4 Tips to Minimize the Impact of Shipping Surge Pricing
This article originally appeared on May 9. Given last week's announcement from UPS that it will be adding peak surcharges to U.S. residential packages during the holiday shopping season, we thought this article took on even greater importance. With many retailers’ e-commerce sales growing — and thus more packages being shipped via carriers like UPS — it's critical that they have insights into how to minimize shipping costs, which will ultimately help their bottom lines grow.
I recently wrote an article for the Inner Circle, the Women in Retail Leadership Circle's member e-newsletter, and referenced the fact that new “peak season” surcharges are already making it into the market. During its first-quarter earnings call, UPS wasn’t shy about alerting the investment community that it’s going to ask customers to pay extra in the form of peak season fees, particularly when a retailer fails to ship as many packages as planned during seasonal peak periods.
New fees could also be applied if a retailer’s shipment characteristics strays off course in other ways, such as if the weights or sizes of packages shipped are significantly mismatched from original forecast — i.e., incorrect DIMs and weights.
As I predicted, UPS, like rival FedEx, is looking for additional revenue streams to recoup the billions it’s investing to add capacity and transform its network to optimize operating margins in the e-commerce space. The holiday “peak” season, defined by the National Retail Federation as sales in the months of November and December, is the biggest time of year for retailers of all shapes and sizes, and can account for as much as 30 percent of a retailer’s annual sales. This holiday peak season is also a critical time for UPS and FedEx, when daily package delivery can swell to upwards of over 30 million packages per day, compared to 17 million on a nonpeak day. UPS and FedEx have been very public about their network expansion activities and continuously working to expand their peak season operations. For many of its retail customers, those activities are already used to justify higher base and accessorial pricing.
Shipping costs continue to be the No. 1 reason for cart abandonment, and this new “surge charge” won’t help. There are steps you can take to minimize the impact of this new surge pricing and help you sleep at night:
1. Realize the everything in your agreement is negotiable.
Standard carrier response will tell you otherwise, but case study after case study tells us differently. Technically, you can renegotiate your carrier program at any time, and it’s best to address new surcharges immediately as they’re announced. This new peak season surge pricing is negotiable, just like all components of a carrier agreement. Don’t wait for a quarterly review or contract renewal date, or let your carrier relationship get in the way of driving fair value for your organization.
2. Don't accept or sign any addendum or pricing change until you've fully applied surcharges to your company's specific distribution footprint.
Is this a surcharge that greatly affects your company’s operating costs, or is it an issue that’s not applicable to your actual shipping characteristics? Business intelligence is critical. Spend time and effort negotiating the items that are meaningful to your package demographic. Modeling new surcharges with custom shipping data is the surest way to detail potential cost increases and empower you to negotiate what matters. If you don’t have an effective audit and financial workflow platform to manage this major expense category, let us help.
3. Forecast the new charges.
Is it possible to predict the charges accurately so you can choose if you want to share those increased costs with your customers? How do you gift wrap a lump of coal? The most dramatic fee increases we’ve seen are in rates other than base transportation charges. Surcharges, rule changes and charge definitions are all applied at different points in the order lifecycle. This adds the additional complexity of being able to accurately predict the cost impact and manage the landed cost across your entire inventory base.
4. Explore alternative carriers.
While UPS and FedEx are clearly established service providers, there are reliable, cost-effective service and sourcing options, even beyond the USPS. Certain regional carriers, for example, may reduce cost by over 25 percent while improving service levels. Custom carrier programs can be developed with various transportation partners specific to your package characteristics, customer demand and requirements, and delivery footprint that result in competitive advantages in the marketplace. Remaining flexible to alternative service options that meet your requirements will lend leverage to savings.
For further discussion, kindly contact Patti Hester (firstname.lastname@example.org), chief strategist, e-commerce and distribution at Platinum Circle Partners. We specialize and champion our retail and e-tail customers in helping them secure distribution service improvements with incremental savings of 10 percent to 30 percent, allowing clients to focus on their core competences while gaining a competitive advantage.