Shipping Feature: Delivering a Profit

In light of rising costs for parcel delivery services, what are the best practices that e-commerce companies reliant on the parcel providers can employ? Consider the following:

Dealing With Rising Shipping Costs at FedEx and UPS
By now, many FedEx and UPS customers are feeling the impact of 2015 pricing changes. In case you missed it, here's a recap: First, published rates took a general rate increase in January, with average increases of 4.9 percent for ground services, and two-day to three-day air services shooting up more than 7 percent.

As if those increases weren't hard enough to swallow, FedEx and UPS changed the way they charge for ground services in 2015. Last year, these carriers only applied dimensional pricing if a ground package's volume exceeded three cubic feet; otherwise, pricing was based on the actual weight of the package. This year, however, the carriers apply dimensional weight pricing to all ground packages. Affected packages increased another 17 percent (on average).

In addition, both FedEx and UPS changed the tables used to calculate fuel surcharges, increasing the costs by 4 percent. The compound effect of all of these increases is staggering, making 2015 the most significant rate increase in history. Good for FedEx and UPS shareholders, but very challenging for shippers!

While parcel shipping costs are in fact significantly higher in 2015, the current parcel marketplace is abounding with opportunities. Regional parcel carriers, postal consolidators and the U.S. Postal Service each represent terrific alternatives for shippers to not only reduce costs, but also potentially improve service.

Evaluate Regional Parcel Carriers
As parcel shippers contend with the dual challenge of rising shipping costs and fewer carrier options in the U.S. market, many are being forced to find lower-cost shipping alternatives to FedEx and UPS. Regional parcel carriers like OnTrac, Eastern Connection, Spee-Dee, LaserShip, PITT-OHIO, LSO, UDS, Courier Express and others offer multiple shipping solutions to complement UPS and FedEx air and ground deliveries.

Regional parcel carriers offer many benefits when compared to the national carriers, including a larger next-day delivery footprint, later pickups, earlier deliveries, easier contracts with fewer accessorial charges, same day-delivery options and customized solutions. Furthermore, most regional players offer better pricing and more favorable dimensional policies compared to FedEx and UPS.

The top eight regional parcel carriers cover more than 85 percent of the U.S. population and specialize in short-haul delivery (typically up to 500 miles). Regional carriers maintain a low cost of operation through their regional focus, direct loading and transportation primarily via truck. With lower operating costs than the "big two," regional carriers are often 10 percent to 30 percent cheaper than UPS and FedEx.

Many regional carriers offer discounted pricing, improved dimensional divisors and less surcharges than FedEx and UPS. Consider that three of the largest six regional carriers don't tack on surcharges for residential deliveries, for example.

The regional carriers will likely be the beneficiaries of the trend for retailers to "regionalize" inventory — i.e., geographically staging fulfillment operations near customer clusters to decrease shipping times, reduce costs and better serve customers.

Go Postal!
The U.S. Postal Service offers a competitive pricing edge with new, lower pricing for Priority Mail and ounce-based rates for packages that weigh less than a pound. A pricing analysis reveals that the USPS is very competitive for lightweight residential packages, especially to close-in zones.

The Postal Service offers other unique advantages as well. It's the only carrier that can put items in mailboxes, P.O. boxes or residential mail slots. The USPS offers free package pickup six days a week and has the most package drop-off points in the country. It doesn't impose surcharges on out-of-area deliveries, Saturday delivery, residential delivery or fuel. The USPS has also developed convenient, unlimited weight products which feature predetermined rates regardless of weight or destination.

The Postal Service offers a low-cost, deferred ground service called Parcel Select for lightweight, nonurgent, low-value residential deliveries. Parcel Select is a nonguaranteed service with three-day to seven-day delivery standards, and is typically offered through postal consolidators like FedEx SmartPost, UPS SurePost, UPS Mail Innovations, DHL Global Mail, OSM Worldwide, Newgistics, and others. Consolidators use USPS Parcel Select services by handling pickup, sortation, transportation and induction to the USPS hub, while the USPS handles the "final mile" delivery. In addition to significant savings over ground residential service, other benefits of using postal consolidators include improved shipment visibility and less handling and damage.

