NEW YORK (CNN/Money) -
United Parcel Service is quietly rolling out a new low-cost service that uses the U.S. Postal Service to make the final delivery of some of its packages, according to a published report.
The Wall Street Journal reported Thursday that UPS, the world's largest transportation company, is calling the new program "UPS Basic." The new program is targeting mail-order merchants, who are some of the post office's biggest customers due to its cheaper rates compared to UPS or competitor FedEx. The paper says FedEx is expected to follow UPS's example.
UPS will deliver packages in bulk to the post office nearest the final destination, allowing the post office to handle the package's costly final delivery. Due to a discount program that the USPS offers all package consolidators, UPS is able to undercut the prices that even the post office can offer to the business customers UPS is targeting. UPS, however, won't disclose its rates, saying they are negotiated with individual business customers.
The paper said that as long as any outside company meets the rules for using the postal discount program for package consolidators, it is entitled to the discounts. The Journal said the post office already handles residential deliveries for the former Airborne Inc., which was acquired in August by Deutsche Post AG's DHL Worldwide Express.
The newspaper said that UPS's move has caught the postal service by surprise, reporting that internal e-mails said executives at the government-run service underestimated the threat by UPS. It said those e-mails disclosed that UPS has already signed up Altria Group Inc.'s Gevalia Kaffe unit, which confirmed the switch to the Journal, and apparel retailers Chadwick's of Boston Inc. and Brylane LP, both units of Pinault-Printemps-Redoute SA, which did not comment on the move. UPS told the paper it was close to reaching agreement with two other large shippers and is in talks with a number of others.
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