The free-shipping era squeezes smaller merchants. They must match the shipping policies of larger competitors, but they don’t receive the high-volume shipping discounts that the larger companies do. Smaller merchants must pay more, in other words, for offering free shipping.
There’s a company that offers high-volume shipping discounts to low-volume ecommerce merchants. The company is EquaShip. We recently spoke with its CEO, Ron Wiener.
Practical eCommerce: How does your company’s service help smaller merchants reduce shipping costs?
Ron Wiener: “Look at Amazon, Target and Walmart — all those [large] companies — and ask how they can afford to do free shipping. It’s because they’re using postal consolidators. Today one out of six packages is actually delivered by the U.S. Postal Service, but it was picked up by FedEx SmartPost or UPS SurePost or Newgistics or Blue Package Delivery, one of the postal consolidators. There are 13 of them in the country now.
“All postal consolidators have had a hard and fast rule. You’ve got to have a certain amount of volume — say 300 packages a day — before they’ll work with you. What they really want is trailers [full of packages]. They cater to the very, very large shippers. Consolidators give large shippers extremely low delivery costs compared to UPS and FedEx because the consolidators are using the Postal Service for the ‘final mile’ of delivery. The Postal Service, of course, stops at every house already every day. There are no residential or delivery area surcharges that you’re used to seeing from UPS and FedEx.
“What we’ve done at EquaShip is we created a ‘first mile’ network to aggregate the volumes from smaller shippers — even one package a day — into the same vehicles, into the same trailers, with Amazon’s packages and everybody else’s so that they can have access to postal consolidation rates. As a consequence, we’re able to provide rates that are 40 to 80 percent lower than FedEx and UPS residential retail rates for ground delivery, for example. The flip side of it is, it is a slower delivery time. Especially in transportation, you get what you pay for. It is all ground transportation but the savings are absolutely terrific. That’s what’s going to allow small and medium size merchants to continue to offer free shipping and not lose their shirts.”
What’s a Postal Consolidator?
PEC: You mentioned the term “postal consolidators.” Please explain.
Wiener: “Sure. UPS and FedEx typically stop about every 20th address in the U.S. They really don’t like residential deliveries. It’s very expensive for them. The Postal Service, on the other hand, they’re going to stop at every single address every single day. So what happened in the late 1980s is that the U.S. Postal Service created a category called Parcel Select. It was kept pretty quiet; some of the biggest shippers in the country were using them, but we didn’t have big ecommerce companies like Amazon.com back then. You might have had Sears and those kinds of companies
“The idea was that the Postal Service is very efficient at picking up and delivering packages because they stop at every house already and every business. But the ‘middle mile’ was extremely expensive for the Postal Service compared to the private carriers. So, the Postal service allowed these ‘parcel select carriers’ — also called ‘postal consolidators’ or ‘zone skippers’ — to carry merchandise, typically in trailers. The consolidators would sort it out and they would deliver it out to the five-digit zip code level — all the way down to the final post office for the neighborhood that customer lives in — then they’d hand it over to the Postal Service. From there, the Postal Service would deliver it to the residential customer. The overall cost of that is much, much lower.
“But, traditionally, that industry has served large enterprise companies. With the boom in ecommerce and the mix of packages, we’re now approaching 50 percent being residential deliveries. It used to be almost entirely business-to-business. What has happened is Amazon and other major sellers have pushed UPS and FedEx to get into this [consolidation] business, through acquisitions. Since about 2006 you have FedEx SmartPost, UPS Basic — now it’s called UPS SurePost. And they lead the pack now along with DHL Global Mail, Blue Package Delivery and then there are nine others. This is a huge industry now and literally one out of six parcels in the U.S. is picked up by a postal consolidator and then handed to the postal service at that last postal facility — at the five digit zip code level typically — and delivered from there. So, what we’ve done is create access for smaller customers who don’t have trailers full of those packages every day and we aggregate them and our parcels literally travel in the same trucks with Amazon’s parcels.”
PEC: Walk us through the process, please. Say I’m an ecommerce merchant. I want to use EquaShip. Let’s start with picking up a customer order from my place of business and delivering it to my customer.
Wiener: “The process works very similar to what you’re already used to with UPS and FedEx. When a customer signs up with us, we ask them a few questions about pickup. If they ship more than $100 a day, we don’t charge anything for pickup. If they have less than $100 a day worth of shipping charges then it’s a $10 pickup fee. Currently we are focused predominantly on the U.S. East Coast except for the very largest shippers.
