The ZIP Code was introduced in 1963 to improve the speed and efficiency of mail processing by using machine-readable codes. Over the years, it has become ubiquitous in the marketplace and the culture in general, and it’s one of the Postal Service’s most valuable assets.
When it comes to postal rates and service standards, all ZIP codes have been treated equally. It doesn’t matter if it’s densely populated or sparse, urban or rural. The ZIP Code helps bind the country together. But all that is changing.
The Postal Service’s Regional Transportation Optimization (RTO) plan, now under review by the Postal Regulatory Commission, would end afternoon collections at post offices, which will add a day to service standards for outgoing mail at offices more than 50 miles from a Regional Processing and Distribution Center. The plan uses the 5-digit ZIP of the originating post office to identify where the downgrades in service standards will apply. Under the current system, a 3-digit ZIP prefix is used to define the standards, which doesn’t allow for the kind of targeted service reductions of the RTO.
The 3-digit prefix is also used for zone-based postal rates, which are based on distances between origin and destination. Until now, these zoned rates have not specifically targeted 5-digit ZIP Codes.
It’s likely that in the Negotiated Service Agreements the Postal Service makes with some of its commercial partners, a 5-digit ZIP Code has already been used to differentiate pricing and service areas, but details about NSAs are filed under seal with the PRC, so any special use of 5-digit ZIP Codes is not in the public domain.
This past September, the Postal Service introduced a new policy of varying rates by 5-digit ZIP Code destinations. This may be the first time that the Postal Service has used the ZIP Code for rate purposes in this way, at least in public view. Rather than helping to bind the country together, the ZIP Code is being used to divide it.
A surcharge by any other name
The rate change went into effect on September 16, 2024, but the Postal Service itself did not make a public announcement. It did need to share the information with the companies that sell postage, however, and most of them informed their customers of the pending changes. The news was then reported in ecommercebytes and in Value Added Resource, which also explored the issue of whether the change is a de facto rural surcharge.
eBay posted a brief note on its website saying, “Effective September 16, 2024, USPS will increase rates for package delivery to select zip codes. Although this increase affects a very low percentage of transactions on ebay.com, you may see a higher shipping label cost for some locations. The increase is for weight-based and cubic packages up to 20 lbs. for Priority Mail, Priority Mail Flat Rate, and Ground Advantage delivery to these zip codes. The eBay shipping calculator will automatically update on September 16 with the new rates.”
Etsy shippers were initially confused by the two prices. Even Etsy customer service personnel may have been confused. One shipper reported that when he complained about the rate change, Etsy reimbursed the charges and said it would look into the matter.
The Postal Service doesn’t call the cost differential a “surcharge.” Instead, there are two rates — the regular, published commercial pricing and the discount rate negotiated with merchants like eBay and XPS Connect (it’s called the Merchant Rate Card). For the impacted ZIP Codes, the discount rate no longer applies for many products, and the new rate reverts to the published commercial rate. The difference is, for all intents and purposes, a surcharge.
The new policy does not apply when a customer deals directly with the Postal Service. It only applies when the shipper uses the discounted merchant rates offered by online retailers like eBay and Etsy and when one purchases postage through shipping software companies like ShipStation, ShipWorks, ShipSaving, and EasyShip.
The amount of the surcharge
Flat Rate Priority boxes are not zoned, so there’s no variation in rate dependent on the destination. This table shows the merchant rate and the commercial rate, along with the price difference and the percentage difference.
| Product | Merchant | Commercial | Difference | Percent |
|---|---|---|---|---|
| Flat Rate Envelope | $8.05 | $9.00 | $0.95 | 11.80% |
| Legal Flat Rate Envelope | $8.35 | $9.30 | $0.95 | 11.38% |
| Padded Flat Rate Envelope | $8.80 | $9.80 | $1.00 | 11.36% |
| Small Flat Rate Box | $8.55 | $9.55 | $1.00 | 11.70% |
| Medium Flat Rate Box | $14.75 | 16.85 | $2.10 | 14.24% |
| Large Flat Rate Box | $19.90 | 23.05 | $3.15 | 15.83% |
For zoned rates, the comparisons are more complicated, but this table shows the rates for Priority and Ground Advantage for parcels of 1 to 10 pounds.
