Practical Ecommerce

Reduce Shipping Costs with Hybrid Services

Consumers increasingly expect free shipping for ecommerce purchases. But as fuel prices continue to fluctuate greatly and the economy is mired by uncertainty, shipping continues to be one of the toughest costs to for etailers to manage. Free shipping hurts profit margins.

Moreover, the two big U.S.-based parcel shipping organizations — FedEx and UPS — can be relied on to raise their rates annually, sometimes even creatively. This occurred in 2011 when both carriers inflated rate increases by changing the dimensional weight factor in their favor — this raised costs by increasing the billable weights for many packages. They are blaming fuel costs and global political uncertainly to justify these increases, while also achieving record profits.

Meanwhile, the U.S. Postal Service is consistently raising prices as it tries to crawl out from massive debt — a projected loss of $13 billion in 2012. In fact, parcel shipping rate increases over the last several years have dwarfed increases in the Consumer Price Index. The USPS recently announced plans to move forward with the consolidation of 140 mail processing centers, starting with 48 in July. This means slower delivery of first class mail, as well as less overall processing capability.

Enter ‘Hybrid’ Shipping

So how do ecommerce merchants reverse these negative margin trends? Aggressively managing shipping costs can significantly impact financial results and lead to sustainable cost reduction. For many, adopting “hybrid” parcel offerings that combine services from the leading for-profit shippers with those of the USPS is the best way to go. With these products, etailers continue to hand run off packages to the for-profit parcel shippers, who move them through their regular ground distribution networks. However rather than making the final delivery, the shipments are injected into the USPS network to make “final mile” delivery.

For instance, online retailers, catalogers, fulfillment houses, and direct marketers are using FedEx SmartPost when they need a cost-effective means of shipping lower-weight packages to residential customers. The FedEx SmartPost service is able to reach every U.S. address — including post office boxes and military APO, FPO and DPO destinations — by utilizing the USPS for final delivery. It also reaches Alaska, Hawaii and all U.S. territories.

UPS offers similar services called SurePost and Mail Innovations. And unlike the standard ground parcel shipping market, competition is more vibrant with new carriers such as Streamlite and DHL Global Mail providing great service at more affordable prices. In addition, there are regional carriers — such as OnTrac and Lone Star Overnight — that can significantly reduce your shipping costs in certain regions of the U.S.

Most of these services provide full tracking and tracing capability at a much lower cost than your traditional ground parcel products with UPS and FedEx. Some may require an extra day or two to deliver to the end customer, but many can meet the same delivery windows as FedEx and UPS. In the case of rural areas, delivery times may be more drastically impacted. You will need to consider continuing to ship these packages under the standard ground mode.

The biggest advantage to hybrid delivery services is that they eliminate some of the very costly surcharges associated with normal ground shipments, such as delivery area surcharges and residential surcharges. When these costs are reduced, the amount you pay for fuel surcharges are also drastically reduced. This can shave up to 50 percent off freight costs on a particular shipment.

Don’t Accept ‘No’

Recently I have heard from companies that have stated that UPS or FedEx refused to offer them pricing for these hybrid products. In nearly all of the cases it was the incumbent carrier who refused to present these options. Don’t accept “no” for an answer. This is merely the first line of defense in trying to force you to stick with their higher-margin products. Seek out competitive bids from other carriers. Or better yet, ask them for a copy of their published guidelines for these products. You’re likely to get a different response from the carrier that does not enjoy your business.

Summary

Etailers need to ask their UPS or FedEx account executives — as well as explore other carriers — for these services. Simply ask for a lower cost service that leverages the USPS, but still maintains high service levels and customer satisfaction. Etailers do not need large volumes to qualify. Your account executive should be able to work with you to set this up. And always remember it’s your choice. You have options.


John Haber
John Haber
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Comments ( 5 )

  1. Lorraine Pierce May 24, 2012 Reply

    We’ve looked into hybrid shipping options, but decided against it after reading the numerous customer complaints on big box forums. It seems the tracking and delivery dates change constantly throughout the shipment, and extends the shipping time beyond reasonable.

  2. Derek Bacharach May 24, 2012 Reply

    I’ve been using fedex smartpost for more than 2 years now. It’s a great way to save money on shipping. As John pointed out, you can’t accept no for an answer from fedex. First they said they were only going to allow smartpost accounts for big accounts and I guess I lucked out for knocking on their door the right (number of) times to ask when they’ll roll out the program for smaller companies.

    Two drawbacks I see to smartpost is its slowness can turn customers off if they don’t know ahead of time (like when they choose this shipping option) that it can be awhile before they see their package. I had a few customers angry that they weren’t hit over the head with a 2 x 4 on my website that shipping with this option can take up to 2 weeks (10 business days) if shipped across the country.

    Second drawback I see to smartpost is you can’t get signature confirmation on the package. It’s great when you can use smartpost for those big, heavy orders but what if the package gets lost and you end up getting a chargeback with nothing to back you up? Yup, you’re screwed.

    I tried pursuing UPS’ equivalent, Surepost to see if I could get a better rate than smartpost. To qualify or even to give me rates to compare, UPS wanted me to figure out so many minute details of my shipping practices that I expected to see the question how many times do I scratch my back while preparing a shipment. So I said no thank you.

  3. HK July 17, 2012 Reply

    Just an update: Streamlite ceased operations.

  4. Carlos Rivera August 9, 2012 Reply

    USPS First-Class Mail and Priority Mail are underrated. UPS and FedEx are great for remote delivery of packages 3+ lbs.

  5. swhall August 23, 2012 Reply

    We drop ship and a few years ago started receiving a lot of complaints from customers that they weren’t receiving their orders up to 15 days after placing the order. We discovered several of our suppliers switched to Smartpost without notifying us. This cost us customers. We will not use a supplier who insists on using Smartpost. Even when the customer knows it will take 12 days, they still are not happy with it. In the long run I believe you lose more customers than what your saving on shipping.

    New customers have an acquisition cost, so are you really saving money? I would recommend using virtual warehousing solutions by Amazon or FedEx that give you dirt cheap pricing. Or use drop-ship suppliers who warehouse and do virtual fulfillment from one of these companies. As an example a overnight shipment would cost us or another one of our suppliers (non-virtual warehouse) about $45, but it only costs $15 from one of these fulfillment centers.

    If this type of fulfillment won’t work for you, then negotiate your FedEx or UPS rates. If that doesn’t work then join a group that offers discounted shipping options as a membership benefit. A couple of examples of these groups include; NASE and USAA. I’m sure there are plenty of other groups with similar benefits.

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