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.
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.