“They [merchants] go online, they generate their labels, typically through the same software they’re managing their website with, such as ShipWorks. Certain ecommerce platforms like Vendio have integrated us.
“We don’t try to compete with USPS’s Media Mail and Library Mail. But, with bread-and-butter ecommerce shipments, if they pick us, they print a label for us, they go online to schedule pickups. It’s all very easy to do through our website. Then we show up and pick up the packages. They are carried to our sort facilities, intermingled with other major retailers — it could be Target, Amazon, whoever — and then carried all the way through to the final destination facility and the customer gets it in their mailbox or a postal carrier brings it to their doorstep.
“About 40 percent of the time, with Postal Delivery, it ends up in the mailbox because it’s a small package. But, it gets a full delivery scan code. A lot of people don’t know that. The USPS has been doing it for years. You get a full scan code that literally says it was delivered to the mailbox or to the customer by the postal carrier.”
What Are the Actual Savings?
PEC: You mentioned that if the shipping volume is less than $100 a day, there’s a $10 pickup fee. You’ve also alluded to the substantial savings per shipment or per package. Could you give us an idea of what those savings would be for a merchant?
Wiener: “For commercial plus rates from USPS, we beat those at a minimum of 22 percent. Even FedEx SmartPost, we beat their rates between 24 and 60 percent. It depends on the weight obviously. But in the 1 pound to 5-pound range, we’ll save 24 to 60 percent. On FedEx and UPS Ground residential, our service is 40 to 80 less expensive.
“Anybody can go to our website at EquaShip.com and look at our pricing table in the pricing tab or download what we call the ‘Savvy Shipper’s Secret Weapon Instruction Manual’, which is actually our pricing guide. They will see dollar-for-dollar comparisons against everything from Parcel Post to FedEx Ground to DHL International Priority Mail. There are some flat rate products like the USPS flat rate envelopes and flat rate small box that we don’t usually compete well against. But, on medium size boxes, large boxes, or on the zoned Priority Mail product, we can be up to 70 percent less expensive.
“We are rolling out our national network of drop off locations. Smaller shippers tend not to want to do pickups because they may have a day job — they’re not home to have a pickup — and they don’t want to pay the residential pickup fees that FedEx and UPS impose or they don’t want to leave it out on their doorstep. So, they typically will drop it off at a post office or a UPS store or FedEx office on the way to work the next day. We are building out our own network of drop off locations.”
PEC: How does a merchant pay for your services?
Wiener: “It works just like Endicia or Stamps.com, which just about every ecommerce shipper is familiar with. They put a credit card on file with us and they set a minimum account balance and then the recharge amount. It automatically tops off when they hit their minimum account balance — let’s say $20. And they can put up to $300 at a time on a credit card charge. If they want to do more than that they can use an ACH transfer. It automatically takes care of itself.
“One thing I should note that is really very different between EquaShip and how the other carriers tend to work, we have no additional surcharge fees at all. All our prices are exactly as you see them. There are no DIM weight charges, residential delivery fees, rural delivery fees, address correction fees or anything like that.”
Shopping Cart Integration
PEC: How does it integrate in a shopping cart? Do you offer an API for a merchant that wants to tie in directly?
Wiener: “We do. If a merchant goes to our home page, he or she will see dozens of platforms we’ve already integrated with. So if they’re on an ecommerce platform like Volusion that doesn’t really have a shipping module, they’ll see software packages like ShipWorks already support us and connect to Volusion. Lots of other platforms are either already integrated or will be integrated in the next few months.
“We also have our own API available because the bigger the player gets, very often they’ve written their own software so they want to do their own API. We’ve had lots of customers do that as well. It’s pretty straightforward. Also I should mention that you can also go to our website at EquaShip.com and use the software that’s there.”
PEC: Let’s talk about other potential competitors. The point you make on aggregating multiple merchants to get volume discounts is a similar to third-party fulfillment companies. Does your service compete with third-party fulfillment companies?
Wiener: “No, not at all. We’ve heard from a lot of them since we’ve launched and what we hear a lot of is that very often they let the merchant choose whether they want to use their own account or they want to join the group account from the fulfillment company. With the exception of fulfillment by Amazon – that’s a whole different story – most third-party fulfillment houses give customers the option. What we’re hearing, at least from the ones that have contacted us, is that most of their customers use their own accounts.”
Not for Every Merchant
PEC: Are there merchants that would not benefit from EquaShip?