| Product | Pounds | Zone | Merchant | Commercial | Difference | Percent |
|---|---|---|---|---|---|---|
| Ground | 1 | 1 | $6.03 | $7.13 | $1.10 | 18.24% |
| Priority | 1 | 1 | $6.94 | $8.20 | $1.26 | 18.16% |
| Ground | 2 | 1 | $6.25 | $7.51 | $1.26 | 20.16% |
| Priority | 2 | 1 | $7.14 | $8.64 | $1.50 | 21.01% |
| Ground | 3 | 1 | $6.54 | $7.86 | $1.32 | 20.18% |
| Priority | 3 | 1 | $8.16 | $9.05 | $0.89 | 10.91% |
| Ground | 4 | 1 | $6.87 | $8.26 | $1.39 | 20.23% |
| Priority | 4 | 1 | $8.64 | $9.49 | $0.85 | 9.84% |
| Ground | 5 | 1 | $6.94 | $8.44 | $1.50 | 21.61% |
| Priority | 5 | 1 | $8.87 | $9.70 | $0.83 | 9.36% |
| Ground | 6 | 1 | $7.12 | $8.62 | $1.50 | 21.07% |
| Priority | 6 | 1 | $9.34 | $9.91 | $0.57 | 6.10% |
| Ground | 7 | 1 | $7.86 | $8.88 | $1.02 | 12.98% |
| Priority | 7 | 1 | $9.61 | $10.21 | $0.60 | 6.24% |
| Ground | 8 | 1 | $8.33 | $9.24 | $0.91 | 10.92% |
| Priority | 8 | 1 | $9.89 | $10.62 | $0.73 | 7.38% |
| Ground | 9 | 1 | $9.04 | $9.73 | $0.69 | 7.63% |
| Priority | 9 | 1 | $10.25 | $11.19 | $0.94 | 9.17% |
| Ground | 10 | 1 | $9.74 | $10.35 | $0.61 | 6.26% |
| Priority | 10 | 1 | $10.71 | $11.91 | $1.20 | 11.20% |
| Ground | 1 | 2 | $6.03 | $7.21 | $1.18 | 19.57% |
| Priority | 1 | 2 | $6.99 | $8.30 | $1.31 | 18.74% |
| Ground | 2 | 2 | $6.32 | $7.62 | $1.30 | 20.57% |
| Priority | 2 | 2 | $7.36 | $8.77 | $1.41 | 19.16% |
| Ground | 3 | 2 | $6.61 | $7.96 | $1.35 | 20.42% |
| Priority | 3 | 2 | $8.43 | $9.16 | $0.73 | 8.66% |
| Ground | 4 | 2 | $6.95 | $8.34 | $1.39 | 20.00% |
| Priority | 4 | 2 | $8.94 | $9.58 | $0.64 | 7.16% |
| Ground | 5 | 2 | $7.01 | $8.51 | $1.50 | 21.40% |
| Priority | 5 | 2 | $9.20 | $9.78 | $0.58 | 6.30% |
| Ground | 6 | 2 | $7.14 | $8.68 | $1.54 | 21.57% |
| Priority | 6 | 2 | $9.68 | $9.97 | $0.29 | 3.00% |
| Ground | 7 | 2 | $7.98 | $8.95 | $0.97 | 12.16% |
| Priority | 7 | 2 | $9.97 | $10.29 | $0.32 | 3.21% |
| Ground | 8 | 2 | $8.38 | $9.29 | $0.91 | 10.86% |
| Priority | 8 | 2 | $10.25 | $10.68 | $0.43 | 4.20% |
| Ground | 9 | 2 | $9.06 | $9.80 | $0.74 | 8.17% |
| Priority | 9 | 2 | $10.62 | $11.27 | $0.65 | 6.12% |
| Ground | 10 | 2 | $9.76 | $10.41 | $0.65 | 6.66% |
| Priority | 10 | 2 | $11.08 | $11.98 | $0.90 | 8.12% |
| Ground | 1 | 3 | $6.33 | $7.29 | $0.96 | 15.17% |
| Priority | 1 | 3 | $7.07 | $8.39 | $1.32 | 18.67% |
| Ground | 2 | 3 | $6.44 | $7.84 | $1.40 | 21.74% |
| Priority | 2 | 3 | $7.62 | $9.03 | $1.41 | 18.50% |
| Ground | 3 | 3 | $6.74 | $8.46 | $1.72 | 25.52% |
| Priority | 3 | 3 | $8.94 | $9.74 | $0.80 | 8.95% |
| Ground | 4 | 3 | $7.21 | $9.01 | $1.80 | 24.97% |
| Priority | 4 | 3 | $9.61 | $10.36 | $0.75 | 7.80% |
| Ground | 5 | 3 | $7.40 | $9.31 | $1.91 | 25.81% |
| Priority | 5 | 3 | $9.98 | $10.70 | $0.72 | 7.21% |
| Ground | 6 | 3 | $7.67 | $9.62 | $1.95 | 25.42% |
| Priority | 6 | 3 | $10.58 | $11.06 | $0.48 | 4.54% |
| Ground | 7 | 3 | $8.71 | $10.04 | $1.33 | 15.27% |
| Priority | 7 | 3 | $11.00 | $11.55 | $0.55 | 5.00% |
