand their businesses and new enterprises and existing traditional companies expand their web presence.
At first glance it would seem the Postal Service is on to something here and might have found a path to increasing its market share taking away some business from its highly successful competitors. But the new flat rate box scheme may turn out to be the governments version of 3-card monte or shell game. The deal is not what it seems.
Yes it is true that you can fill-up a shipping box to its maximum weight without increased cost, but what about when you have a little more? Then you must either use another box that is not full and the deal might not work, since you would be paying more than you should. To avoid this you could hold back your shipment until you have more to ship to that same address, but this is not very convenient.
To avoid this scenario you could simply use the flat rate boxes when it is of benefit and the weighted current system that FDX and UPS offer when that makes sense (just like you probably do now). This is likely to happen and I am already planning on it. Therefore the USPS, which has no doubt amortized the cost over millions of packages, may very well find that they have only captured the least profitable segment of the business -- by design -- burdening the postal system further.
If what I predict is true look for the flat rate program to be phased out or prices to rise once the data comes in and the losses are realized.
Sheldon Liber is the CEO of a small private investment company and the principal for design and research at an architecture & planning firm. He writes the columns Chasing Value and Serious Money. Disclosure: I own shares of UPS and actively trade options.