You Too Can Offer Free Shipping
Consumers and carriers are squeezing e-tailers: customers expect free shipping and carriers keep raising prices.
On one hand, UPS and FedEx pricing has risen approximately 20 percent over the past three years. Surcharges like residential add-on fees and delivery area surcharges are up 20 percent to 30 percent since 2009. Fuel surcharges alone have doubled compared to this time last year.
On the other hand, online shoppers insist on free shipping. According to a recent National Retail Federation study, consumers’ No. 1 purchase incentive is free shipping. When asked to choose from the five most popular promotions when shopping online, 85 percent chose free standard shipping without conditions. In fact, free shipping was chosen 166 percent more than the next best promotion. As a result, shipping for many e-commerce companies is a loss leader.
Compounding the problem is the fact that a growing number of online orders are delivered to residences. Delivering packages to a residence is more costly than delivering to a business address because driver and fuel costs are higher outside of high-density commercial routes. Carriers are forced to recover costs through residential surcharges (up to $2.75), delivery area surcharges (up to $3) and other accessorial charges that often account for more of the total cost than the freight charges.
In short, residential shipping costs are skyrocketing out of control while online shoppers want free shipping. What’s a shipper to do?
Fortunately, you have several delivery options outside of the private parcel carriers, including the U.S. Postal Service and parcel consolidators.
No longer a “one price fits all” shop, the USPS offers a variety of pricing formats including retail, online, volume-based, weight/distance-based, and flat and regional rate products. Moreover, if you spend at least $2 million in annual shipping costs, you can negotiate custom pricing with the USPS.
First Class mail parcels weighing one ounce to 13 ounces are a bargain, even at the retail rates of $1.71 to $3.41. With private carriers FedEx and UPS, the residential surcharge alone costs $2.45 to $2.75. Moreover, the USPS doesn't charge for accessorial charges like fuel, residential delivery, area surcharges, pickup service, Saturday delivery, among other things.
The USPS also offers a variety of unlimited weight envelopes and boxes. As its national advertising campaign proclaims, “If it fits, it ships.” USPS recently added regional boxes to flat-rate options, adding yet another low-cost alternative to the convenience and cost advantages of prepaid, unlimited weight products.
Parcel consolidators market their services as providing delivery times at or near First Class mail parcel service standards, but at lower pricing. Other benefits include improved shipment visibility and less handling and damage.
According to the USPS, the major ground consolidators are FedEx SmartPost, UPS Mail Innovations, Streamlite, Blue Package Delivery, Newgistics, DHL Global Mail, Fairrington Transportation, Kaleidoscope Services, OSM Worldwide, ParcelPool and SP Express.
Each ground consolidator leverages USPS Parcel Select services and workshare discounts. Consolidators handle pickup, sorting, transportation and induction to the USPS hub. USPS handles the “final mile” delivery. The deeper the induction to the USPS, the greater the workshare discounts enjoyed by the consolidator and, in turn, the greater the cost savings available to shippers.
Online retailers are wise to measure current shipping-and-handling policies and costs to evaluate alternative residential delivery options. The U.S. Postal Service and parcel consolidators could significantly reduce your shipping costs. Maybe you can offer free shipping after all.
As always, let me know if I can help! You can contact me at email@example.com.
Rob Martinez is the CEO of Shipware LLC, a professional services firm that transforms businesses through intelligent distribution solutions and strategies. Rob has helped some of the world’s most recognizable brands reduce parcel shipping costs an average of 25 percent through contract negotiations, rate benchmarking, modal optimization, invoice audit and other savings vehicles. A cum laude graduate of UCLA, Rob has 20 years of transportation industry experience, including executive positions at DHL and Stamps.com, in addition to his work as an outside consultant since 2001.