| Ground | 8 | 3 | $9.41 | $10.50 | $1.09 | 11.58% |
| Priority | 8 | 3 | $11.36 | $12.08 | $0.72 | 6.34% |
| Ground | 9 | 3 | $10.11 | $11.01 | $0.90 | 8.90% |
| Priority | 9 | 3 | $11.74 | $12.67 | $0.93 | 7.92% |
| Ground | 10 | 3 | $10.73 | $11.54 | $0.81 | 7.55% |
| Priority | 10 | 3 | $12.15 | $13.28 | $1.13 | 9.30% |
| Ground | 1 | 4 | $6.46 | $7.43 | $0.97 | 15.02% |
| Priority | 1 | 4 | $7.20 | $8.55 | $1.35 | 18.75% |
| Ground | 2 | 4 | $6.63 | $8.05 | $1.42 | 21.42% |
| Priority | 2 | 4 | $7.88 | $9.27 | $1.39 | 17.64% |
| Ground | 3 | 4 | $7.24 | $8.81 | $1.57 | 21.69% |
| Priority | 3 | 4 | $9.36 | $10.15 | $0.79 | 8.44% |
| Ground | 4 | 4 | $7.88 | $9.48 | $1.60 | 20.30% |
| Priority | 4 | 4 | $10.16 | $10.90 | $0.74 | 7.28% |
| Ground | 5 | 4 | $8.14 | $9.86 | $1.72 | 21.13% |
| Priority | 5 | 4 | $10.61 | $11.34 | $0.73 | 6.88% |
| Ground | 6 | 4 | $8.51 | $10.24 | $1.73 | 20.33% |
| Priority | 6 | 4 | $11.29 | $11.78 | $0.49 | 4.34% |
| Ground | 7 | 4 | $9.21 | $10.77 | $1.56 | 16.94% |
| Priority | 7 | 4 | $11.80 | $12.39 | $0.59 | 5.00% |
| Ground | 8 | 4 | $10.15 | $11.32 | $1.17 | 11.53% |
| Priority | 8 | 4 | $12.25 | $13.03 | $0.78 | 6.37% |
| Ground | 9 | 4 | $11.10 | $11.91 | $0.81 | 7.30% |
| Priority | 9 | 4 | $12.69 | $13.71 | $1.02 | 8.04% |
| Ground | 10 | 4 | $11.72 | $12.51 | $0.79 | 6.74% |
| Priority | 10 | 4 | $13.16 | $14.41 | $1.25 | 9.50% |
| Ground | 1 | 5 | $7.14 | $7.84 | $0.70 | 9.80% |
| Priority | 1 | 5 | $9.00 | $10.06 | $1.06 | 11.78% |
| Ground | 2 | 5 | $7.78 | $8.63 | $0.85 | 10.93% |
| Priority | 2 | 5 | $10.02 | $11.04 | $1.02 | 10.18% |
| Ground | 3 | 5 | $8.66 | $9.58 | $0.92 | 10.62% |
| Priority | 3 | 5 | $11.76 | $12.23 | $0.47 | 4.00% |
| Ground | 4 | 5 | $9.73 | $10.61 | $0.88 | 9.04% |
| Priority | 4 | 5 | $13.26 | $13.57 | $0.31 | 2.34% |
| Ground | 5 | 5 | $10.17 | $11.19 | $1.02 | 10.03% |
| Priority | 5 | 5 | $14.62 | $14.67 | $0.05 | 0.34% |
| Ground | 6 | 5 | $10.73 | $11.77 | $1.04 | 9.69% |
| Priority | 6 | 5 | $15.60 | $15.60 | $0.00 | 0.00% |
| Ground | 7 | 5 | $11.29 | $12.42 | $1.13 | 10.01% |
| Priority | 7 | 5 | $16.51 | $16.59 | $0.08 | 0.48% |
| Ground | 8 | 5 | $11.90 | $13.06 | $1.16 | 9.75% |
| Priority | 8 | 5 | $17.18 | $17.64 | $0.46 | 2.68% |
| Ground | 9 | 5 | $12.52 | $13.69 | $1.17 | 9.35% |
| Priority | 9 | 5 | $18.14 | $18.74 | $0.60 | 3.31% |
| Ground | 10 | 5 | $13.17 | $14.33 | $1.16 | 8.81% |
| Priority | 10 | 5 | $19.17 | $19.82 | $0.65 | 3.39% |
| Ground | 1 | 6 | $8.06 | $8.77 | $0.71 | 8.81% |
| Priority | 1 | 6 | $9.42 | $10.31 | $0.89 | 9.45% |
| Ground | 2 | 6 | $9.05 | $10.02 | $0.97 | 10.72% |
| Priority | 2 | 6 | $11.27 | $12.29 | $1.02 | 9.05% |
| Ground | 3 | 6 | $10.12 | $10.93 | $0.81 | 8.00% |
| Priority | 3 | 6 | $14.04 | $14.64 | $0.60 | 4.27% |
| Ground | 4 | 6 | $11.35 | $11.94 | $0.59 | 5.20% |
| Priority | 4 | 6 | $16.65 | $17.22 | $0.57 | 3.42% |
| Ground | 5 | 6 | $11.88 | $12.52 | $0.64 | 5.39% |