The marketing, pricing and service strategies of the Postal Service are working. The USPS grew its Shipping and Package Services segment 8.1 percent in fiscal 2014, adding 300 million pieces from the previous year. This isn't just growth in e-commerce; the Postal Service is now taking business away from FedEx and UPS.

Shipping and Relationships With Online Customers
Create shipping and return policies with your customers in mind. What relationship do you want to have with your customer, and how does shipping — and returns — play into that? Frequently survey your customers to find out what's most important to them, and what would motivate them to shop with you instead of your competition.

Market research points to the conclusive fact that consumers want free shipping, and they're willing to wait multiple days in order to get it. In fact, the perception that shipping costs are too high is the No. 1 reason for cart abandonment. The Boston Consulting Group found that shoppers actually want free shipping MORE than they want lower prices on the products they're buying!

Let customers know early in the purchase process about shipping fees. Offer variable cost choices based on transit days — e.g., free/reduced rates for deferred delivery, and higher costs for premium services like same-day/next-day delivery. Consider offering free shipping if the dollar value exceeds a set threshold. In fact, 76 percent of shoppers will actually ADD items to their cart to qualify for free shipping, according to a recent comScore study.

You also don't want to overlook returns. A hassle-free returns policy leads to customer loyalty, recommendations to others and less focus on price. According to a recent comScore study, 82 percent of online shoppers said the ability to return an item for free, either to the store or using a pre-paid label, would enhance their likelihood to purchase. Finally, customers want choice in shipping options, from time windows to delivery alternatives to even choice in carriers.

Ship To/From StoreStrategies
Offering free shipping to your stores is a great strategy. Having multiple orders consolidated and shipped to a single location is significantly cheaper than shipping individual, lightweight packages to multiple residences.

Here's how a ship-to-store strategy works: The customer makes a purchase on the retailer's website and chooses to pick up their order in-store. The retail location is notified of the incoming order and fulfills it using in-store inventory. Alternatively, if an item is unavailable in-store, it can be shipped directly from a distribution center, another store or even a vendor location. Lastly, the customer picks up the item at their local store at their convenience.

In addition, ship-to-store programs have proven to increase average order values. In a study of Shopatron merchants, once in-store, more than 40 percent of in-store pickup orders resulted in additional sales. According to recent Forbes article, in-store pickup is emerging as one of the most prominent ways to blend the online and offline shopping experiences.

Ship-from-store allows brick-and-mortar retailers to better compete with online-only brands. Store locations become mini distribution centers, using their own inventory to fulfill online orders placed by customers nearby rather than have the items come from a distant warehouse.

Packaging
With delivery charges now based on package volume, product packaging has become critical. Inefficient packaging leads to higher transportation and material costs, and contributes to the mitigation of carrier discounts due to oversize charges and dimensional weight adjustments. Simply put, inefficient packaging raises your cost profile. Therefore, design boxes that tightly configure to product with little fill.

Can't change your packaging? Take advantage of free packaging like Priority Mail and use unlimited weight, flat-rate envelopes and boxes. In addition, FedEx SmartPost and other parcel select providers don't use dimensional weight pricing. Finally, many regional parcel carriers offer weight-based pricing and/or more favorable dimensional weight policies than FedEx and UPS.

Audit Your Parcel Invoices
Audit your invoice and apply for credits where due. Each year, more than $3 billion in guaranteed service claims aren't refunded because claims were never filed. Shippers that audit invoices — internally or via third-party audit providers — can tap into this often overlooked source of cost savings. In addition to late shipments entitled to money-back guarantees, shippers should audit for missing discounts, incorrect fuel surcharges, overcharges, shipments manifested but never shipped and other erroneous charges common with parcel invoices.

In conclusion, while shipping costs continue to rise, there are multiple strategies and opportunities for retailers to realize service improvements and cost reductions.