Wiener: “Yes. There are merchants that ship nothing but DVDs using the USPS Media Rate. That’s a subsidized rate. It’s something that the post office still provides. It’s a fantastic deal for folks who are shipping pure media. We don’t try to compete with that. As I mentioned, Priority Mail letters and Priority Mail small box — it depends on the weight — we don’t compete with as well.
“On the other hand, we have customers who use us just because of our insurance. We’re the only parcel carrier to offer real insurance — what’s called open peril insurance — on parcels. There are no other carriers that do this. UPS, USPS, and FedEx all provide what’s called DV coverage — declared value coverage — that merchants are all familiar with.”
PEC: Tell us a little about EquaShip. When was it founded? Who owns it?
Wiener: “Sure. We were founded about two and a half years ago by a group of people who came out of the ecommerce space, as well as the logistics industry — former FedEx, USPS, UPS, and DHL folks. We are funded by private investors and some angel investors. But also our largest investor is a Fortune 500 company called Newell, which happens to own Endicia.com. So they’re very familiar with this space. We have a very tight relationship with Endicia and USPS — a strategic relationship all the way around as a consequence of that. We are a private company so we don’t disclose our revenues or profits.”
PEC: Anything else?
Wiener: “Yes. I think what people really need to understand is that we built this company very specifically not to take enterprise customers. FedEx and UPS have been in a race to the bottom, giving 80 percent discounts to the biggest shippers and raising rates 7 to 10 percent per year effectively to small and medium sized customers. This created a lot of unintended consequences. Here comes ecommerce and the whole ecosystem is threatened for small and medium sized shippers to survive online. So part of our business strategy is ‘don’t take enterprise customers’. We will not have to subsidize big discounts by charging so much more to smaller customers. That’s primarily how we’re able to achieve the economics that we have.”
Addendum to Interview with Ron Wiener
Editor’s Note: The interview with Ron Wiener, above, occurred on Jan. 27, 2012. One week later, Equaship announced it was “suspending operations.” (A screenshot of the announcement is below.) Curious, we then corresponded with Wiener as to how a company can undergo such a transformation so quickly. His answers follow.
Practical eCommerce: In the interview, you painted a glowing picture of a growing company. One week later you suspended it. Why?
Ron Wiener: “After discovering that transit times were not meeting expectations, we met in early January with both our transportation partner (Blue Package Delivery) and our mutual software vendor . We were optimistic that the issues would be quickly resolved. It took three weeks to see orders flow completely through the system. Remember these are not overnight deliveries. They are ‘interlined’ deliveries using different carriers for first, middle and final mile. So it takes a while to collect solid data from many points to many points in order to get a clear picture. Last Tuesday, Jan. 31, we had the first complete look at the data and the results were inescapable. On Wednesday, we informed our board of our decision, then customers, partners, investors, and the media over the next two days.
“None of us expected the actual transit time data to be as bad as it was. So we had no reason to not paint a ‘glowing picture.’ We clearly had demand from customers. Demand generating was never our problem. The problem was on the delivery end. What we didn’t realize until we were able to collect all the data was the degree to which transit time expectations were not being met — plain and simple. Even FedEx and UPS miss delivery promises every day. But there’s a tolerable level in terms of the percentages of packages that are late, and how late they are. Our present conditions were exceeding that level by too great a margin. We also had some gaps in package visibility because not all of the carriers in our partner’s network were integrated with real-time scanning from pick-up all the way through to delivery, which went against our brand promise.
“Our choice was to accept a much smaller market opportunity, finding customers who could tolerate much slower delivery times than ecommerce merchants on eBay or Amazon could typically get away with, or to go back and fix the network so that we could address the entire market. We knew that if we were to manage our transportation providers directly — rather than through a third party — we could also more easily introduce other services that our customers wanted, like same-day, overnight and international delivery, and improve the package visibility with more scanning events and GPS tracking. So the difficult decision to start over with a new set of complementary, non-exclusive transportation providers and a more tightly-coupled software platform, was tied to numerous additional benefits to our customers.”
PEC: When will Equaship resume operations?
Wiener: “We expect it will realistically take 9 to 12 months to build a new software platform integrating a variety of transportation partners, and to fully test throughput transit times nationally before taking on customers again. If we can make it before the 2012 holiday peak we will. Otherwise we’ll hold off until January 2013.”
PEC: Equahip.com now redirects to “Shipsweet.com.” What is the latter URL, and why the redirect?
Wiener: “ShipSweet LLC is our corporate name. EquaShip is our d/b/a trademark. The URL will return to Equaship.com shortly. We had to take down a live website in a hurry, so we just used our standby server on the other domain to make the quick change-out on Friday.”