| Priority | 5 | 6 | $18.46 | $19.34 | $0.88 | 4.77% |
| Ground | 6 | 6 | $12.57 | $13.11 | $0.54 | 4.30% |
| Priority | 6 | 6 | $20.46 | $21.44 | $0.98 | 4.79% |
| Ground | 7 | 6 | $13.10 | $13.82 | $0.72 | 5.50% |
| Priority | 7 | 6 | $21.90 | $22.99 | $1.09 | 4.98% |
| Ground | 8 | 6 | $13.63 | $14.53 | $0.90 | 6.60% |
| Priority | 8 | 6 | $23.23 | $24.58 | $1.35 | 5.81% |
| Ground | 9 | 6 | $14.74 | $15.25 | $0.51 | 3.46% |
| Priority | 9 | 6 | $24.54 | $26.19 | $1.65 | 6.72% |
| Ground | 10 | 6 | $15.74 | $15.97 | $0.23 | 1.46% |
| Priority | 10 | 6 | $25.87 | $27.79 | $1.92 | 7.42% |
| Ground | 1 | 7 | $8.29 | $8.98 | $0.69 | 8.32% |
| Priority | 1 | 7 | $10.13 | $10.56 | $0.43 | 4.24% |
| Ground | 2 | 7 | $9.37 | $10.34 | $0.97 | 10.35% |
| Priority | 2 | 7 | $12.67 | $13.54 | $0.87 | 6.87% |
| Ground | 3 | 7 | $10.69 | $11.62 | $0.93 | 8.70% |
| Priority | 3 | 7 | $16.12 | $17.04 | $0.92 | 5.71% |
| Ground | 4 | 7 | $12.09 | $12.87 | $0.78 | 6.45% |
| Priority | 4 | 7 | $19.64 | $20.86 | $1.22 | 6.21% |
| Ground | 5 | 7 | $12.73 | $13.64 | $0.91 | 7.15% |
| Priority | 5 | 7 | $22.37 | $24.01 | $1.64 | 7.33% |
| Ground | 6 | 7 | $13.56 | $14.42 | $0.86 | 6.34% |
| Priority | 6 | 7 | $25.29 | $27.27 | $1.98 | 7.83% |
| Ground | 7 | 7 | $14.45 | $15.33 | $0.88 | 6.09% |
| Priority | 7 | 7 | $27.23 | $29.39 | $2.16 | 7.93% |
| Ground | 8 | 7 | $15.36 | $16.24 | $0.88 | 5.73% |
| Priority | 8 | 7 | $29.02 | $31.51 | $2.49 | 8.58% |
| Ground | 9 | 7 | $16.24 | $17.13 | $0.89 | 5.48% |
| Priority | 9 | 7 | $30.77 | $33.63 | $2.86 | 9.29% |
| Ground | 10 | 7 | $17.08 | $18.03 | $0.95 | 5.56% |
| Priority | 10 | 7 | $32.56 | $35.75 | $3.19 | 9.80% |
| Ground | 1 | 8 | $8.79 | $9.26 | $0.47 | 5.35% |
| Priority | 1 | 8 | $10.77 | $11.29 | $0.52 | 4.83% |
| Ground | 2 | 8 | $10.04 | $10.77 | $0.73 | 7.27% |
| Priority | 2 | 8 | $13.87 | $14.92 | $1.05 | 7.57% |
| Ground | 3 | 8 | $11.70 | $12.41 | $0.71 | 6.07% |
| Priority | 3 | 8 | $18.16 | $19.70 | $1.54 | 8.48% |
| Ground | 4 | 8 | $13.37 | $13.91 | $0.54 | 4.04% |
| Priority | 4 | 8 | $22.00 | $23.90 | $1.90 | 8.64% |
| Ground | 5 | 8 | $14.19 | $14.91 | $0.72 | 5.07% |
| Priority | 5 | 8 | $25.21 | $27.67 | $2.46 | 9.76% |
| Ground | 6 | 8 | $15.24 | $15.91 | $0.67 | 4.40% |
| Priority | 6 | 8 | $28.59 | $31.55 | $2.96 | 10.35% |
| Ground | 7 | 8 | $16.05 | $17.05 | $1.00 | 6.23% |
| Priority | 7 | 8 | $30.84 | $34.06 | $3.22 | 10.44% |
| Ground | 8 | 8 | $17.15 | $18.19 | $1.04 | 6.06% |
| Priority | 8 | 8 | $32.94 | $36.58 | $3.64 | 11.05% |
| Ground | 9 | 8 | $18.28 | $19.35 | $1.07 | 5.85% |
| Priority | 9 | 8 | $34.98 | $39.09 | $4.11 | 11.75% |
| Ground | 10 | 8 | $19.64 | $20.51 | $0.87 | 4.43% |
| Priority | 10 | 8 | $36.99 | $41.49 | $4.50 | 12.17% |
For parcels less than a pound or more than 10 pounds, or to include weight and dimensions, one can use the shipping calculator on eBay. (For over 20 pounds, there’s no difference.) In order to compare the commercial and merchant rates, simply choose two destinations, one that is on the surcharge list and one that is not. As an alternative, if the origin ZIP is not on the surcharge list, you can check the rate for a ZIP on the surcharge list, which will be the commercial rate, then reverse the ZIPs to show the merchant rate.
The surcharges range from $0.95 to $3.15. For comparison, the UPS surcharge in 2024 was $3.80 for regular DAS and $4.90 for DAS Extended (see below for an explanation of the difference).
The average surcharge for the Priority Flat Box rates comes to 12.7 percent. The 1-to-10 pound Priority averages 8 percent, and Ground Advantage, 11.8 percent.
Among the highest percent differentials is Ground Advantage for Zone 3. For a 5-pound parcel going from New York City to Syracuse, NY 13224, which is not subject to the surcharge, the rate would be $7.40 (the merchant rate), while the rate to nearby Camden, NY 13316, which is subject to the surcharge, the rate would be $9.31 (the commercial rate). That’s a difference of 25.7 percent.
Surcharge Look-up Tool
The list of impacted ZIPs has about 17,810 ZIP Codes. That’s about 44 percent of all ZIP Codes. It covers a vast area of the country. About 20 million residential addresses and 1.3 million business addresses will be subject to the surcharge, while about 133 million residential and 11 million businesses will not. Overall, about 13 percent of delivery points are subject to the surcharge.
The surcharge list (as shared by eBay) can be downloaded as a spreadsheet here, and (as posted on Value Added Resource) as a searchable pdf here. The file with the list of impacted ZIPs is named “usps_exception_zip_codes-08_2024.” Presumably, that means the impacted ZIP codes are an exception to the negotiated discount and hence subject to the regular commercial rates. (It’s not clear if that name was given to the file by the Postal Service or eBay.)
This surcharge look-up tool can be used to search for a ZIP code or a place name. It will tell you if a particular ZIP code is subject to the surcharge.
| Zip | Place, St | Surcharge | Delivery Pts | Density | Pop. | U/R | RTO |
|---|---|---|---|---|---|---|---|
| 01001 | Agawam, MA | No | 8,923 | 550.1 | 16,984 | Urban | No |
| 01002 | Amherst, MA | No | 12,033 | 198.1 | 27,558 | Urban | No |
| 01003 | Amherst, MA | No | - | 6583.4 | 13,253 | Urban | No |
| 01004 | Amherst, MA | No | 2,296 | No | |||
| 01005 | Barre, MA | Yes | 2,597 | 44.2 | 4,900 | Rural | Yes |
| 01007 | Belchertown, MA | No | 7,371 | 107.7 | 15,423 | Urban | No |
The urban and rural designations, delivery point and population data are based on a USPS spreadsheet filed for the advisory opinion on the RTO, here. (If there’s no population data, it’s probably because the ZIP is for PO Boxes only.) The population density is from the Census, available here. The tool also indicates if the ZIP Code would be subject to the RTO initiative.
Mapping the surcharge
Here’s a map of the Midwest showing where the surcharge ZIPs are located. Interactive maps for all the regions of the country can be found at the bottom of this page.
The map shows that vast areas of the Midwest are subject to the surcharge, while cities are not. But there are ZIP codes everywhere that aren’t near big cities that are excluded from the surcharge, and it’s not quite clear why, until one digs into the population data and other matters, as discussed below.
Yes, it’s a rural surcharge
Some online sellers were quick to see the list as targeting rural ZIPs, and a closer look confirms that first impression, more or less.
- The average population of the impacted ZIP Codes is about 2,230, while the average for non-impacted ZIPs is about 18,000.
- The average population density for the impacted ZIP Codes is 26 people per square mile, while the average for non-impacted ZIPs is 1,020.
- Of the 17,670 ZIPs subject to the surcharge, about 15,342 (87 percent) are classified by the Postal Service as “rural,” and 1,645 (9 percent) are “urban.” (Another 4 percent aren’t unclassified.)
- Of the 19,000 ZIPs in the contiguous U.S. classified as rural, about 15,340 (81 percent) are subject to the surcharge. Of the 14,100 classified as urban, 1,644 (12 percent) are subject to the surcharge. (Another 7 percent aren’t classified.)
- About 16,200 ZIPs subject to a surcharge are also subject to RTO. Both their outgoing and incoming mail and packages, if sent by a commercial shipper, will slow down. About 14,300 (88 percent) of these ZIPs are classified as rural.
The surcharge list, it should be noted, is not exclusively rural. It contains about 1,670 ZIP Codes the Postal Service classifies as urban, some with relatively large populations. But the list is overwhelming rural.
If there’s any doubt about whether the new pricing policy is a rural surcharge, one need only look at the origins of the list itself.
Delivery Area Surcharges
UPS and RPS (now FedEx Ground) first implemented a Delivery Area Surcharge back in 1999. The DAS is an additional fee for remote or rural locations, and it applies to packages either picked up or delivered to specific ZIP codes. As of 2011 the two carriers were using the same DAS lists, but that may have changed since then. (A history of these surcharges can be found in a 2011 report commissioned by the PRC, here.)
Some 16,000 ZIP Codes were initially affected, and since then, the number of such ZIP Codes has been extended and now includes about 23,500 ZIP Codes. The first set was selected primarily for the rural characteristics of those ZIP Codes, but the DAS list now includes both rural and urban ZIPs. The urban ZIPs generally have a higher cost of delivery due to limited road access, high crime areas, security delays, and so on. The rural areas generally have a higher cost of delivery due to low population density.
The UPS DAS ZIP Code list can be downloaded here, and the FedEx list is here.
The UPS list has five categories, three for the contiguous U.S. plus two for Alaska and Hawaii. The regular DAS list includes about 7,540 ZIPs, with an average population density of 96 people per square mile. The DAS Extended (EDAS) list has about 14,410 ZIPs, and averages about 21 people per square mile.
The third category, called the Remote Area Surcharge (RAS), originally applied only to Alaska and Hawaii, but in 2022 UPS added a new category called US48 Remote Area Surcharge. This list now has about 3,430 ZIPs in the contiguous U.S. The criteria aren’t clear. UPS simply says these are areas “beyond UPS extended areas which are less accessible for pickups and deliveries.”
If one combines the UPS lists for Extended DAS and the US48 Remote, it produces a list of about 17,810 ZIP Codes. This list is identical to the USPS list released in September.
In other words, the Postal Service didn’t evaluate its own network infrastructure and delivery costs to determine where to apply the surcharge. It’s applying them where UPS does, and probably FedEx as well.
It’s noteworthy that for some reason the Postal Service has imposed a surcharge on the UPS DAS Extended and Remote ZIP Codes but not the regular DAS list. Presumably this is because the regular DAS ZIPs are more densely populated and not much more costly for delivery.
While UPS varies its surcharges for DAS, EDAS, and Remote, the Postal Service doesn’t distinguish between EDAS and Remote.
About 150 to 200 of the ZIP Codes on the lists, it may be noted, don’t appear to be assigned to any geography. In most cases, these ZIP Codes were discontinued when the post office was discontinued. (For example, the post offices in Glen Morgan WV 25847 and Blue Hill Falls, ME 04615 were discontinued in 2005, but they are on the USPS and UPS lists.) UPS apparently hasn’t updated its list to reflect such changes, and the Postal Service didn’t bother to update them either.
[Update: Another issue involves ZIP Codes that that are served by carriers working out of a delivery unit in another ZIP Code. A former letter carrier has alerted me to a case where a destination ZIP Code is on the surcharge list while the ZIP Code for that ZIP’s delivery unit — where the parcels going out for delivery are actually dropped — is not on the list. Why should there be a surcharge for that destination ZIP? Turns out, there are about 900 ZIP Codes that are subject to the surcharge when their DU is not, and another 120 where the DU is subject to the surcharge when the destination ZIP is not. This may be another example of how the Postal Service simply applied the UPS DAS list without modifying for its own network.]Why use the same DAS list?
It may make sense for the USPS to use the same list as UPS and FedEx. Why re-invent the wheel? And besides, when a shipper is comparing the rates for USPS and UPS, it’s useful that for any given destination ZIP, there’s either a surcharge or not, for both carriers. It could be confusing if the Postal Service and UPS had completely different lists of ZIPs subject to surcharges. Another factor may be that UPS adds the DAS fee to its list of ZIP Codes when it uses the Postal Service for last-mile delivery under the SurePost service. (It’s not clear if there’s any connection between the surcharge and the recent announcement that UPS may be cutting back or discontinuing its use of the Postal Service for last-mile delivery under SurePost; more on that here.)
At the same time, the Postal Service has a completely different network of processing facilities and retail outlets compared to UPS, and its costs to deliver to one ZIP Code versus another are not the same as for UPS. Given these differences one might ask why both UPS and USPS would impose a surcharge on the same ZIP Codes.
In fact, a 2020 OIG report on Package Delivery in Rural and Dense Urban Areas suggested that the Postal Service could develop its own list with its own criteria: “Were the Postal Service to consider geography-based surcharges, it could consider doing a careful analysis of its costs in different parts of the country. A hypothetical list of surcharged ZIPs could include a mix of Low, Medium, and High Density areas. Whatever the mix, the Postal Service could start charging higher prices for its higher-cost areas.”
The OIG did not examine whether such a surcharge would be discriminatory or advisable, but it did note that “Thus far, the Postal Service has not indicated that it is willing to charge more for deliveries to any geographic area. Postal management has noted that the lack of surcharges gives USPS a marketing advantage.”
The OIG report goes on to say, “Yet, there are ways USPS could charge more for some high-cost deliveries without applying an explicit surcharge.” The possibilities are redacted. But avoiding an explicit surcharge pretty much describes what the Postal Service’s has done.
The OIG, by the way, identified 17,423 ZIP Codes as Low Density or “rural” and found that nearly all— 97 percent—were subject to a FedEx surcharge — yet another indication that the Postal Service’s surcharge is primarily about rural areas.
Costs of delivery
Using the Extended DAS ZIP Codes as a proxy for “rural” areas due their low population density, the PRC study estimated the cost of delivering the last mile for UPS, FedEx, and the Postal Service. The study was limited in what it could estimate for USPS competitive products, since that information is confidential, but it was able to estimate the delivery costs for Parcel Post since it wasn’t competitive at the time and cost data were available in reports shared with the PRC for the 2010 Annual Compliance Determination Report. The ACD doesn’t break down costs by rural and urban ZIP codes, but it does differentiate costs for rural carriers and city carriers.
As explained in the OIG report, these costs include both fixed and variable delivery costs, and they were benchmarked to the Postal Service’s DDU rate, which represents the cost incurred by the private carriers for using the Postal Service network for final mile delivery
Here’s the table from the study showing the last-mile costs for a 4-pound parcel.
| Table 4: Cost of Delivery per Package | |||
|---|---|---|---|
| Carrier | Urban | Rural | |
| UPS | $ 1.40 | $ 3.10 | |
| FedEx Ground/HD | $ 1.52 | $ 3.19 | |
| USPS Parcel Post | $ 0.87 | $ 0.57 | |
| USPS Bound Printed | $ 0.43 | $ 0.37 | |
| USPS DOU | $ 1.92 | $ 1.92 | |
| Note: DOU rate for a 4 lb. parcel in 2011 | |||
| Source: Report on Measuring the Benefits of Rural Postal Service | |||
The lower costs for the Postal Service are one reason why UPS and FedEx have used the Postal Service for last mile deliveries. And given their higher costs for delivering to rural customers, it’s understandable why UPS and FedEx would impose a delivery area surcharge. But for the Postal Service, if the cost for rural delivery is actually lower than for urban areas, the rationale for a surcharge is less clear.
Those numbers may be out of date and out of context, but they suggest that one should not automatically assume that costs for delivering packages to rural areas are higher for the Postal Service.
As pointed out in the OIG report, there are many factors driving delivery costs. Delivery in rural areas can be costly because of the longer distances between delivery points, longer driveways, and so on. But urban deliveries have their own challenges: traffic delays, parking problems, going floor to floor and apartment-to-apartment in large buildings, being unable to leave the package in a hallway in high-crime areas, and so on.
In any case, by simply borrowing the UPS and FedEx lists for surcharge ZIPs, the Postal Service passed up an opportunity to base its surcharge on a careful analysis of its costs in different ZIP Code areas.
Who pays?
Most online sellers have a flat price for shipping and handling, so they probably won’t change the price they charge buyers if there happens to be a surcharge. That means many may simply absorb most of the additional costs themselves. It’s also possible that, as time goes by, sellers will figure out an easy way to add the surcharge to the shipping cost for customers. Other sellers charge buyers the actual price for postage, so the surcharge will be passed on directly to buyers.
The article on Value Added Resource explains the potential impacts this way: “While eBay (and presumably other marketplaces) says their shipping calculator will adjust to show the correct new rates, this zip code based change will be challenging for sellers who enter their own flat rates for shipping or offer free shipping, instead of calculated. Those sellers will likely have to try to come up with an average to bake into item prices or flat rate shipping, which will have the effect of increasing prices across the board for all consumers since there is no way to know in advance where your potential buyer may live.”
In other words, every consumer — whether in an impacted ZIP Code or not — will end up paying more for shipping.
Value Added Resource goes on to explain that “sellers will also have to bake in the costs of fees on the increasing shipping as well since eBay, Etsy and other marketplaces charge their selling fees on the total including shipping — which means any time there’s a shipping increase, it’s a de facto fee windfall for the marketplaces too.”
In other words, these companies will actually profit from the surcharge because it will allow them to raise the fees they charge online sellers. But again, those increased costs will be passed on to consumers.
Either way, whether it’s sellers or buyers, the Postal Service’s customers will pay the surcharge, and most likely, rural America will feel it the most.
Modes of discrimination
We don’t know if the Postal Regulatory Commission reviewed the surcharge changes. One might assume such a review would be required, but not necessarily.
According to Value Added Resource, “Because this increases only impacts negotiated rates for labels purchased through third party providers not to direct retail or commercial rates from the Post Office, they don’t require the same level of authorization or scrutiny from the Postal Regulatory Committee, and USPS does not typically make any announcements, leaving it up to the service providers themselves to communicate the new rates to their respective customers.”
A public review of the surcharge would inevitably confront the issue of discrimination. According to 39 U.S.C. 403(c), “the Postal Service shall not, except as specifically authorized in this title, make any undue or unreasonable discrimination among users of the mails, nor shall it grant any undue or unreasonable preferences to any such user.”
That issue is one of many being considered by the PRC in its review of the RTO plan for an advisory opinion. My comments to the Commission argued that the plan should be seen as discriminatory, as did the comments of the Greeting Card Association and Package Shippers Association. Mail sent from metropolitan areas — where most RPDCs are located — will not be adversely affected, and in some cases, the mail may even move faster. Mail sent from outside these metro areas will move more slowly.
The RTO system uses the 5-digit ZIP Code of the origin post office to differentiate between which offices get an afternoon collection and which do not. The Postal Service’s new delivery area surcharge uses the 5-digit ZIP Code of the destination to determine which areas will see a surcharge and which will not.
In both cases, the ZIP Code is being deployed to differentiate between customers, and it’s largely rural America that comes out at the losing end.
We may eventually see more such uses of the ZIP Code. One possibility is that delivery schedules will depend on your ZIP Code, so that high-density areas continue to get six-day delivery while low-density areas are reduced to five-day delivery. In testimony for the RTO plan, the Postal Service said that it has no plan to do so “at this time,” but those three words are a clue to what may be ahead.
It makes perfect sense for the Postal Service to use the ZIP Code as a tool to give preferential treatment to its busiest markets at the expense of low-volume areas. That’s what it means to “act like a business.” But if rates and services don’t aspire to be uniform throughout the entire country, rural and urban, the universal service obligation will become a thing of the past, of interest only to those hanging on to a bygone era.
— Steve Hutkins
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